(TCO C) Brandt CPAs has obtained Big-Bucks, a new publicly held client. Big-Buck
ID: 2342009 • Letter: #
Question
(TCO C) Brandt CPAs has obtained Big-Bucks, a new publicly held client. Big-Bucks has various accounting- related needs that Brandt CPAs would like to fulfill. Partner-in-charge D. Brandt has discussed with Big-Bucks the possibility of performing the annual audit of Big-Bucks, as well as preparing the tax returns, business plan, and quarterly write-up services and providing consultation on the viability and valuation of mining gas reserves in Tennessee. An outside expert would be hired by Brandt CPAs to provide expert advice to the CPA firm on mining gas reserves. Additionally, Brandt CPA's audit manager, who will be assigned to this audit, has previously been approached by Big-Bucks to come work for the company as chief financial officer. The audit manager has refused the offer, because his cousin's sister-in-law is a 10% shareholder in Big-Bucks, and he does not want her to have any say in his employment. Under the Sarbanes-Oxley Act of 2002, what issues do you see, and how would you advise Brandt CPAs? Is there ever a time when Brandt CPAs could perform any of these services for Big-Bucks?Explanation / Answer
Under the provisions of Sarbanes-Oxley Act of 2002, a publia accounting firm who is a auditor, is prohibited from accepting and performing certain "non-audit services".
Tax services are covered under the definition of "non-audit services", however only restricted and not prohibited. An auditor can do the tax planning, tax compliance and tax advice services, provided that client's audit committee approves the same.
Management functions are prohibited as non-audit services. Hence, in this case the "development of business plan" services should not be taken up by Brandt CPAs.
Appraisal or Valuation services and Bookkeeping services are also prohibited as non-audit services. Hence, providing consultation for valuation and viability of mining gas reserves and quarterly write-up services should not be taken up by the Brandt CPAs, unless it is satisfied that the results of this services will not be subject to audit procedures during an audit of the client's financial statements.
Yes, Brandt CPAs can perform the annual audit of Big Bucks without any prohibition. Sarbanes-Oxley Act of 2002 prohibits an audit firm to act as an auditor if any of his employee during the last one year was CEO, CFO, Comptroller or CAO of such company.
Since the audit manager of Brandt CPAs was never a employee of Big Bucks, hence Brandt CPAs are fully eligible to perform the Annual Audit services.
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