Washington, DC, July 26, 2005
The Public Company Accounting Oversight Board today adopted certain ethics and independence rules addressing tax services, contingent fees, and certain related general ethics and independence standards.
The Board also adopted an auditing standard on reporting on whether a previously reported material weakness continues to exist. This standard, PCAOB Auditing Standard No. 4, establishes requirements and provides direction that applies when an auditor is engaged to report on whether a previously reported material weakness in internal control over financial reporting continues to exist as of a date specified by management.
The ethics and independence rules adopted today fall into three areas. First, the rules identify three circumstances in which the provision of tax services impairs an auditor's independence –
Second, the rules further implement the Act's pre-approval requirement by strengthening the auditor's responsibilities in connection with seeking audit committee pre-approval of tax services. Specifically, Rule 3524 would require a registered public accounting firm that seeks such pre-approval to describe proposed tax services engagements, in writing, for the audit committee; to discuss with the audit committee the potential effects of the services on the firm's independence; and to document the substance of that discussion. Third, the rules lay a foundation for the Board's independence rules. Specifically, Rule 3502 codifies, in an ethics rule, the principle that persons associated with a registered public accounting firm should not cause the firm to violate relevant laws, rules, and professional standards due to an act or omission that the person knew, or was reckless in not knowing, would directly and substantially contribute to such violation. Rule 3520 includes a general obligation requiring a registered public accounting firm and its associated persons to be independent of the firm’s audit clients throughout the audit and professional engagement period.The rules and standard will not take effect unless approved by the Securities and Exchange Commission pursuant to Section 107(b) of the Sarbanes-Oxley Act. Background information is available on the Board's Web site under Rulemaking Docket 017 and Docket 018.
The webcast of the meeting can be found on the Board's Web site.