From: Stephen Smetana [smetana@windwardcapital.com]
Sent: Thursday, February 20, 2003 6:32 PM
To: rule-comments@sec.gov
Subject: File # S7-03-03 

I am writing to comment on the "expanded audit approach" as a method of
testing the internal controls of an advisory firm.

This option would be prohibitively expensive for smaller firms.  We are all
aware of the costs for an audit by a public accounting firm.  I believe
these costs will only increase given the latest flurry of lawsuits.  To
require a small firm to incur these costs is unreasonable.  In addition, I
do not believe that the intended goals would be achieved because of the
inherent conflict of interest.  This second point relates to a much broader
issue about the public accounting profession in general, and is much more
prevalent when firms pay auditors millions of dollars in fees.  When an
entity hires a public accounting firm to conduct its audit, the partners at
the accounting firm already have a conflict.  In order to remain a
productive partner, they need to generate fees.  If they lose clients (and
therefore fees) over disagreements with management, their future at the firm
could be in jeopardy.  There are exceptions, but I have seen first hand the
"we can work this out" attitude taken by partners in public accounting.
This problem needs to be fixed, and the solution has to start with the
relationship "independent" accountants have with their clients, especially
those generating huge revenues for the accounting firm.

In summary, I believe that advisory firms should not be required to have an
outside auditor review their internal controls.  It would be too expensive,
and the inherent conflict would compromise the work performed.

I think the better solution would be to create a self-regulatory
organization.  I emphasis the word create, because I think it would be
preferable to start with a blank slate.  In this way, the unique needs of
the members would be given priority, without having to fight against the
built in biases inherent with any existing organization.  Therefore, I think
all advisors should be required to pay a fee, based on revenues.  The fees
would go into a resource pool that would be used to develop a truly
independent oversight entity.  This entity would conduct reviews of all
advisors, and allow the SEC to focus on the higher risk cases.  I believe
this entity should carry out the same general mission as the NASD, which is
to say self-regulatory body, but how that goal is achieved would be based on
specific needs of the advisory community.