On January 22, 2003, the U.S. Securities and Exchange Commission finalized another round of rules required under the Sarbanes-Oxley Act. Accountants will be relieved to know that some of aspects of the auditor independence rules were softened [1] slightly in response to concerns expressed by accounting firms about the rule proposals that had been exposed for public comment.

Although the new rules still go beyond the minimum requirements set by Congress, the SEC backed down on several especially contentious issues. Specific softenings include:

• Accounting firms may still provide tax compliance, tax planning and tax advice for their audit clients, provided the services are pre-approved by the client's audit committee. The SEC had originally proposed to ban certain tax services, especially services with regard to tax shelters. But the Commission backed down from that rule proposal because it was unable to find a suitable definition for tax shelters.

• Audit rotation requirements are limited to the two most senior accounting partners on a client service team (the lead and concurring partners) and other partners deemed significant to the team. The two most senior partners are prohibited from providing audit services to the same client for more than five years, after which they are subject to a five-year "time-out" period. The other significant partners can serve the client for seven years followed by a two-year time-out period. The proposal had extended the audit rotation requirement to all partners on a client service team.

• Smaller audit firms with fewer than five audit clients and 10 partners are exempt from the rotation requirements.

Other rules finalized on the same day include rules on disclosure of off-balance sheet arrangements and aggregate contractual obligations, along with rules on retention of records relevant to audits and reviews.

Read the summaries of the auditor independence [2], off-balance sheet disclosures [3], and record retention rules [4].