PCAOB Targets Auditor Independence

The board would also have ''the ability to draw some lines about tax services.''
Stephen TaubMay 7, 2004

The new regulator created to oversee the nation’s accounting profession plans to make the independence of auditors and their sale of tax shelters two key issues for its 2004 agenda, according to Reuters.

The Public Company Accounting Oversight Board may ask its new standing advisory group to schedule discussions of these issues for the group’s first meeting, according to the wire service. Board member Kayla Gillan told Reuters that the PCAOB is likely to decide whether corporate auditors may continue to sell tax-planning services to their audit clients. “It’s something that I’ve been wanting to do since day one,” said Gillan.

Board member Dan Goelzer said that in regulating auditor independence, the PCAOB “would have the ability to draw some lines about tax services.” Indeed, the wire service pointed out that Goelzer warned audit firms last fall to be cautious on tax planning, which was a possible target for reform.

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The Big Four and smaller accounting firms are moving away from the more-questionable tax-avoidance services, noted the wire service. But Rice University accounting professor Bala Dharan told Reuters that the sale of tax services by auditors to their audit clients remains an issue, due to its profitability and its potential for posing conflicts of interest in the auditing relationship.

The Big Four “are still very vigorously pursuing tax consulting,” said Dharan. “It has greatly contributed to profit margins, unlike auditing.”