Tax And Other Permissible Non-Audit Services May Affect Auditor Independence

In a recent Section 21(a) Report, the SEC explained that—although tax services and other non-audit services provided by an auditor may be permissible—the way they are provided may adversely affect the auditor's independence. For example, if an auditor loans a non-manager employee to an audit client to assist with the preparation of tax returns or other tax compliance work, the auditor would be considered to lack independence. The SEC's January 24 report notes that Rule 2-01 of Regulation S-X prohibits an auditor from both "being" and "acting" as an employee of an audit client, even if the non-audit service is permissible.

Based on the SEC's report, audit committees must do the following when evaluating whether to approve a permissible non-audit service, including a tax service: