New PCAOB rules on auditor independence
23 Apr 2008
The US Public Company Accounting Oversight Board (PCAOB) has voted to adopt a new rule on Communication with Audit Committees Concerning Independence and to amend its existing rule on Tax Services for Persons in Financial Reporting Oversight Roles:
- Communication with Audit Committees. This rule will require a registered public accounting firm, before accepting an initial engagement pursuant to the standards of the PCAOB and annually thereafter, to describe in writing to the audit committee all relationships between the firm or any of its affiliates and the issuer or persons in a financial reporting oversight role at the issuer that may reasonably be thought to bear on the firm's independence. Registered firms will also be required to discuss with the audit committee the potential effects of any such relationships on the firm's independence.
- Tax Services. This amendment excludes from the scope of the rule tax services provided during the portion of the audit period that precedes the beginning of the professional engagement period. As originally adopted by the Board, the rule provided that a registered public accounting firm is not independent of its audit client if it or any of its affiliates provides any tax service to a person in a financial reporting oversight role or an immediate family member of such a person during the audit and professional engagement period. The Board determined that providing tax services to such a person during the portion of the audit period preceding the beginning of the professional engagement period does not necessarily impair a firm's independence.
These rules must be approved by the SEC. Click for PCAOB Press Release (PDF 20k). As of 4 April 2008, 1,850 public accounting firms have registered with the PCAOB to be allowed to audit the financial statements of US public companies. Of those, approximately 850 (over 45%) are non-US audit firms from more than 86 jurisdictions.
