Printer Friendly

Tax work by auditors.

The Public Company Accounting Oversight Board (PCAOB) unanimously adopted rules governing audit firms' provision of tax services to public company clients. Once approved by the Securities and Exchange Commission (SEC), the PCAOB's new rules will ban auditors from providing three primary types of tax services to their public company audit clients, including:

* Services involving contingent fee arrangements;

* Marketing, planning or advice in favor of tax treatments considered confidential under PCAOB Rule 3501, or based on an aggressive interpretation of applicable tax laws and regulations, including listed transactions (as defined by Treasury); and

* Services to (1) certain corporate managers who serve in financial reporting oversight roles or (2) their immediate family members.

The new rules promoting the ethics and independence of public company auditors "draw clear lines to distinguish inappropriate services that impair auditor independence from permissible services that are not detrimental" according to PCAOB Chair William J. McDonough.

The rules ban auditor participation in tax-motivated transactions that the IRS has already identified as problematic, that must be kept secret or that do not meet the standard of having at least a 51% chance of being allowable, but also "preserve public companies' ability to look to the expertise of their auditor for garden-variety tax planning advice and compliance assistance."

The PCAOB modified proposed rules it issued in December 2004 to require auditors seeking preapproval to instead provide audit committees a description of the proposed services, rather than the actual engagement letters. Under the final rules, auditors must:

1. Describe proposed tax service engagements in writing for the audit committee;

2. Discuss with the audit committee the potential effects of the services on the firm's independence; and

3. Document the substance of that discussion.

When necessary, the PCAOB can still change an audit firm's practices during inspections; it is already seeing internal reforms in firms.

The final rules also state that an associated person must not cause a violation due to an act or omission the person "knew, or was reckless in not knowing, would directly and substantially contribute" to a violation.

Effective date: The PCAOB rules will not take effect until approved by the SEC, as required by Sarbanes-Oxley Act of 2002 Section 107(b).
COPYRIGHT 2005 American Institute of CPA's
No portion of this article can be reproduced without the express written permission from the copyright holder.
Copyright 2005, Gale Group. All rights reserved. Gale Group is a Thomson Corporation Company.

Article Details
Printer friendly Cite/link Email Feedback
Author:Laffie, Lesli S.
Publication:The Tax Adviser
Date:Oct 1, 2005
Previous Article:Energy-efficient buildings.
Next Article:Common Schedule M-1 adjustments.

Related Articles
Auditor independence and tax practitioners.
Sarbanes-Oxley Act.
Auditor independence, Sarbanes-Oxley, and tax services.
The Sarbanes-Oxley Act of 2002 does not prohibit auditors from offering tax services to audit clients.
PCAOB's proposed ethics and independence rules concerning independence, tax services, and contingent fees: March 1, 2005.
Sales tax audits: income tax returns prove a valuable tool for sales tax auditors.
SEC approves PCAOB rules for tax services.
Has 'privilege' lost its reward? Company officials can and sometimes should turn down auditors' requests to turn over privileged documents or waive...
Ten best practices for audit committees: the public company audit committee now has an enhanced role and needs to revise some of its practices. Here...
Ethics rules get tighter: new PCAOB independence rules focus on tax services and contingent fees.

Terms of use | Privacy policy | Copyright © 2020 Farlex, Inc. | Feedback | For webmasters