(The news featured below is a selection from the news covered in the Federal Securities Law Reporter.)

Commenters Seek Clarification of PCAOB Rules 

Capital Group Companies, commenting on the PCAOB's proposed rules on independence, tax services and contingent fees, said that it cannot understand why the tax services provided to individual officers are more limited than the tax services provided to the company being audited. Capital Group agreed that audit firms should not be permitted to provide tax services to senior officers related to aggressive tax strategies, but said the scope of the rule should relate only to those transactions that have raised concerns. Capital Group claimed that, without a definitive date for SEC approval, many hours were squandered in an attempt to meet the transitional provisions. The "Big Four" accounting firms also submitted comments on the rules. The comment period closed April 3, 2006.

Capital Group advised that it currently uses two of the Big Four firms for corporate audits which leaves only two for its senior executives to use for the personal tax needs. The rule's limitation places unnecessary obstacles in front of these officers, in the company's view. Capital Group said the independence of audit firms can be maintained while providing tax services to senior officers by applying the same standards that are applied to audit clients under PCAOB Rule 3522. As an added safeguard, the PCAOB could require audit committee preapproval for individual tax service, if it deems it necessary.

Deloitte & Touche LLP said the PCAOB's rule on tax services for persons in financial oversight roles is too broad and it will make the monitoring for compliance extremely burdensome. The firm recommended that Rule 3523 apply only to individuals in a financial reporting oversight role at the issuer. Deloitte & Touche also urged the SEC to clarify the exception for individuals who become subject to the rule due to corporate events so that it includes mergers, acquisitions, initial public offerings and other events that may result in the person becoming subject to the rule. The American Institute of Certified Public Accountants also urged the SEC to provide transitional relief for situations where a nonpublic company client becomes public during the year due to a merger, acquisition, initial public offering or other event.

KPMG expressed concern that the SEC's definition of the financial reporting oversight role refers to fewer individuals than the PCAOB rule and urged the SEC to apply its definition to PCAOB Rule 3523 for consistency. PricewaterhouseCoopers agreed that one definition that is consistent with the SEC's would be easier to administer and recommended that the PCAOB's reference to material affiliates be eliminated. PricewaterhouseCoopers added that the large number of employees covered under Rule 3523 could create tracking and control problems in connection with tax services for employees in foreign locations.

When it posted the PCAOB's rules for comment, the SEC asked whether additional guidance was needed regarding the auditor's independence when a transaction planned by the auditor or on which the auditor rendered an opinion subsequently becomes a listed transaction with the Internal Revenue Service. The AICPA recommended that the adopting release make clear that as long as the auditor did not know or should not have known that a transaction would become listed, its independence would not be considered to be impaired if the transaction subsequently becomes listed.

PricewaterhouseCoopers recommended that Rule 3522 be clarified to provide that auditor independence is not impaired where services are performed in connection with a potentially aggressive tax transaction and an audit committee has made a good faith determination to retain its auditors after a thorough discussion and analysis that the transaction is not a listed transaction or substantially similar to a listed transaction. Given the PCAOB significant effort in developing the rule, PricewaterhouseCoopers said this recommendation would be appropriate for approval on an accelerated basis.

Ernst & Young said that, in its view, no independence impairment should arise when a transaction that was not listed at the time the audit firm advised the client later becomes listed. The firm said the PCAOB can use its inspection process to examine the firm's conclusion if a transaction later becomes listed. PCAOB inspections are a significant additional safeguard against the promotion by accounting firms of inappropriate tax transactions, according to the firm.

Deloitte & Touche called for additional guidance regarding an auditor's independence once a transaction becomes listed. Clarity and certainty in applying these rules is of critical importance to all parties involved, the firm, and the firm concluded that the guidance should make clear that any determination as to the impact on auditor independence of a transaction that subsequently becomes listed should reside primarily with the audit committee.