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Levitt Says Final Independence Rule Is Imminent
Transcript of Audio Interview
SmartPros' Antoinette Alexander: We have with us today Arthur Levitt, Chairman of the Security and Exchange Commission.
Now that the 75-day period for comments and testimony on the proposed rules is over, what is the next step and when do you expect a decision to be made?
Arthur Levitt: The Commission is going through the letters of comment, nearly 4,000 of which have been received, and evaluating the testimony that was given at four public hearings around the country, and we are presently meeting with the heads of all of the Big Five firms, as well as with Barry Melancon of the AICPA, and we are endeavoring to tailor the rule in a way which will be responsive to the various inputs that I have just mentioned. My guess is that a final rule will develop over the course of the next 30 to 60 days.
Alexander: Why do you think the proposal has been met with such opposition and did the SEC expect the profession to react in this manner? Levitt: I think that the rule has been supported by a large part of the profession and a certain part of the profession has opposed it. I think any rule making which deals with business practices generally evokes differences of opinion and I'm trying very hard to try to deal with those differences and come up with a rule that all of us agree would be in our common interest.
Alexander: Many, including the AICPA, are concerned about what impact this proposed rule will have on small businesses, what is your response to that concern?
Levitt: I share the feeling that any rule cannot impact small accounting firms and should not impact small accounting firms. And I believe that this rule will have no negative impact on the smaller firms of the country. I believe that the notion that state regulators will embrace all aspects of this rule and apply them to small firms is simply not accurate. It would be totally inappropriate, and almost every federal rule has historically been applied in different fashions to small business as it has to large business. I'm going to see to it that the rule incorporates that warning and admonition about applying it to smaller firms. I'm going to meet with smaller firms, as I have over recent weeks, to talk about it to see if I can put some quantitative standard into the rule which would insulate the bulk of small firms from any impact of this rule.
Alexander: Last month, PricewaterhouseCoopers and Ernst & Young submitted a proposal of their own. Does the Commission plan on adopting any elements of their proposal?
Levitt: I think the proposal that is being studied by the Commission that Pricewaterhouse and Ernst & Young have put forward is a very good one and I think that the Commission's outcome will probably come very close to the recommendations of those two firms as well as the three firms that we are presently talking to about the rules.
Alexander: The SEC has been criticized for allowing only 75 days for comments and testimony -- what is your response to that concern?
Levitt: This issue has been with the Commission for more than 25 years, since the Metcalf and Waxman hearings following the Penn Central scandal. We've had an extraordinary number of public comment letters, close to 4,000. We've had an extraordinary number of public hearings around the country -- four of them -- and the 75-day comment period is more than all but 20 percent of the rules that the Commission has put forward in the past three years. So I think it is important to restore public confidence as rapidly as possible and I believe that the time period plus the history behind this, plus the length of the extent of public comment on it is something that will give adequate opportunity for everybody to be heard and to factor those views into our final rule.
Alexander: In your speech before the Council, you made some suggestions for the AICPA, can you elaborate on those suggestions?
Levitt: Those suggestions essentially were to embrace the recommendations of a committee that the AICPA helped establish -- a committee on audit effectiveness headed by Shaun O'Malley -- and to embrace those recommendations with respect to the public oversight board. I also made some suggestions about increasing the number of public members on the regulatory body of the ACIPA as well as considering adding public members to the board of the AICPA itself.
Thank you.
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