Washington (Jan. 23, 2003) - Three days before the Securities and Exchange Commission is mandated to put the provisions of the new accounting oversight law into effect, the industry won a big victory when commissioners voted 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 firms.
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.
"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 ‘aggressive tax shelter or avoidance schemes where the auditor stands to receive substantial fees.’ That sentence should be there and it is just gone. "
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 SEC to disallow any services not directly related to audits.
The SEC also voted Wednesday to bar the two most senior accounting partners on an audit team from working on that company’s books for more than five or seven years. The provision is a watered-down version of a proposal 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 argued against the stricter version, saying it would be especially harmful to smaller firms.
Sarbanes-Oxley mandates that the SEC put its provisions into practice by Jan. 26. Such an effort may prove difficult since the SEC is currently without a chairman, as is the Public Company Accounting Oversight Board, a watchdog group also created by the new law.
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