The Public Company Accounting Oversight Board adopted new ethics and independence rules for auditors on Tuesday that place clear limits on the ability of accounting firms to offer tax services to their audit clients.

Although the new restrictions stop well short of an all-out ban on the provision of tax services by auditors -- a course advocated by some critics of the accounting profession -- they do make it clear that the offering of aggressive tax shelter schemes to audit clients will not be tolerated.

Under the rule approved by the board yesterday, an audit firm will not be considered independent if it offers its audit clients tax services "related to marketing, planning or opining in favor of a tax treatment on a transaction that is based on an aggressive interpretation of applicable tax laws and regulations."

The restriction is aimed at curbing auditor involvement in "egregious tax dodges that impair independence and undermine public confidence in auditor integrity," PCAOB board member Daniel L. Goelzer said in voting to establish the new rules.

The standards adopted by the board further prohibit auditors from offering tax services to clients on a contingent fee basis, and from providing tax services to certain members of management who serve in financial reporting oversight roles at an audit client.

PCAOB Chairman William J. McDonough described the new ethical guideline on auditor tax service as "right for the investing public, because it will keep the auditors of public companies out of the aggressive tax work that has so damaged the public's confidence."

At the same time, he said, "it's right for the auditing profession, too, because these rules draw clear lines to distinguish inappropriate services that impair auditor independence from permissible services that are not detrimental."

Although some public interest and investor groups had urged the board to adopt a far more restrictive approach to auditor tax service, McDonough said that a ban on tax work by audit firms would have been overkill.

At least one PCAOB board member suggested that additional tightening of the restraints on auditors may be warranted. Rather than merely prohibiting the offering of individual tax services to certain financial execs at audit clients, some commentators had urged thePCAOB to prohibit such services to all directors at the corporation, board member Kayla Gillan noted. Other members called for disclosures of tax services provided to all members of a clients audit committee.

"If actual practice does not conform to what we believe should be best practice, I, as one board member, would support reopening this issue for further rulemaking," she said.

In addition to the new guidelines on the offering of tax services, the board also approved Auditing Standard No. 4, establishing ground rules governing whether a previously reported material weakness in internal control continues to exist as of a date specified by management.

The new rules must now be approved by the Securities and Exchange Commission before they are official.

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