AICPA Briefs CPAs on Open Issues Under Sarbanes-Oxley

The Sarbanes-Oxley Act may eventually have a major impact on the accounting profession. But most of the rules affecting practitioners are still not finalized, leaving considerable uncertainly about what might lie ahead. One of the most pivotal open questions involves the extent to which the new oversight board will promulgate its own audit standards. Other open questions are addressed in the October issue of the "CPA Letter" by Rich Miller, General Counsel of the American Institute of CPAs.

Highlights of issues and answers:

  • What are the major changes and open issues for CPAs? There will be a big change involving inspections of firms. Inspections overseen by the Public Accounting Oversight Board (PCAOB) will replace the peer review process, and there will no longer be any deferral of disciplinary action for matters subject to litigation. It is not yet clear if this will satisfy the peer review requirements of some state boards. There are also new prohibitions against non-audit services, including "expert services" (this term still needs to be defined) and some tightening of the rules affecting internal audit outsourcing and information systems and design. All other services are still permitted, including tax services other than expert services, if pre-approved by the audit committee. There are also new requirements for workpaper retention, with some inconsistencies still to be resolved.

  • When will these provisions take effect? The five-year required period for audit and review workpapers seems to be effective immediately. The expectation is that the Securities and Exchange Commission (SEC) will release rules covering this section. There is also a seven-year period requirement for all documents that support a firm's report. But this and most other provisions affecting practitioners do not take effect until after firms register with the PCAOB. The timing is still uncertain, since the board has not yet been formed.

  • Which firms need to register and by when? According to the Act, accounting firms that "prepare or issue" or "participate" in the preparation of an audit report for an "issuer" must sign up with the board. But the definitions of the terms are not yet clear. The deadline for registering is 180 days after the SEC certifies the new PCAOB, (i.e., declares the PCAOB operational and able to carry out its responsibilities). The SEC must do this by the end of April 2003, but it could happen sooner.

  • How are foreign affiliates affected? This hasn't been fully decided yet. If a U.S. firm relies on the opinion of a foreign affiliate, the presumption is that the firm has consented to supply the audit workpapers of the foreign firm in response to a request by the board or SEC. But there are still questions as to whether or not foreign laws will permit this.

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-Rosemary Schlank


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