PCAOB Holds Roundtable On Auditor Independence

Last week, the Public Company Accounting Oversight Board held a roundtable session to discuss issues related to auditor independence and tax services.

The roundtable took place just weeks after SEC Chief Accountant Don Nicolaisen ordered accounting firms to disclose all contingency-based tax fees to company audit committees.

Those fees—which enable the auditor to take a cut of whatever savings the client was able to realize as a result of the tax advice—have become a target of the SEC, as the fees could impair the auditor's independence.

According to the Public Company Accounting Oversight Board, the roundtable was held to review existing tax services provided by auditors to public company audit clients, and "to discuss the effect, if any, these services have on auditor independence."

In his opening remarks, PCAOB Chairman William McDonough

noted that the roundtable would also help the Board assess whether rule changes would be necessary to ensure independence.

SEC Chief Accountant Donald Nicolaisen reiterated his position on matter, noting stating in no uncertain terms that he felt auditors should not be in the business of selling aggressive tax services to audit clients. That being said, he did look to the PCAOB to take the lead role in the issue going forward.

PCAOB Chief Auditor Douglas Carmichael articulated four scenarios in which auditor independence might be impaired:

If a particular situation places the auditor in the position of auditing his own work;

If the situation has the auditor acting as management, or as an employee of the client;

If the situation places the auditor in the position of being an advocate for the audit client; or

If the relationship creates a mutual interest between the accountant and the audit client.

The preparation of corporate tax schedules was discussed, but—interestingly—there were no corporate tax executives represented at the roundtable. The Big Four did have tax VPs and chairs in attendance.

Though banning tax services entirely was discussed, most in attendance prefered for the PCAOB to provide guidance on the topic.

A summary of the roundtable by Financial Executives International is available in the box above, right.