WASHINGTON, Nov. 19 (UPI) -- The U.S. Securities and Exchange Commission approved publication on Tuesday of proposed rules that would require auditors to retain specific types of records.
A second set of rules would require certain disclosures and reports by auditors and set conditions under which auditing firms wouldn't be considered independent for the purposes of performing audits of public companies.
These rules are required under Section 802 of the Sarbanes-Oxley Act of 2002, which also requires that final rules be effective by Jan. 26, 2003.
The proposed rules would specify the information that must be retained by auditors for five years after completion of an audit or review of a registrant's financial statements.
Auditors would have to retain work papers and other documents that form the basis of the audit or review and memoranda, correspondence, communications, other documents, and records (including electronic), that are created, sent or received in connection with the audit or review and contain conclusions, opinions, analyses, or financial data related to the audit or review.
The SEC also proposed rules to enhance the independence of accountants who audit and review financial statements. The rules would, among other things:
-- Require that an issuer's audit committee pre-approve all audit and non-audit services provided by auditors.
-- Prohibit partners on the audit engagement team from providing audit services to the issuer for more than five consecutive years and from returning to audit services with the same issuer within five years.
-- Prohibit an accounting firm from auditing a client's financial statements if certain members of company management had been members of the accounting firm's audit engagement team within a year before the audit began.
-- Require that auditors report certain matters to a company's audit committee, including "critical" accounting policies used by the issuer.
-- Require disclosures to investors of information related to the audit and non-audit services provided by, and fees paid by the company to, the auditor. These would be contained in the company's annual reports.
The rules would also state that an auditor wouldn't be considered independent if any partner, principal or shareholder of the accounting firm who is a member of the audit team received compensation based directly on any service provided or sold to the client company other than auditing and related services.
The SEC also approved a staff recommendation to issue a joint report with the Treasury Department and the Federal Reserve Board concerning the application of anti-money laundering rules to investment, as required by Section 356(c) of the USA Patriot Act.
