8 legal and expert services unrelated to the audit 9

8. Legal and expert services unrelated to the audit
9. Any other service that the PCAOB determines by regulation is
impermissible
 It is important to note that audit firms are not
prohibited from performing these services for
private companies and for public companies that
are not audit clients.
 In addition, CPA firms may still provide other
services that are not prohibited for public company
audit clients, such as tax services.
 Non-audit services that are not prohibited by the
Sarbanes-Oxley Act and the SEC rules must be
preapproved by the company's audit com mittee .
 Companies are required to disclose in their proxy
statement or annual filings with the SEC the total
amount of audit and non-audit fees paid to the audit
firm for the two most recent years.
Audit Committees
 An audit committee is a selected number of
members of a company's board of directors whose
responsibilities include helping auditors remain
independent of management. Most audit committees
are made up of three to five or sometimes as many
as seven directors who are not a part of company
management .
 The Sarbanes–Oxley Act requires that all members
of the audit committee be inde pendent , and
companies must disclose whether or not the audit
committee includes at least one member who is a
financial expert .
65

 The Sarbanes–Oxley Act further requires the audit
committee of a public company to be responsible for
the appointment, compensation, and oversight of the
work of the audi tor .
 The audit committee must preapprove all audit and non-
audit services .
 Auditors are responsible for communicating all
significant matters identified during the audit to the
audit committee.
 The requirements enhance auditor independence by
effectively making the audit committee the client for
public companies, rather than management.
Employment Relationships
 Consistent with the requirements of the Sarbanes–Oxley Act, the
SEC has added a one-year "cooling off" period before a member
of the audit engagement team can work for the client in certain
key management positions.
 The CPA firm cannot continue to audit that client if the auditor
accepts a position and has participated in any capacity in the
audit for one year preceding the start of the audit.
 A CPA firm is not independent with respect to an audit client if a
former partner, principal, shareholder, or professional employee
of the firm accepts employment with a client if he or she has a
continuing financial interest in the CPA firm or is in a position to
influence the CPA firm's operations or financial policies.
Partner Rotation
 As required by the Sarbanes–Oxley Act, the SEC independence
rules require that the lead and concurring
,
audit partner rotate
off the audit engagement after a period of five years.