File No. S7-49-02From: Ed Bolka [ebolka@hsokc.com] Sent: Friday, December 06, 2002 4:30 PM To: rule-comments@sec.gov Cc: wezell@deloitte.com Subject: File No. S7-49-02 C. Partner Rotation Your perception of the audit partner on an engagement is that he is naturally not independent or will become so over a five year association with the audit client. Further, it has been suggested that by the SEC and others that all audits of public companies should be rotated after a certain number of years with different firms performing the audit service. You have I believe made an attempt to incorporate these two concepts into your proposed regulations. Your proposal for rotation of partners after a five year term of association with the audit to eliminate the perception of a lack of independence is faulty because it does not envision other supervision and reviews performed by reputable accounting firms. Sound firm policies for managing their audit engagements would mitigate any real opportunity for an engagement partner to not be fully independent in performing his audit task. It is in this area of audit controls that I believe the SEC should provide guidance so that audit firms can devise internal controls to determine that independent thought toward the audit client is indeed present. Further, there is no substitute for on the job experience in order for an audit partner to develop the necessary skills to understand the client's business which within itself provides independence of though in developing sound accounting policies for the client. Mere rotation of auditors will not and cannot become the cornerstone to assure audit partner independence but adequate oversight of the audit process can resolve the erosion of independent thinking by the audit supervisory staff. Your entire program for partner rotation will lead to nothing more than the audit process of public companies to be performed by large firms who can afford to have staffing which meet the requirements of your proposal. Such a process will eventually continue to decrease the number of competent firms able to perform audits, create a cadre of firms with specialized skills necessary to meet the demands of an industry's accounting requirements and eventually new alleged independence concerns will be created because the same individuals are so necessarily involved in similar accounting and auditing problems. Further, your suggested policies will allow large firms to get larger because of predatory pricing policies which will eventually eliminate the small auditing firm from the market. Small firms perform a service at a reasonable price to public companies not usually in the market with new issues. They allow such public companies to meet 1934 act reporting requirements at a reasonable price. Further, to eliminate such small firms from the audit process will mean that they are being singled out for extinction because of the prior acts of the large public accounting firms who, in reality, have been the main culprits of the erosion of investor confidence in the audit process. I believe the Public Company Accounting Oversight Board should participate in the development of auditor independence policies instituted by the SEC before any final rules are developed regarding auditor rotation. H. Expanded Disclosure 1. Principal Accountants' Fees I believe all professionals, including but not limited to, lawyers, financial advisors and underwriters, consultants, etc should also have their fees reported to the stockholders and rules should be devised for this reporting as a part of the 10K filings. Fees should include the fair value of warrants and other securities issued in conjunction with services performed. How can professionals performing services for a public company have the public company shareholders' risks considered when their fees are so large that the advice given as professionals is clouded by the benefits they are receiving? This is precisely your reasoning for requiring accountants' fees to be publicly known. Are only the accountants to blame for corporate fraud?