September 25, 2000
Mr. Jonathan G. Katz
Secretary
Securities and Exchange Commission
405 5th Street, Northwest
Washington, DC 20549-0609
Dear Mr. Katz:
File Reference: S7-13-00
Kerr-McGee Corporation appreciates the opportunity to comment on the commission's rule proposal on auditor independence.
Kerr-McGee Corporation is a public company subject to the SEC's rules, and we are very concerned about the limitations the SEC proposes to place on work that may be best conducted by our outside auditors. This proposal by the SEC seems to be an overreaction to what may (or may not) be a problem in the future if the public accounting profession does not continue to be diligent in regulating itself.
The SEC admits that there is no empirical evidence that nonaudit services have compromised the quality of any audit or the actual independence of an auditor. We strongly believe that the SEC should not promulgate rules without some basis for the rule rather than an appearance issue or something that may occur in the future.
We believe that our stockholders are best served if we have the option of using our external auditors for certain services such as consulting, system design, or internal auditing assistance. We believe that if our decision is that we can obtain the best services from our outside auditors at competitive prices, the company should be free to engage its public accounting firm for those services. If, on the other hand the best quality of services can be obtained from another public accounting firm, we would likewise recommend the use of another firm. We believe our management, in consultation with our audit committee, which is composed of outside directors, is in the best position to determine the best services for our company, and at a competitive price.
The SEC's broad restriction on consulting services may actually have the effect of undermining an auditor's independence in instances where the auditing firm is overly or exclusively dependent on audit fees. Such a firm might compromise the quality of an audit in order to retain a major or longstanding audit client.
This proposal would also require a company to disclose in its annual proxy statement the amount and type of services performed by its independent public accountant unless the cost of such services was less than the lesser of $50,000, or 10% of the audit fees. The SEC previously had a similar disclosure requirement for all proxy statements; however, in 1982 the SEC rescinded that rule, saying that the information was not generally of sufficient utility to investors to justify the continuation of the disclosure requirement. We do not believe that anything has changed to warrant the reinstatement of the disclosure or that the investors would now draw meaningful information from such a disclosure.
We urgently request that the SEC reconsider this proposal on auditor independence. If any proposal is to be made by the SEC, it should be after the Independence Standards Board (ISB) has had time to complete its recent efforts and initiative on strengthening audit committees and developing a new auditor independence framework. We do not believe that all work performed by the outside auditor, except for its tax and audit work, impairs the independence of that firm. The fact of independence should be assessed, not simply the appearance of independence.
Kerr-McGee trusts that the SEC will consider these and other comments before adopting any rules on independence. Thank you for the opportunity to express our views on this matter.
Sincerely,
KERR-McGEE CORPORATION
Deborah A. Kitchens
Vice President and Controller
DAK/gw