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PCAOB PROPOSED RULES

PCAOB PROPOSED RULES. Public Meeting on 12/14/04 Identifies 3 additional prohibited tax services to public company audit clients that would impair independence. PROHIBITION # 1. Contingent fee or commission arrangements

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PCAOB PROPOSED RULES

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  1. PCAOB PROPOSED RULES • Public Meeting on 12/14/04 • Identifies 3 additional prohibited tax services to public company audit clients that would impair independence

  2. PROHIBITION # 1 • Contingent fee or commission arrangements • Prohibits fees that are determined based on the results of judicial proceedings or the findings of govt. agencies • Permits fees fixed by courts or other public authorities that are not dependent on a finding or result

  3. PROHIBITION # 2 • Tax services to officers in a financial reporting oversight role • A person with influence over the contents of the financial statements or anyone who prepares them • As currently defined in Rule 2-01 of SEC Regulation S-X • Appendix illustrates CEO, President, CFO, COO, General Counsel, Chief Accounting Officer, Controller, Director of Internal Audit, Director of Financial Reporting, Treasurer, or any equivalent position • Whether paid by officer or issuer

  4. PROHIBITION RULE # 3 • Certain planning/opining: • Listed or confidential transaction • In accordance with Treasury regulations • Without regard to minimum fee threshold • Aggressive tax positions • Audit firm or any other tax advisor initially recommended; • Significant purpose is tax avoidance; AND • Tax treatment is not, at least more likely than not, to be allowed

  5. OTHER PROPOSED RULES • Permissible services (subject to pre-approval) • Routine tax return preparation/compliance • General tax planning/advice • International tax assignment tax services • Employee personal tax services

  6. OTHER PROPOSED RULES • Audit Committee Pre-Approval Process • Provide engagement letter detailing scope of services and fee arrangement • Including several aspects of tax compliance • Disclose any other compensation arrangements, e.g., referral fees • Discuss effect on independence • Whether auditor is capable of exercising objective and impartial judgment • Document discussion

  7. EFFECTIVE DATE • Effective date • Public comment period until 2/14/05 • Forward final rules to SEC for approval • Proposed effective date on the later of: • 10/20/05 • 10 days after SEC approval date

  8. EFFECTIVE DATE • Effective date • Grandfathered services • Tax services completed by effective date • Tax services to covered officers in connection with original returns filed no later than effective date • Grandfathered contingent fees • If paid in their entirety, converted to fixed fee, or otherwise unwound no later than effective date

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