M E M O R A N D U M
Persons on call at Pfizer: Hank McKinnell, David Schedoaz and Peggy Foran ("participants")
The above listed participants of Pfizer participated in a telephone call with Commissioner Cynthia A. Glassman to discuss the Commission's proposed rule on Auditor Independence. The participants discussed three areas of the proposed rule namely, auditor rotation, tax services and audit committee preapproval of nonaudit services. The participants cautioned that the proposed rule may attempt to fix procedures that are not necessarily broken. They believe that the current regime of 7 years rotation has worked fine in the past. They suggest that if rotation must be shortened to 5 years that it should not include the number of partners currently required by the proposed rule. They suggest that even including partners at major subsidiaries could prove to be a challenge especially for large complex organizations.
As for tax services, the participants did not agree that companies should not use auditors for advisors in a consulting and advocacy role. They believed that using other firms to perform these tasks would be problematic. They recommend that the line that should be drawn for those tax services which should be allowed and those that should be prohibited is where there has not been any issues with independence. Therefore, simple tax compliance and other related types of tax services should be easily allowed, but those creative proposals bordered on increased risk and initiated by the auditor should be outside this allowance.
The participants also objected to individual audit committee approval of each audit or nonaudit service offered by a company's auditor. Such a proposal would be overly burdensome on an audit committee and distract them from other important work. Audit committees should be able to set up policies specific to their company that alleviates this burden. One method would be to establish minimum thresholds. The participants support disclosure of these policies and procedures.