Sarbanes-Oxley: Auditor Independence (Portfolio 5502)

  • This Portfolio presents a study of the requirement that an accountant auditing the financial statements of a public company be independent in fact and appearance of that company.


This Portfolio 5502,  Sarbanes-Oxley: Auditor Independence, presents a detailed study of the requirement that an accountant auditing the financial statements of a public company must be independent in fact and in appearance of that company. This Portfolio analyzes the historical auditor independence rules under the U.S. securities laws, the changes to these rules as a result of the Sarbanes-Oxley Act of 2002 (the “Sarbanes-Oxley Act”), and the reasons for these changes. Because the Public Company Accounting Oversight Board (the “PCAOB”) is responsible for implementing the Sarbanes-Oxley Act, the Portfolio also includes a general discussion of the establishment, purpose, and operation of the PCAOB.

Section I provides historical information regarding auditor independence. It discusses the Regulations issued by the Securities and Exchange Commission (“SEC”) on auditor independence predating the Sarbanes-Oxley Act and the events leading to that legislation.

Section II describes the regulation of the public accounting profession, a subject inextricably intertwined with auditor independence. After summarizing the profession’s long history of self-regulation, Section II describes the structure and operation of the PCAOB and related topics including oversight and funding.

Section III discusses the categories of services that an accounting firm cannot provide to an audit client without impairing independence and the categories of services that can be provided if pre-approval is obtained from the audit client’s audit committee.

The remaining sections of the Portfolio discuss other topics pertinent to the overall subject of auditor independence. These topics include rotation of audit partners, communications between accounting firms and audit committees, and relationships between accounting firms and audit clients. Worksheet 1 provides a Glossary of significant terms used in the Portfolio, and other worksheets illuminate the Detailed Analysis.

This Portfolio may be cited as Bloomberg Tax Portfolio 5502, Henkel, Wheeler, and Lane, Sarbanes-Oxley: Auditor Independence (Accounting Policy and Practice Series).

Table of Contents

I. Background
II. Regulation of the Public Accounting Profession
III. Scope of Services Provided by Accounting Firms
V. Communication Between Accounting Firms and Audit Committees
VI. Relationships Between Accounting Firms and Their Audit Clients
VII. Compensation of Audit Partners Based on Non-Audit Services
VIII. Quality Control Exception for Inadvertent Impairment of Independence

Michelle M. Henkel
Family Services Manager And Legal Counsel
Atlanta Habitat For Humanity
Charles Wheeler
Alston & Bird
Andrea Lane Prather
Andrea Lane Prather
NationsHealth, Inc