October 26, 2000
Dear Colleagues: Yesterday we received a letter from Securities and Exchange Commission Chairman Arthur Levitt, warning us about an attempt to put a rider on the pending Labor-HHS appropriations conference report to interfere with the SEC’s ongoing rulemaking proceeding on auditor independence. A copy of that letter is enclosed. We are writing to respectfully request your support in assuring that no such legislation is attached to this or any other pending appropriations legislation. An editorial in the September 25, 2000, issue of Business Week said the following--and we wholeheartedly agree with their remarks:
As Members of this body, committed to upholding the Constitution and representing our constituents, we strongly support the right of those accountants who oppose the SEC’s proposed rules to march up here and "petition the Government for a redress of grievances." But we are concerned that the opponents, rather than participating in the SEC’s open and fair administrative process, have opted to run to Capitol Hill and to threaten litigation, rather than to constructively engage the agency. The bargaining table is open; these firms refuse to take a seat at it. The SEC has published a proposed rule for public comment, held four days of public hearings, and is reviewing more than 3,000 comment letters and a counterproposal submitted by two of the Big Five accounting firms, PricewaterhouseCoopers and Ernst & Young. This is not a new debate. Eight of the ten consulting services covered by the SEC rule proposal are already restricted under existing profession and SEC rules and have been for the past two decades. The other two services (outsourcing the internal audit and designing or implementing financial information systems) are not completely prohibited and raise the toughest issues. The impact of the proposed rules on small accounting firms also must be weighed and addressed. Consistent with our responsibilities as the responsible Democratic Members of the SEC’s authorizing committee, we have been monitoring the SEC proceedings without compromising the independence and integrity of the rulemaking. We have every confidence that the SEC will live up to its statutory responsibilities in this matter. Will the accountants? It is just plain common sense for all professionals to avoid potential conflicts of interest. Members of Congress live under stringent rules, both as to disclosure and prohibitive conduct, to preserve the integrity of this institution. Section 13 (a) (1) of the Securities Exchange Act of 1934 seeks to do the same with respect to the financial reporting system underlying our strong securities markets. It requires that the financial statements filed by issuers be certified by "independent public accountants" both "for the proper protection of investors and to insure fair dealing" in securities. If the accountants do not want to live up to this public trust, we will be constrained in the next Congress to entertain the introduction of legislation to strike the word "independent" from the law and require the placement of a "caveat emptor" warning on financial reports. We do not want to do that. We ask you not to impose artificial time constraints on this important rulemaking proceeding. Thank you for your consideration of our request. Please let us know if there is anything that we can do to assist you in this matter. Sincerely, John D. Dingell Edolphus Towns Edward J. Markey
cc: The Honorable Richard A. Gephardt, Minority Leader The Honorable Arthur Levitt, Jr., Chairman
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