¹P.L. 107-204.

²The AICPA has been actively involved in the debate on the state adoption of the SOAs standards. Among other things, it has formed the AICPA Special Committee on State Regulation to work proactively in this area. The AICPAs website, www.aicpa.org/statelegis/index.asp, provides an excellent discussion of the policy debate and developments at the state level; see also Morgan, With State Legislatures Trying to Extend Concepts of Sarbanes-Oxley, Companies and Their Advisers Should Not Get Too Comfortable Just Yet, BNA Daily Tax Report, No. 115, J-1 (6/16/03).

³A number of SOA provisions merely mandate a company to disclose whether or not it has adopted a particular measure. However, for all intents and purposes, such a disclosure requirement may effectively mandate adoption of the particular measure, and will be treated as doing so for purposes of this article. In addition, the SOA generally applies to public companies that have registered securities or file reports with the Securities and Exchange Commission (SEC) under the Securities Exchange Act of 1934 (34 Act), or that have filed a registration statement with the SEC under the Securities Act of 1933, and to such companies auditors, directors, officers, employees and attorneys. However, many of the SOAs provisions contain a separate statement of the persons subject thereto, and their own effective date. Questions also exist as to the applicability of various SOA provisions to affiliates of public companies. Exhibit 1, in Part II of this article in the November 2003 issue, will set forth the scope and effective date of the SOAs primary provisions for quick reference. As used herein, the terms public company and issuer denote a company subject to the particular provision in question.

⁴New Financial Accounting Standards Board (FASB) accounting standards will require consolidation of many heretofore unconsolidated special-purpose entities and off-balance-sheet structures. See FASB Interpretation No. 46, Consolidation of Variable Interest Entities (January 2003), which will require consolidation of a variable interest entity (generally, an entity other than a qualifying special-purpose entity, the equity of which (1) is insufficient to finance its operations, so that additional subordinated financial support will be needed from others or (2) does not have voting rights, absorb losses or receive the upside) with its primary beneficiary; see also FASB Exposure Draft, Qualifying Special-Purpose Entities and Isolation of Transferred Assets, an amendment of FASB Statement No. 140 (6/10/03), which would narrow the scope of entities eligible to be qualifying special-purpose entities, thereby restricting the ability to derecognize assets through such entities. To the extent these new standards require consolidation, the new SEC off-balance-sheet disclosure rules would not apply.

⁵See 15 USC Section 78j-1(i); SEC Release No. 33-8183 (1/28/03).

⁶See SEC Release No. 33-8183, note 5 supra.

⁷See SEC Release No. 33-8185 (1/29/03).

⁸18 USC Section 1520.

⁹See SEC Release No. 33-8124 (8/28/02).

¹⁰Treasury Circular 230, Regulations Governing the Practice of Attorneys, Certified Public Accountants, Enrolled Agents and Appraisers Before the Internal Revenue Service.

¹¹17 CFR Section 240.13b2-2, Representations and Conduct in Connection with the Preparation of Required Reports and Documents.

¹²See SEC Release No. 34-47890 (10/18/02).

¹³Tax departments are also cautioned that disclosure to auditors of information concerning a tax matter protected by the attorney-client privilege may constitute a waiver; see, e.g., First Federal, 55 Fed. Cl. 263 (Ct. Cl. 2003); Medinol Ltd. v. Boston Scientific Corp., 214 FRD 113 (SD NY 2002). Apparently, the confidentiality privilege for tax advice conferred by Sec. 7525 would also be lost on disclosure to an auditor to the same extent that the attorney-client privilege would be lost. Query whether the Sec. 7525 privilege remains intact when the companys tax adviser is also its auditor.

¹⁴18 USC Section 1514A.

¹⁵18 USC Section 1341.

¹⁶18 USC Section 1343.

¹⁷18 USC Section 1344.

¹⁸18 USC Section 1348

¹⁹See Levi Again Hires Counsel to Review Tax Accounting, Wall St. J. (6/2/03), p. A3; KPMG Employee Sues KPMG for Defamation, Intentional Infliction of Emotional Distress, 2003 TNT 124-5 (6/27/03).

²⁰18 USC Section 1513(e).

²¹15 USC Section 78m(k).