PCAOB

Question 1

Tax Consulting—Although the SEC and PCAOB considered prohibiting public company audit firms from providing any tax services to public company audit clients, they chose not to do so. However, Rule 3522 puts some limitations on those tax services by providing that firms are not independent if during their audit engagements they provide services related to marketing, planning or opining in favor of tax transactions that are:

Answer 1

1) Confidential—A “confidential transaction” is one that is offered to a taxpayer under conditions of confidentiality and for which the taxpayer has paid the advisor a fee; or
2) Aggressive—An “aggressive tax position transaction” is one initially recommended by the accounting firm and a “significant purpose” of which is tax avoidance, unless the proposed tax treatment is at least more likely than not to be allowable under applicable tax laws. Examples of such impermissible aggressive transactions are ones that are the same or similar to transactions the IRS has already determined to be tax avoidance transactions.

Question 2

Tax Services for FRORs

Answer 2

Rule 3523 provides that public company accounting firms may also forfeit their independence by providing “any tax service” to a person in a “financial reporting oversight role” (FROR) at the audit client or to an immediate family member (IFM) (spouse, spousal equivalent, and dependents) of such a person.

Question 3

Relatedly, to increase transparency the PCAOB recently required firms to file a form for each issuer audit disclosing:

Answer 3

1) The name of the engagement partner;
2) The name, location, and extent of participation of each other accounting firm participating in the audit whose work constituted at least 5% of total audit hours; and
3) The number and aggregate extent of participation of all other accounting firms participating in the audit whose individual participation was less than 5% of total audit hours.