Industry Concerned as PCAOB Adopts Ethics/Independence Rules

The Public Company Accounting Oversight Board adopted certain ethics and independence rules concerning tax services, contingent fees and related standards on Tuesday, July 26, 2005. Auditing Standard No. 4, which establishes requirements and provides direction on reporting whether previously reported material weakness continues to exist, was also adopted.

The rules adopted Tuesday identify three circumstances when providing tax services impairs an auditor’s independence. Registered accounting firms are treated as not independent from an audit client if they:

Enter into contingent fee arrangements with the client (Rule 3521)

Provide services related to marketing, planning or opining in favor of the tax treatment of a transaction defined as a confidential transaction in Rule 3501 or based on an aggressive interpretation of applicable tax laws and regulations, including listed transactions as defined by U.S. Treasury Department regulations (Rule 3522(b))

Provide tax services to certain members of management serving in financial reporting oversight roles at an audit client or to their immediate family members (Rule 3523).

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