- The Washington Times - Thursday, January 23, 2003

WASHINGTON, Jan. 23 (UPI) — The U.S. Securities and Exchange Commission has adopted new rules on the services that auditing firms can provide to clients.

The rules follow accounting scandals at Enron, WorldCom and Tyco, according to USA Today, and they're "part of the biggest spate of rule-making in recent SEC history."

The SEC commissioners Wednesday approved staff recommendations that specify exactly what kinds of non-audit services auditing firms may perform for clients. The new rules require accounting firms to adopt certain policies, the newspaper says:

— The top two accounting partners working on a particular client audit must rotate off the business after five years and wait at least five further years before returning to that audit. Other senior partners must rotate after seven years.

— None of these auditors may join the client and oversee the auditing firm's work until after a one-year "cooling off" period.

— No audit partner can be compensated based on the amount of non-audit services cross-sold to a client.

— Auditing firms must disclose how much money they made from audit and non-audit services provided to a client.

The newspaper says that "under no conditions can auditing firms serve as advocates for their tax advice in legal proceedings."

They are also barred from offering many types of services to audit clients, including the design and installation of financial information systems; appraisal services and fairness opinions; actuarial services; internal audit services outsourced by the client; management and human resource functions; investment banking services; legal advice; and other expert services unrelated to the audit.

As the Washington Post notes, the SEC "backed away from some tough restrictions on accounting firms it had considered." One proposal "would have prohibited accounting firms from crafting tax shelters for audit clients and could have cost the firms millions of dollars in lost revenue.

Investor activists saw the proposal as a bold stroke to restore public confidence, but it was strongly opposed by the accounting industry," the Post says.

It adds: "The five (SEC) commissioners — three Republicans and two Democrats, appointed by President George W. Bush — voted unanimously for a rule that would instead allow those tax services to continue. Republican commissioner Paul S. Atkins said it was a complex issue that needs further consideration, perhaps by Congress."

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