Developments May Lead Sec to Ban Certain Tax Services Under Sarbanes-Oxley Independence Rules
Posted: 30 May 2003
Abstract
Section 201 of the Sarbanes-Oxley Act amends the Securities Exchange Act of 1934 by adding new section 10A(g) to curtail provision of certain non-audit services by an audit firm during the audit period. In addition to prohibiting eight categories of non-audit services, section 10A(g) grants a new accounting oversight board discretion to ban additional non-audit services, subject to SEC approval. Furthermore, the Act adds new section 10A(h), which requires audit committee pre-approval of auditor provision of other non-audit services (including tax services). This article focuses on the SEC's consideration of tax consulting services in its promulgation of final rules under Section 201 of the Act, further developing a key position that I expressed, together with other law professors, in letters to the SEC commenting on the proposing release. In particular, the article evaluates the SEC's historic position on tax services, as reflected in the proposing release, and the areas of potential conflict outlined in the proposing release. The article briefly analyzes the position taken by the SEC in the release adopting final rules in late February, noting the cautionary tone in the adopting release that suggests continuing doubts about auditor provision of non-routine tax services. The article then considers further developments that have brought renewed attention to independence concerns. In conclusion, the article suggests that the SEC may revisit the extent of permissible tax services and questions whether the interest in these matters will lead to increased scrutiny of financial institutions' activities in the coming months.
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