SEC Votes On Auditor independence Rule; Small Firms Protected.

• Author: Miller, Richard I.

The following article will appear in December 2000 issue of The CPA Letter.

Commissioners of the Securities and Exchange Commission voted unanimously Nov. 15 on a compromise to its proposed rule on auditor independence that appears to address many of the AICPA's major professional and public interest concerns (The CPA Letter, Nov., Oct., Sept.). The SEC action was a vote "in concept"; the final wording of the rule is expected this month and any specific comments have to await our review of the written rule.

However, based on oral negotiations that took place prior to the vote, I can discuss some of the movement toward the compromise. Our key issues included avoiding a blanket ban on information technology and internal audit outsourcing services, eliminating the major problems caused by the proposed affiliate language, and trying to prohibit an arbitrary approach based on "appearance" factors. We believe considerable progress was made on all of these points.

Significantly, the 10 originally proposed prohibited service areas would be modified. One, advocacy, would be eliminated; seven would be as presently restricted. In the area of internal audit outsourcing, 40% of outsourcing would be allowed for businesses with $200 million or more in assets. Under an exemption for businesses with less than $200 million in assets, smaller CPA firms should be unaffected by the final rule.

Information technology Consulting would be permissible by meeting a series of tests that can generally be described as assuring management decision making and control over an IT engagement. Thus, there would be no blanket ban on IT services.

Regarding the SEC's proposed proxy statement...