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U.S. Securities and Exchange Commission

Speech by SEC Staff:
Opening remarks at the PCAOB Auditor Independence Roundtable on Tax Services


Donald T. Nicolaisen

Chief Accountant
U.S. Securities and Exchange Commission

Washington, D.C.
July 14, 2004

Chairman McDonough, members of the Board and the distinguished participants on this roundtable:

Auditor independence is an important component of restoring investor confidence, and I appreciate the invitation to participate in today's public roundtable on the auditor independence implications of an accounting firm providing tax services for an SEC audit client.

As you know, the Commission historically has adopted its own rules and interpretations regarding auditor independence issues. The Sarbanes-Oxley Act of 2002 emphasized the importance of auditor independence, codified many of the positions expressed by the Commission in 2000, and gave the PCAOB, subject to SEC oversight, the authority to make auditor independence part of its standard-setting, inspection and disciplinary programs.

While the Commission staff will continue to provide companies and audit committees with guidance on auditor independence issues, we look forward to the PCAOB expanding its role and becoming the primary standard-setter and the primary source of advice and guidance to auditors on these issues.

As the PCAOB engages more staff with expertise in these areas, I expect that a great number of the independence interpretive issues that currently are handled by my office appropriately will migrate to the PCAOB.

The roundtable today is a welcome introduction to the PCAOB's involvement in auditor independence. By choosing to begin with the area of tax services, the PCAOB is showing its willingness to address in a public forum controversial issues that are of interest to investors, and the PCAOB should be commended for doing so.

Tax services have been a fundamental part of accounting firms since the inception of the profession. In recent years, however, the nature and extent of these services changed.

Firms began formulating highly engineered tax "products" that were not designed for a particular client but were marketed to numerous potential buyers with the firm taking a percentage of each buyer's profits from the product. Over time, the IRS and others have found several of these products to be overly aggressive and abusive tax shelters. Personally, I believe that no accounting firm should be in the business of selling these kinds of tax products to their audit clients.

I look forward to the discussion today and I am particularly interested in understanding the views of the participants on the issues of an accounting firm providing tax services to the executives of audit clients and a firm marketing aggressive tax shelters to its audit clients.

As always, these remarks and any others from the SEC staff today are our individual comments and do not necessarily reflect the views of the Commission or our colleagues on the staff.

Thank you again for inviting the SEC staff to participate.


Modified: 07/14/2004