NYSSCPA Agrees with SEC Goals But Proposal Goes Too Far

NYSSCPA Agrees with SEC Goals But Proposal Goes Too Far

FOR IMMEDIATE RELEASE

CONTACT:
Lois Whitehead
Public Relations Manager
(212) 719-8405
lwhitehead@NYSSCPA.org

CONTACT:
Joanne S. Barry,
Director, Communications Division
(212) 719-8354

NEW YORK (September 25, 2000) - The New York State Society of Certified Public Accountants (NYSSCPA) weighed in on the auditor independence issue, agreeing with the goals of the Securities and Exchange Commission's proposed rules on auditor independence, but concluding that the proposal goes too far in restricting the non-audit service accountants can offer their audit clients.

While giving tacit approval to the goals underlying a draft revising the SEC regulations on auditor independence, the NYSSCPA refused to fully endorse the Commission's regulations in a comment letter sent to the SEC today because of concerns over the possible consequences to smaller SEC-registered businesses and the proposal's overall effect on auditor independence principles.

The SEC plans to recast the governing principles of auditor independence into four overriding requirements. Currently, these principles are viewed as a gauge of auditor independence. Under the new rules, however, the SEC would require auditors to strictly adhere to all four principles to be considered independent.

Arguing that real world practices are not black and white, the Society says that the principles should "not be 'determinants' of independence, but should be used to help formulate practice guidelines.

"We agree with the general standard for auditor independence and the need for overriding principles," said Society President P. Gerard Sokolski in the comments sent to the Commission. "However, these four governing principles should not be determinants of independence, but should be used to help formulate independence rules."

Sokolski argues that these independence guidelines would better serve accountants, businesses, and investors as "guiding factors," concepts that can grow as the business and society grows rather than staying static and stagnant while business changes.

The Society also voiced concerns over how the proposed changes would affect smaller CPA firms and their clients in non-metropolitan areas. "We commend the Commission on their goal of enhancing investor confidence and protection of the public interest through the proposed rules," said Society President Gerard Sokolski. "As the home of the 'trusted professional', we agree with the goal, but concerns about how these proposed rules will affect individual CPAs and their ability to provide the best services to clients keep us from endorsing them fully."

The proposal, published by the SEC in June, would ban CPAs from offering non-audit services to their audit clients. Services including asset valuation and appraisal; outsourcing of accounting and payroll; legal services; and consulting on executive compensation are some common non-audit services that would be forbidden.

The SEC's plan could have an unintended consequence to businesses in smaller communities, according to Society Vice President Jo Ann Golden, a sole practitioner in Herkimer, N.Y. Pointing out that CPA firms are the only source for these services in some communities, Golden said that some businesses could find themselves without access to important consulting services.

What constitutes an affiliate company of an audit client would also be redefined under the SEC proposal, according to the Society's comment. The SEC is looking to broaden the definition of a business affiliate to include any entity that has "significant influence" over the audited company. Since an auditor must also remain independent from affiliates, CPA firms will need to closely monitor their audit clients' business relationships.

The Society's comments come a week after Society president-elect, Nancy Newman-Limata, urged the SEC to revise their proposed rules during the SEC's second public hearing held in New York on September 13.

Joined by Golden and a list of Society experts, Newman-Limata spoke at length about how the suggested rules would affect issues ranging from employee and familial relationships to the scope of services CPA firms provide to audit clients.

About the NYSSCPA
Representing nearly 33,000 accountants and CPAs, the New York State Society of Certified Public Accountants (NYSSCPA) is the oldest and largest state accounting organization in the nation and currently has 33,000 members. Incorporated in 1897, the Society is a nonprofit organization that seeks to establish and maintain high standards of integrity, honor, and character among certified public accountants. Its members are CPAs and accountants working in public or private practice in a state that serves as the home of Wall Street and major financial centers.

The Society works to protect the interests of its members and the general public with respect to the practice of accountancy. Further, The Society also operates to cultivate, promote, and disseminate knowledge and information concerning certified public accountants to the public and furnishes information regarding the practice and methods of accountancy to its members and the public.

The New York State Society of CPAs is located at 530 Fifth Avenue, New York, NY 10036. To learn more about the Society, call (800) 633-6320.