by Tracey Miller-Segarra

Washington -- As the Jan. 26 deadline for the Securities and Exchange Commission to put the provisions of the new accounting oversight law into effect approached, the industry won a big victory when commissioners voted on Jan. 22 to allow audit firms to retain their tax consulting work and to soften proposed rules governing independence.

Tax-related advice makes up a huge percentage of most large auditing firms’ revenue, and the loss of such an income stream could have been catastrophic, especially for the Big Four.

The tax measure, which passed unanimously, approved conflict-of-interest rules for auditors that allow the continued sale of tax advice. The SEC will rely on a company’s audit committee to scrutinize such arrangements to protect investors from any potential conflicts.

"The final rule is consistent with the intent and spirit of the Sarbanes act itself," said AICPA chair William Ezzell. "The act made it clear that tax services were not considered prohibited. It also sent a strong message to audit committees that they involve themselves not only

in what’s required when approving audit and non-audit fees, but in particular with respect to tax transactions, to be comfortable and be sure there’s a business purpose there."

"Accountants will be able to continue to provide tax compliance, tax planning and tax advice to audit clients, subject to audit committee pre-approval requirements," the SEC said.

"This is the first good day for the accounting profession in the last year," said industry consultant Allan Koltin. "If the interpretation allows for independent auditors to now market tax avoidance strategies, clearly the SEC has taken a couple of steps backwards from Sarbanes-Oxley’s original intent," he added.

The absence of any language related to tax shelters surprised Koltin. "When you put out a regulation or law, you have to be all-encompassing. What’s painfully missing from what they announced are the words Ôaggressive tax shelter or avoidance schemes where the auditor stands to receive substantial fees.’ That sentence should be there and it is just gone."

While the original proposal indicated tax shelter work might be forbidden, officials said that difficulty in defining what a shelter is led the board to bow to the industry and avoid such a prohibition.

After announcing the SEC’s vote on the tax issue, commissioner Roel Campos noted, "I think it’s worth observing that Congress never intended that tax services be eliminated."

The decision to allow the tax work defies a recommendation earlier this month from a Conference Board panel headed by Treasury secretary designee John Snow, which expressly urged the commission to disallow any services not directly related to audits.

The SEC also voted on Jan. 22 to bar the two most senior accounting partners on an audit team from working on that company’s books for more than five years. The provision is a watered-down version of a proposal that the agency issued in November, which would have extended the job rotation requirement to all partners on an audit team.

The American Institute of CPAs had argued against the stricter version, saying that it would be especially harmful to smaller firms.

The Sarbanes-Oxley Act mandates that the SEC put its provisions into practice by Jan. 26. Enforcement is another matter. Such efforts may prove difficult, since the SEC is currently without a chair, as is the Public Company Accounting Oversight Board, a watchdog group also created by the new law.

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