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The Public Company Accounting Oversight Board announced today that the Securities and Exchange Commission has approved PCAOB ethics and independence rules concerning independence, tax services and contingent fees.
The rules introduce a foundation for the independence component of the Board's ethics rules by establishing 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 identify circumstances in which the provision of tax services impairs an auditor's independence, including services related to marketing, planning, or opining in favor of the tax treatment of, among other things, transactions that are based on aggressive interpretations of applicable tax laws and regulations.
The rules also treat registered public accounting firms as not independent of their audit clients if they enter into contingent fee arrangements with those clients or if the firms provide tax services to certain members of management who serve in financial reporting oversight roles at an audit client or to immediate family members of such persons.
The rules further implement the Sarbanes-Oxley Act's requirement that auditors’ non-audit services be pre-approved by the audit committee by strengthening the auditor's responsibilities in connection with seeking audit committee pre-approval of tax services. Specifically, the rules 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.
Finally, an ethics rule also codifies the principle that persons associated with a registered public accounting firm (e.g., individual accountants) can be held responsible when certain of their actions contribute to a firm’s violation of relevant laws, rules, or professional standards.
The effective dates for the rules follow:
Rule | Effective Date |
| 3501 – Definition of Terms | April 29, 2006 |
| 3502 – Responsibility Not to Knowingly or Recklessly Contribute to Violations | April 29, 2006 |
| 3520 – Auditor Independence | April 29, 2006 |
| 3521 – Contingent Fees | Rule 3521 will not apply to contingent fee arrangements that were paid in their entirety, converted to fixed fee arrangements, or otherwise unwound before June 18, 2006 . |
| 3522 – Tax Transactions | Rule 3522 will not apply to tax services that were completed by a registered public accounting firm no later than June 18, 2006 . |
| 3523 – Tax Services for Persons in Financial Reporting Oversight Roles | Rule 3523 will not apply to tax services being provided pursuant to an engagement in process on April 19, 2006 , provided that such services are completed on or before October 31, 2006 . |
| 3524 – Audit Committee Pre-approval of Certain Tax Services | Rule 3524 will not apply to any tax service pre-approved on an engagement-by-engagement basis before June 18, 2006 . With respect to tax services provided to audit clients whose audit committees pre-approve tax services pursuant to policies and procedures, Rule 3524 will not apply to any such tax service that is begun by April 20, 2007 . |
The SEC’s order approving the Board’s rules is available on the SEC’s Web site, www.sec.gov, under Regulatory Actions, PCAOB Rulemaking. Additional information about the Auditor Independence and Tax Services rules can be found on the Board’s Web site, www.pcaobus.org, under Rules, Rulemaking Docket.