Subject: Re: Comment File No. S7-13-00 - Testimony
Author:  Mike Thompson 
Date:    09/25/2000 9:23 AM
     
     
It is clear that CPA firms should be prohibited from selling services 
to their audit clients that are even a little bit related to the audit 
services.  CPA firm independence being at risk by selling other 
services to audit clients is a huge understatement.  It is common 
CPA firm behavior to aggressively market other services to audit 
clients.  CPA firms make management comments about problems 
and then propose consulting services to help fix the problems. 
Management is inhibited from hiring other consultants for fear that 
the CPA firm will be critical of the effort in the next management 
letter to the board of directors.  Of course the consulting effort isn't 
likely to be criticized if it comes from the CPA firm.  Even if the 
auditors don't blatantly act is this prejudicial manner management 
often isn't willing to take that chance by hiring another consultant. 
Also, CPA firms with big consulting practices under-bid smaller 
firms for the audit work knowing that they can recover the profit margin 
by being a preferred vendor to sell high margin consulting services. 
Therefore, competition opportunities for firms that offer just audit 
services is diminished and competition for firms that offer just 
consulting services is diminished.  Definitely,  some amount of audit 
independence is given up due to the high amount of consulting profit at 
stake when anorganization's external auditors are also its consultants.