AICPA Responds to SEC's Proposed Independence Rules

The AICPA has submitted a 60-page comment letter to the Securities and Exchange Commission in response to the auditor independence rules that the SEC proposed in November, 2002.

Highlights of comments on key provisions include:

  • Audit Partner Rotation: The AICPA supports audit partner rotation but has requested an exemption for smaller firms because of the undue hardship it would bring in trying to comply.

  • Conflicts of Interest Resulting from Employment Relationships: The AICPA believes that there are safeguards already in place to protect the public when a member of the audit engagement team joins the company as an employee. A "cooling off" period on its own is not supported by the AICPA. Additionally, the Institute supports and exemption for smaller publicly held companies to lessen the hardship of finding qualified staff.

  • Tax Services: The AICPA has encouraged the SEC to be very clear that there should be only a small number of tax services that the audit firm should be restricted from providing to the client, among them advising the client on methods of tax avoidance. The vast majority of tax services, the Institute suggests, should be explicitly allowed.

  • Forensic Audits: The AICPA said it supports the performance of forensic audits as an investigative tool when there is a suspicion or evidence of fraud, but does not regard it as an appropriate tool to mitigate the effects of a partner rotation exemption. Instead, the AICPA recommended alternative safeguards, such as Public Company Accounting Oversight Board review and inspection.

Additionally, the AICPA provided commentary on several other provisions of the SEC proposal, including but not limited to bookkeeping services (supporting the SEC proposal); internal audit & financial information systems design (encouraging further definition of restricted services); management and human resources functions (agreement with the SEC proposal); advisory and financial planning services (general agreement with the SEC but requiring more explicit definitions); and compensation (favors the ability of a partner to share in all firm profits, regardless if they came from non-audit services to an audit client).

The full text of the AICPA commentary may be downloaded for free.


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