The Securities and Exchange Commission (SEC) is looking into simplifying its auditor-independence rules without weakening them.
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That's according to the SEC's Deputy Chief Accountant Andrew Bailey, who told CFO.com that the Office of the Chief Accountant is already working on the issue. However, the ultimate decision on prioritizing projects will lie with the replacement for Chief Accountant Donald Nicolaisen, who will leave the SEC for the private sector this month.
Some of the issues of concern at the SEC are non-audit financial services offered by audit firms and âhigh-risk situations,â such as when an auditor and its client each sell services to the same outside party, Bailey said.
He noted that some audit firms are working internally to make it easier to comply with the rules by creating databases of firms' financial interests and business relationships. The information is then extracted to determine whether conflicts could arise on the audit engagement.
The Public Company Accounting Oversight Board (PCAOB) has also proposed an auditor-independence rule change that the SEC will consider for approval.
The PCAOB's July proposal would significantly limit accounting firms' ability to sell tax services to audit clients and their top executives.
"We wanted to strike a balance so as to ensure the independence of the auditor to the extent possible in this area," Charles Niemeier, a PCAOB member and a former chief accountant for the SEC's enforcement division, told the Wall Street Journal. "The other option â to have eliminated the audit firms from providing any tax advice â we did not believe to be in the interest of the public good."
According to an April study by the Government Accountability Office, 61 of the nation's 500 largest companies bought abusive or potentially abusive tax shelters from their independent auditors from 1998 through 2003, costing the U.S. Treasury an estimated $3.4 billion, the Journal reported.