PCAOB takes action on auditor independence

Internal Auditor, June, 2008 by A. Cain

RECENT DECISIONS BY the PCAOB seek to strengthen the external auditor's responsibility to communicate with the audit committee about auditor independence and to reduce unnecessary restrictions on a company's choice of audit firms. Rule 3526, Communication With Audit Committees Concerning Independence, is intended to enhance communication between audit committees and registered public accounting firms regarding the firm's independence. The new rule requires registered firms to describe to the audit committee, in writing, all relationships between the firm, its affiliates, and the audit client before accepting an initial engagement.

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Under Rule 3526, firms must discuss with the audit committee the potential effects of any relationships on the firm's independence. In addition, firms must provide annual updates to the audit committee for continuing engagements. The rule supersedes Independence Standards Board Standard No. 1. If approved by the SEC, it will become effective on or around Sept. 30, or 30 days after SEC approval, whichever is later.

The PCAOB also adopted an amendment to Rule 3523, Tax Services for Persons in Financial Reporting Oversight Roles, to remove verbiage that stipulated that firms providing tax services during the portion of the audit before the professional engagement period are not independent of the audit client. The PCAOB determined that providing tax services to a person in an oversight role during this time does not necessarily impair a firm's independence. The amendment to Rule 3523 will take effect immediately upon SEC approval.

Information about Rule 3526 and the amendment to Rule 3523 can be obtained from the PCAOB's Web site, www.pcaob.org.