M E M O R A N D U M
Attendees of PwC: Dick Kilgust, Erica Sulkowski, Hilary Krane and Rick Berry
The above listed representatives of PwC met with Commissioner Cynthia A. Glassman to discuss the Commission's proposed rule on Auditor Independence. Their four areas of discussion focused on tax services, partner rotation, compensation and advocacy. PwC expressed support for the rule and specifically the enhanced role of audit committees. Their specific objections to the tax services aspect of the rule related to the confusion that they believed the proposed rule has created in the profession. They do not believe that the legislative intent of the Act was to prohibit all tax services by auditing firms to audit clients, as would be the result of the conflicting message of the rule. Additionally, they believe that there are sufficient regulatory safeguards and oversight in this area so that there is little reason for heightened concern in this area.
PwC is generally supportive of the shorter rotation period that is recommended in the current proposed rule. However, they are concerned that the number of partners affected on any particular rotation may be too much. They are concerned that the scope of the rotation will affect audit quality. They also expressed concern on the definition of audit engagement team as it may pull in too many individuals who have no ability to affect an audit, such as tax specialists. They have recommended a cut at audit partners at significant subsidiaries in addition to the lead and concurring partner as the Act has outlined.
As for compensation, PwC believes that the proposal inadvertently went too far when it proposed to prohibit compensation to audit partners for sale of nonaudit services to an audit client. They recommend that the prohibition be clearly defined by adding that audit partners should not be "directly" compensated for cross-selling services. Finally, PwC was concerned that the proposed rule needed to provide some clarity on advocacy. They believe that advocacy should be prohibited in public forums. These comments are similar to those expressed in its comment letter.