April 26, 2006 Show On April 19, 2006, the Securities and Exchange Commission ("SEC") approved new auditor independence and ethics rules proposed by the Public Company Accounting Oversight Board ("PCAOB"). These new rules focus on an auditor’s provision of tax services to public company audit clients and prohibit contingent fee arrangements for services provided to audit clients. As discussed in more detail below, the PCAOB’s new rules include several important matters for issuers to consider. For example, the PCAOB’s new rules include specific guidance regarding the manner in which audit committees are to pre-approve permissible tax services to be performed by the outside auditor. The rules also restrict an outside auditor from providing tax services to persons at an audit client who perform a "financial reporting oversight role" (other than directors). In addition, the PCAOB’s new rules provide that an auditor will not be deemed independent if the auditor (1) plans, markets or opines in favor of certain types of tax transactions for the audit client, or (2) provides tax services to an audit client for a contingent fee. The final PCAOB rules also include certain rules of conduct for registered public accounting firms and persons associated with registered public accounting firms, which are not addressed in this client alert. The final rules concerning independence, tax services, and contingent fees adopted by the PCAOB can be found at http://www.pcaobus.org/Rules/Docket_017/2005-07-26_Release_2004-014.pdf. The SEC release approving the PCAOB’s rules can be found at http://www.sec.gov/rules/pcaob/2006/34-53677.pdf.
Gibson, Dunn & Crutcher lawyers are available to assist clients in addressing any questions they may have regarding these issues. Please contact the Gibson Dunn attorney with whom you work, © 2006 Gibson, Dunn & Crutcher LLP The enclosed materials have been prepared for general informational purposes only and are not intended as legal advice. TopWhat services are not permitted for an SEC audit client?Specific Prohibited Non-audit Services
Bookkeeping. Financial information systems design and implementation. Appraisal or valuation services, fairness opinions, or contribution-in-kind reports. Actuarial services.
Which of the following services are we permitted to provide to an SEC restricted?Broker-dealer, investment advisor, or investment banking services. Legal services.
Who should approve the nonAudit Committee Pre-Approval of Services Provided by Auditor
Sections 201 and 202 of the Sarbanes-Oxley Act provide that an issuer's audit committee must pre-approve allowable services to be provided by the auditor of the issuer's financial statements.
Which of the following is a requirement of SarbanesAnswer and Explanation: C. Accounting firms may not both audit a public client and also provide certain consulting services for the same client. See full answer below.
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