Date:    09/07/2000  5:07 PM

Subject: Comments File No. S7-13-00   Testimony

September 6, 2000
     
     
Mr. Jonathan G. Katz, Secretary
Securities and Exchange Commission
450 Fifth Street, N.W.
Washington D.C. 20549-0609
     
Re:  Comment File No. S7-13-00
     
Dear Mr. Katz:
     
We wish to take this opportunity to offer our comments on the proposed U.S. 
Securities and Exchange Commission (SEC) regulation "Revision of the 
Commission's Auditor Independence Requirements." 
     
We strongly believe the proposal is unwarranted, not supported by facts and not 
requested by the financial and business community we both serve.  Non-audit 
services offered by audit firms simply have not compromised auditor independence
or audit failure.  We believe the following points support our position.
     
· We are not aware of significant problems concerning audit firms violating 
independence rules as they relate to non-audit services.  What facts and 
circumstances were used to determine that the "Scope of Services" offered by CPA
audit firms has resulted in substandard engagements through financial and 
auditing standards violations?  We believe the number of substandard 
engagements, if any, do not support the dramatic change relevant to the "Scope 
of Services" offered by audit firms.
     
· In the last ten annual reports to Congress, the SEC has not mentioned any 
concerns regarding the "Scope of Services" offered by audit firms. 
     
· It appears that the SEC has ignored the conclusions of the SEC's Panel of 
Audit Effectiveness of the Public Oversight Board.  This SEC appointed panel 
concluded, "both the profession and the quality of audits are fundamentally 
sound."  The Panel did not find any evidence that the provision of non-audit 
services hurt audit quality.  The Panel did note that "in numerous instances 
non-audit services contributed to a more effective audit."  Our firm's 
experience is that performing non-traditional services greatly enhances our 
ability to plan an audit and to identify audit risk.  The information gained in 
an audit also greatly assists us in providing valuable expanded services to our 
client.
     
· The proposal greatly restricts the ability of investors and companies to 
benefit from the knowledge possessed by a Company's auditor.  The financial and 
business community will be forced to incur significantly higher costs to procure
non-audit services from those that simply do not have the knowledge and 
understanding possessed by those conducting the financial audit.
     
     
     
 · The proposal's broad restriction on non-audit services may undermine auditor
independence by making audit firms too reliant and dependent on audit fees.  A 
dependence by audit firms on audit fees would not serve the public interest and 
may increase, not decrease, opinion shopping.
     
· The proposal states the proposal "would not effect tax-related services" 
provided by audit firms to audit clients.  The proposal refers to tax compliance
services provided by audit firms to audit clients.  It would prohibit an audit 
firm from acting as an advocate for an audit client, providing expert service in
administrative proceedings and may prohibit audit firms from representing audit 
clients before the Internal Revenue Service.  We do not see how this restriction
benefits the client, the audit firm, or the public.  Again, the knowledge 
derived from performing an audit greatly assists us in providing important tax 
planning services to our audit clients.
     
· The proposal would create a negative effect on the ability of audit firms to 
recruit and retain employees.  We are able to attract and keep our talented 
audit staff not because they desire a lifetime of audit engagements, but rather 
the opportunity to understand how businesses operate and to use that knowledge 
as a business advisor to our corporate clients.  Having that knowledge makes you
a resource to a client's business and does not result in an impairment of 
independence.
     
· The proposal will place unnecessary new independence requirements between 
audit firm members within regional alliances, associations and cooperative 
agreements in respect to the audit clients of each other.
     
· The impact to all CPA firms with an audit practice, regardless of having SEC 
audit clients or not, will be dramatic.  Other regulators will use the proposal,
if adopted, as a model.  This "model" will be used as by state boards of 
accountancy, other federal regulators, i.e., banking and ERISA areas of audit 
practice, and other regulators.  The proposal will have a costly and unnecessary
negative effect on the regulatory requirements effecting all CPA firms.
     
· The proposal is an unnecessary fundamental change.  The history of auditors 
providing independent and reliable financial information to the public, 
investor, and other interested readers is long and well-documented and, frankly,
does not require any change at this time.
     
We firmly believe this proposal should not be implemented.  Your time and 
consideration of this communication is appreciated.
     
Very truly yours,
     
McGOWEN, HURST, CLARK & SMITH, P.C.
317 6th Avenue, Suite 400
Des Moines, IA  50309
     
     
     
Michael W. McNichols, CPA
     
MWM/sar