SEC Urged To Back-Track On Rules For Non-Audit Work

by Glen Shapiro, LawAndTax-News.com, New York

10 March 2003

The US Securities and Exchange Commission adopted rules in January on the ability of audit practices to offer their clients non-audit tax-related services after the Sarbanes-Oxley Act prohibited accounting firms from performing many lucrative non-auditing services for their clients, in an effort to stamp out conflicts of interest. Wording in the originally-proposed rules which would have prevented auditors from offering many types of tax work was softened: tax planning services and tax advice are acceptable, but designing or recommending tax shelters for audit clients could raise problems, said the SEC.

Now, SEC Chairman William Donaldson has been urged to reconsider whether accounting firms should really be allowed to act as both auditor and tax consultant to the same client.

Chairman of the Senate Finance Committee, Chuck Grassley, not known for keeping his views private even if they are likely to upset colleagues, and Max Baucus, the ranking Democrat on the committee, have asked William Donaldson whether the commission should "modify" the recent controversial decision which could see accounting firms selling tax avoidance products to companies and executives they audit. In February this year both Enron and Sprint were revealed to have avoided payment of taxes on a combined total of billions of dollars of company profits and share option benefits because they had accepted their auditors' 'aggressive' tax sheltering devices.

A Congressional Report published in February 2003 referred to these arrangements, constructed by groups of accounting and lawyers, as having "no business purpose other than to evade tax." The Senate Finance Committee is likely to pass fairly stringent legislation to control the promotion of tax-avoidance schemes now that the Enron Report has been published.

European accountants welcomed the SEC's relatively mild rules on auditor behaviour when they were published in January. But more recent moves by the SEC's new Accounting Oversight Board to impose disclosure on the foreign auditors of US-listed companies have horrified the EU. In an interview with the Financial Times, Frits Bolkestein, EU Internal Market Commissioner, also known for his trenchant views, said: "What is sauce for the goose is sauce for the gander. Whatever the Americans require us to do, I think we should require them to do. Plans to give (the) new watchdog powers to regulate European firms that audited US companies were unjustified".

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