²² P.L. 107-204.

²³SEC Release No. 33-8183 (1/28/03). The list of per se prohibited services is: bookkeeping or other services related to accounting records or financial statements of the audit client; financial information system design and implementation; appraisal or valuation services, fairness opinions or contribution-in-kind reports; actuarial services; internal audit outsourcing services; management functions or human resources; broker or dealer, investment adviser or investment banking services; legal services and expert services unrelated to the audit; and any other service that the PCAOB determines by regulation is impermissible; see 15 USC Section 78j-1(g). Three auditor-independence principles underlie this list: an auditor should not (1) audit its own work; (2) function as a part of management; or (3) act as an advocate of the audit client; see S Rept No. 107-205, 107th Cong., 2d Sess. (2002).

²⁴PCAOB Release No. 2003-006 (4/18/03).

²⁵The ISB was the private-sector body established through efforts of the AICPA, the SEC and others to set standards of auditor independence from public audit clients. It was dissolved on July 31, 2001. The AICPA continues to maintain the ISBs website, www.cpaindependence.org, to provide access to ISB standards and interpretations, including the ones adopted in PCAOB Release No. 2003-006, note 24 supra.

²⁶SOA Section 2(a)(8).

²⁷See note 36, infra.

²⁸As added by the SOA, Section 10A(h) of the Securities and Exchange Commission Act (34 Act) provides that an auditor may engage in any nonaudit service, including tax services, that is not [a listed per se prohibited service], only if the activity meets the audit committee preapproval requirement. (Emphasis added.)

²⁹See SEC Release Nos. 33-8154 (12/2/02) and 33-8183 (1/28/03).

³⁰The new SEC tax fees disclosure rules (discussed below) describe these tax services: Tax compliance generally involves preparation of original and amended tax returns, claims for refunds and tax payment-planning services. Tax planning and tax advice encompass a diverse range of services, including assistance with tax audits and appeals, tax advice related to mergers and acquisitions, employee benefit plans and request for rulings or technical advice from taxing authorities. SEC Release No. 33-8183, note 23 supra.

³¹See 17 CFR Section 210.2-1(c)(4)(ix) (defining per se prohibited legal services as providing any service to a client that, under circumstances in which the service is provided, could be provided only by someone licensed, admitted, or otherwise qualified to practice law in the jurisdiction in which the service is provided). Although the Tax Court is open to nonattorneys, the SEC has stated that representation of a client in Tax Court is impermissible, and may fit the definition of a per se prohibited expert service; see SEC Release No. 33-8183, note 23 supra. In some countries, tax work requires a law license, raising the question of whether tax services in such countries would be deemed prohibited legal services. However, the SEC has stated that this would generally not be the caseforeign accounting firms would not be barred from providing tax services that an accounting firm in the U.S. may provide, as U.S. standards on what constitutes the practice of law would be examined in evaluating foreign services; see id.

³²See 17 CFR Section 210.2-01(c)(4)(x) (defining per se prohibited expert services as providing an expert opinion or other expert service for an audit client, or an audit clients legal representative, for the purpose of advocating an audit clients interests in litigation or in a regulatory or administrative proceeding or investigation. In any litigation or regulatory or administrative proceeding or investigation, an accountants independence shall not be deemed to be impaired if the accountant provides factual accounts, including in testimony, of work performed or explains the positions taken or conclusions reached during the performance of any service provided by the accountant for the audit client).

³³SEC Release No. 33-8183, note 23 supra.

³⁴17 CFR Section 210.2-01(c)(4)(iii).

³⁵Office of the Chief Accountant, Application of the January 2003 Rules on Auditor Independence, Frequently Asked Questions (8/13/03) (hereinafter, OCA FAQs). The answers represent only the views of the OCA; they are not rules, regulations, or statements of the SEC and have not been approved or disapproved by it. The document encourages the submission of questions and related correspondence on auditor independence to the SEC staff and provides directions for doing so.

³⁶Under a de minimis exception, the audit committee pre-approval requirement is waived if: (1) the aggregate fee for such unapproved nonaudit services is not more than 5% of the total fees paid by the issuer to its auditor during the fiscal year in which the nonaudit services are provided; (2) such services were not recognized by the issuer at the time of the engagement as nonaudit services; and (3) such services are promptly brought to the attention of the issuers audit committee and approved by it before completion of the audit; see 15 USC Section 78j-1(i)(1)(B), added by SOA Section 202. This de minimis exception is intended for the atypical circumstance where an auditor is providing to the issuer a service that was anticipated to be an audit service within the scope of the engagement, but is later discovered to be a nonaudit service; see S Rept No. 107-205, note 23 supra. Thus, this exception may not be consciously availed of and appears to be very limited in scope.

