Triggered by congressional concerns over the marketing of abusive tax shelters by some accounting firms, the Public Company Accounting Oversight Board has proposed new rules restricting the ability of accountants to provide tax services to audit clients.
If approved in final form by the board and by the Securities and Exchange Commission, the PCAOB's initiative would explicitly prohibit accountants from offering tax services to audit clients on a contingent fee basis, and bar them from providing any tax services to corporate officers who are "in a reporting oversight role of an audit client."
In addition, the proposal would prohibit audit firms from marketing tax strategies that involve "an aggressive interpretation of applicable tax laws and regulations," or result in a tax avoidance maneuver that is a "listed or confidential" transaction under Treasury regulations.
Although the proposed rule sidesteps what PCAOB Chairman William J. McDonough called the "thorny debate over how to define a tax shelter," it does specify that a tax strategy which is "more likely than not" to be denied by the Internal Revenue Service would qualify as an unacceptable tax avoidance scheme.
In proposing the new restrictions, the board stopped short of bowing to pressure from some consumer advocates who had called for an across-the-board ban on the offering of all tax services by auditors. Under the proposed rules, audit firms would not be prohibited from offering audit clients general tax planning and advice or routine tax return preparation services, as long as those services are approved by the company's audit committee.
"Auditors have traditionally performed these kinds of services for their audit clients, and this kind of assistance is particularly important to small and medium-sized businesses that lack the resources to maintain extensive in-house tax expertise," board member Daniel L. Goelzer said in voting to seek public comment on the new restrictions.
For his part, McDonough said that, while it is clear that "some accounting firms have compromised their ethics for self-interest" by promoting abusive tax shelters, the concerns raised by these activities don't justify a complete ban on the offering of tax services.
Other provisions of the proposed rule would require that accountants seeking audit committee approval to offer tax services must discuss the potential impact of those services on the firm's independence. The proposal would also codify as an ethics rule the principle that audit firm personnel should not advocate actions that would result in violations of laws, regulations or professional standards.
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