The Public Company Accounting Oversight Board has published proposals that would for the first time limit accountancy firms’ ability to sell certain avoidance schemes to audit clients in order to ensure independence.
The new rules would apply to the auditors of US-listed companies. Comments on the rules are due in to the board by 14 February 2005.
The PCAOB board has been evaluatng over the past year whether an auditor’s provision of tax services to an audit client impairs its independence from that client. Following its deliberations, the proposed rules fall into three areas.
The first identifies circumstances in which the provision of tax services would impair independence. This includes entering into contingent fee arrangements, providing services that plan or offer opinions on tax implications of confidential transactions, and providing tax services to ‘officers in a financial reporting oversight role of an audit client’.
Secondly, the rules would strengthen the requirements of auditors to seek audit committee pre-approval for tax services. Thirdly, improved ethics would ensure that auditors ‘should not cause to violate relevant laws, rules, and professional standards due to an act or omission the person knew or should have known would contribute to such violation’.
William McDonough, PCAOB chairman, said: ‘I think it is right for the investing public because it will keep the auditors of public companies out of the aggressive tax work that has so damaged the public’s confidence,’ The Financial Times reported.
Governments in industrialised countries have been stepping up efforts to clamp down on corporate tax avoidance in order to reign in diminishing tax revenues. The UK Treasury introduced new measures effective from August, requiring tax advisers to notify the Inland Revenue to certain avoidance schemes they are selling to clients.
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