Donald Nicolaisen, chief accountant of the Securities and Exchange Commission, is looking forward to the day when the Public Company Accounting Oversight Board becomes “the primary standard-setter and the primary source of advice and guidance” on auditor independence rules.
He pointed out that the Sarbanes-Oxley Act gave the PCAOB — subject to SEC oversight — the authority to make auditor independence part of its standard-setting, inspection, and disciplinary programs. “As the PCAOB engages more staff with expertise in these areas, I expect that a great number of the independence interpretive issues that currently are handled by my office appropriately will migrate to the PCAOB,” said Nicolaisen at a hearing of the board.
He applauded the accounting oversight group for its decision to begin its policing of auditor independence in the area of tax services.
Nicolaisen pointed out that in recent years, audit firms began formulating highly engineered tax “products” that were not designed for a particular client. Rather, these products were marketed to numerous potential buyers, and the audit firm took a percentage of each buyer’s profits from the product. In several recent cases, he noted, the Internal Revenue Service and other agencies have found several of these products to be overly aggressive and abusive tax shelters.
Added Nicolaisen, “Personally, I believe that no accounting firm should be in the business of selling these kinds of tax products to their audit clients.”