In Thursday's testimony before the Senate Banking Committee's Subcommittee on Securities, Levitt restated the need to modernize the auditor independence rules and addressed concerns sparked by the proposal, including the impact it would have on small businesses.

In his testimony Levitt wrote, "We anticipate that our proposal would have little, if any, impact on smaller accounting firms. Most smaller firms do relatively little auditing of financial statements of public companies."

He added that, "When smaller firms do have public company audit clients, they generally do not also provide those clients with non-audit services."

An increase in lucrative consulting engagements with audit clients prompted the SEC to propose new rules for auditor independence, limiting the services provided by the audit firms to their audit clients. The Commission has held four public hearings and collected thousands of comment letters on the matter.

The proposal ignited concern among many in the profession, including the American Institute of CPAs and three of the Big Five firms -- Arthur Andersen, KPMG and Deloitte & Touche. Opponents fear the proposal, if approved, will decay audit quality and prevent firms from attracting talent.

Several opponents, including the AICPA, have also voiced concerns over what impact the proposal would have on smaller firms. Barry Melancon, AICPA's president and chief executive, believes that the rule "would be emulated by the states and would put a cramp on small firms to serve small businesses."

Levitt disagrees and testified that, "While some critics of our proposal have expressed concern that states, attempting to follow our lead, will apply similar restrictions to smaller firms who do not audit SEC registrants, we fully expect that the states will exercise independent thought and judgement when considering whether to apply similar restrictions outside the public company context."

The SEC has also been criticized for allotting only 75 days for public comments and testimony on the matter, a time frame considered much too short by many in the profession. The 75-day period came to a close on Sept. 25.

In response to the criticism, Levitt explained, "We did not intend for our proposal to end that debate (on auditor independence), but we did intend to focus and facilitate the debate and help move it toward a long overdue resolution." He added, "once we issued the proposal, we established a longer comment period than for the great majority of the Commission's rulemakings over the past year, and we supplemented the written comment process by taking the extraordinary step of holding four days of public hearings."

"Thanks to thoughtful and constructive public input, we see ways to revise the proposed rule to avoid unintended consequences and to address other legitimate concerns," Levitt testified. "I anticipate that we will make changes that address at least some of the concerns of even the most ardent critics of the proposal. And while the final rule may not please everyone, it will be the result of a broad dialogue and a thoughtful process."

-- By Antoinette Alexander

Send comments to information@smartpros.com

To read Levitt's entire testimony visit: http://www.sec.gov/news/testmony/ts152000.htm

Back to NewsLine