³⁷The SOA permits the audit committee to delegate the authority to grant such pre-approval to one or more designated committee members who are independent directors. Their decisions must be presented to the full audit committee at each of its scheduled meetings. The new SEC rules also permit the pre-approval requirement to be satisfied if the engagement to render the service is entered into pursuant to pre-approval policies and procedures established by the audit committee of the issuer, provided the policies and procedures are detailed as to the particular service and the audit committee is informed of each service and such policies and procedures do not include delegation of the audit committee responsibilities under the Securities Exchange Act of 1934 to management; see 17 CFR Section 210.2-01(c)(7). Questions 22 and 23 of the OCA FAQs, note 35 supra, state that pre-approval policies and procedures cannot be based solely on a monetary threshold, and cannot provide for broad, categorical pre-approvals (such as for tax compliance services), as such pre-approvals would not be sufficiently detailed as to the particular services to be provided. Question 24 provides some guidance as to how detailed the pre-approval policies and procedures need to be.

³⁸S. Rept No. 107-205, note 23 supra.

³⁹See, e.g., Bryan-Low, Keeping the Accountants From Flying High, Wall St. J. (3/6/03), p. C-1 (PCAOB acting chairman Charles Niemeier finding the provision of tax shelter services to audit clients troubling); Goelzer Urges Corporations to Avoid Tax Shelters Urged by Their Auditors, BNA Daily Tax Report No. 58 (3/26/03) (PCAOB member Daniel Goelzer stating auditors should not be in the position of marketing shelters to their audit clients); see also SEC Release No. 33-8183, note 23 supra.

⁴⁰See Sprint No Longer to Allow Auditors to Provide Tax Services to Executives, BNA Daily Tax Report No. 55 (3/21/03).

⁴¹See SEC Release No. 33-8183, note 23 supra.

⁴²See note 30, supra, for a detailed description of the specific activities contemplated within each of those tax services.

⁴³For audit firms, the final PCAOB registration rules do not require disclosure of fees received from audit clients for tax services in an initial registration application, but the PCAOB may require such disclosure in the annual reports filed with the PCAOB thereafter; see PCAOB Release No. 2003-007 (5/6/03).

⁴⁴See SEC Release No. 33-8185 (1/29/03), promulgating 17 CFR Part 205. Likewise, the American Bar Association has just amended its Model Rules of Professional Conduct to also require up-the-ladder reporting of violations within a corporation or other organizations, and to permit reporting outside the organization as needed to prevent injury to the organization; see ABA Amends Model Ethics Rules to Permit Up-the-Ladder Reports of Corporate Wrongs, BNA Daily Tax Report No. 1157 (8/14/03).

⁴⁵The controversial noisy withdrawal proposal, under which an attorney not receiving an appropriate response would be required to withdraw and notify the SEC, was not adopted in the final rules, but continues to be proposed. In some states, reporting a problem outside the client company could conflict with the states ethics rules requiring the attorney to maintain confidentiality.

⁴⁶See 17 CFR Section 205.3.

⁴⁷See 17 CFR Section 205.2.

⁴⁸See SEC Release No. 33-8185, note 44 supra; see also Regulation of Shelter Opinions, Contingent Fees Debated, 2003 TNT 50-5 (3/13/03).

⁴⁹Under 17 CFR Section 205.4, a supervisory attorney is deemed to appear and practice before the SEC to the extent a subordinate attorney does so. A subordinate attorney who appears and practices before the SEC is subject to the reporting obligations, but may comply simply by reporting to the supervisory attorney. Technically, if a subordinate tax lawyer is not deemed to be appearing and practicing before the SEC, it seems he or she would have no reporting obligation. Conversely, if a tax lawyer is supervising a securities lawyer, the former would be appearing and practicing before the SEC in connection with the matter in which the hypothetical tax problem supposedly arose and would be subject to the reporting obligation.

⁵⁰See 17 CFR Section 205.2(e).

⁵¹18 USC Section 1519, added by SOA Section 802.

⁵²18 USC Section 1512(c), added by SOA Section 1102.

⁵³18 USC Section 1515(a).

⁵⁴18 USC Section 1513(e), added by SOA Section 1107.