SOX restrictions on CPA firms

Auditor Independence and SOX restrictions on non-audit services

The Sarbanes-Oxley Act particularly prohibits auditing firms from performing any of the following services for a public company audit client:

• Bookkeeping services
• Financial information systems design and implementation
• Appraisal or valuation services, fairness opinions, or contribution-in-kind reports
• Actuarial services
• Internal audit outsourcing services
• Management or human resources functions
• Broker or dealer, investment adviser, or investment banking services
• Legal services and expert services unrelated to the audit



The provision of any other nonaudit services for an audit client, including tax work, is allowed
only if approved in advance by the audit committee. In addition, certain audit services (e.g., comfort
letters for underwriters, statutory audits) must also be preapproved by the audit committee. The Sarbanes-Oxley Act requires that audit partners on audits of public companies be rotated every five years. Also required is a timely report to the audit committee containing the following information: i. a discussion of critical accounting policies and practices; ii. alternative accounting treatments discussed with management, the ramifications of these alternatives, and the auditor’s preferred treatment; and (3) other material communications between the auditor and management(e.g., the management letter, schedule of unadjusted audit differences). Finally, a registered public accounting firm cannot perform an audit of a public company if that company’s CEO, CFO, controller, chief accounting officer, or others serving in equivalent positions, were employed bythe registered public accounting firm and worked on the audit engagement within one year priorto the beginning of the current year’s audit.