The Public Company Accounting Oversight Board (PCAOB) has expressed its commitment to hold auditors accountable for failure to meet the auditor independence rules. PCAOB’s strategic plan for 2014-2018 includes an effort to evaluate the business model of the largest accounting firms and determine whether some of the tax consulting services performed create a conflict with their independence as an auditor. This issue has been brought to the forefront as a significant number of investors have shared their concerns about the audits firms auditing their own work.

Helen Munter, Director of the PCAOB Division of Registration and Inspections, stated that there are potential audit risks for U.S. companies that maintain undistributed earnings and cash overseas in jurisdictions with lower tax rates. This could present a question about auditor independence if the same accounting firm structures their international transactions and audits their financials. Given that these arrangements have been given preapproval from the SEC, the PCAOB is also exploring whether to propose a revision of the rules that determine if a firm maintains auditor independence. Investigations of KPMG LLP and PricewaterhouseCoopers LLP have provided fuel to the argument that the rules for compliance need to be addressed.

In response to similar concerns, in June of 2014 the European Union (EU) finalized more stringent requirements for audit firms to maintain auditor independence. The new requirements, which go into effect in 2016, prohibit audit firms from providing non-audit tax services but give individual EU member states authority to allow auditors to provide tax services if they have no direct effect on the audited financial statements. These new requirements in the EU could also present challenges for U.S. based companies with multinational operations when they ask their audit teams for tax planning advice.