PCAOB Ponders Tax Service, Auditor Independence

Do the auditor independence rules outlined in the Sarbanes-Oxley Act of 2002 go far enough or should they be tweaked to include language governing tax advice? This is a growing concern of the Public Company Accounting Oversight Board, which was created by the act.

Investors, consumer advocates, regulators and some accounting industry representatives are in rare agreement that something needs to be done to address the practice of audit firms marketing aggressive off-the-shelf tax shelters to their audit clients, Dow Jones Newswires reported.

There’s a fine line for the PCAOB to draw between acceptable tax services and pushing products that clearly muddy the auditor independence waters.

"I don't relish the job ahead of the board, to try to figure out where to draw the line," James L. Brown, an executive at Indianapolis-based accounting and consulting firm Crowe Chizek & Co. LLC, told Dow Jones. "We've been talking about tax planning and strategies, and it all blends together."

If an auditor’s firm stands to gain on the tax side, will the auditor look the other way when encountering irregularities during a financial statement audit? That is the crux of the issue.

AFL-CIO associate general counsel Damon Silvers urged the board to draft clear guidance to audit firms and audit committees "where the lines are," indicating that audit firms should have nothing to do with engineering tax-saving transactions that ultimately have to be approved by the partner auditing the books.

"This sort of stuff needs to be banned," he said. "It is not acceptable to have an audit firm creating the structures they audit."

Accountants and their representatives appearing at a Washington, D.C., round table said, however, that there were plenty of appropriate and beneficial tax services that auditors could offer their clients without fear of impairing their independence, Dow Jones reported.

Most agree that acceptable tax work doesn’t include aggressively marketed tax shelters. One Big Four official, for example, told Dow Jones that he didn't believe the current auditor independence rules - which caution board audit committees to scrutinize accounting products designed solely as tax-avoidance strategies, but don't ban them for audit clients - go far enough.

"I do think it impacts a firm's independence and not in a positive way," said Michael Gagnon, chief compliance officer at PricewaterhouseCoopers LLP, who thinks more clarity is needed in the rules. "I do think it's inappropriate and would urge a reconsideration of (the rule)."

Board Chairman William McDonough told the forum that the board has "not yet determined" if auditor independence rules needed to be changed to address the public's concerns about whether auditors selling aggressive tax shelters impaired independence, Dow Jones reported.

Also during the roundtable meetings, Donald T. Nicolaisen, the Securities and Exchange Commission's chief accountant signaled that the agency's staff would like to see the new Public Company Accounting Oversight Board become the nation's primary regulator on auditor-independence issues, assuming duties held by the SEC, the Wall Street Journal reported.

"While the commission staff will continue to provide companies and audit committees with guidance on auditor-independence issues, we look forward to the PCAOB expanding its role and becoming the primary standard-setter and the primary source of advice and guidance on these issues," Nicolaisen said. "As the PCAOB engages more staff with expertise in these areas, I expect that a great number of the independence interpretive issues that currently are handled by my office appropriately will migrate to the PCAOB." The PCAOB still would remain subject to SEC oversight.

You may like these other stories...

Ernst & Young 2013 audit deficiency rate 49%, regulators sayMichael Rapoport of the Wall Street Journal reported on Thursday that the Public Company Accounting Oversight Board (PCAOB) found deficiencies in 28 of the...
Some of your clients may get away to business conventions from time to time. It gives them a chance to rub shoulders with colleagues, catch up on the latest developments, and fine-tune their skills. And, when the meetings or...
PwC must face $1 billion lawsuit over MF Global adviceA federal judge on Wednesday ordered PricewaterhouseCoopers (PwC) to face a $1 billion lawsuit claiming that its bad accounting advice was a substantial cause of the...

Already a member? log in here.

Upcoming CPE Webinars

Sep 9
In this session we'll discuss the types of technologies and their uses in a small accounting firm office.
Sep 10
Transfer your knowledge and experience to prepare your team for the challenges and opportunities of an accounting career.
Sep 11
This webcast will include discussions of commonly-applicable Clarified Auditing Standards for audits of non-public, non-governmental entities.
Sep 24
In this jam-packed presentation Excel expert David Ringstrom, CPA will give you a crash-course in creating spreadsheet-based dashboards. A dashboard condenses large amounts of data into a compact space, yet enables the end user to easily drill down into details when warranted.