When tax and audit don't mix - Accounting Firms
The lawyers are leaving--again. Lured away from law firms in recent years by the roster of top corporate clients at the Big Four accounting firms, tax attorneys now are finding those coveted clients scared off by the Sarbanes-Oxley Act of 2002. As a result, some lawyers are now bolting the Big Four and returning to traditional law practices.
"Sarbanes-Oxley hasn't precluded accounting firms from doing tax services, but it certainly has affected the breadth of services they can do for their audit clients," says attorney Michael F. Solomon. In September, he and six other tax lawyers left PricewaterhouseCoopers after just two years to join the Washington, D.C., office of law firm Shaw Pittman LLP.
Although Sarbox allows accounting firms to provide tax services, they are not permitted to provide advocacy work or legal services to audit clients. That means they can't represent those clients before the Internal Revenue Service or in tax court. And even tax services that are not specifically prohibited to audit clients must still be approved by a client's audit committee.
Apparently, many audit committees prefer not to make that call. "There seems to be a continuing drumbeat that auditors who provide tax services to audit clients are hot independent--even though Congress and the [Securities and Exchange Commission] carefully considered the issues and concluded to the contrary," PwC CEO Samuel A. DiPiazza Jr. testified at a September hearing of the Senate Committee on Banking, Housing, and Urban Affairs. He said PwC has seen about a 20 percent drop in audit clients using its U.S. tax practice, adding, "evidence shows that the trend is continuing."
"We hope it's a trend," says Barbara Roper, director of investor protection at the Consumer Federation of America, who was critical of Sarbox and the SEC for not simply banning auditors from providing tax services. "Given some of the recent scandals--Sprint comes to mind--careful audit committees are concluding what Congress and the SEC should have concluded, which is that tax-planning services are fraught with potential conflicts."
Stephen B. Huttler, managing partner at Shaw Pittman, says he's received a "deluge of resumes" from lawyers at the Big Four, and he plans to continue expanding his firm's tax practice.
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