Taxing changes

27 December 2002

Their consultancy arms have already been largely hivedoff. Now the SEC may force them to separate certain tax services too. The industry hates the idea. Yet, as structured, it still faces huge potential conflicts of interest similar to investment banks.

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The big four accountancy firms face growing pressure to breakup because of proposed new rules by the chief US regulator that may prohibit them from selling tax strategies to audit clients.

The SEC has said that tax strategies, such as advising on tax shelters, can create a conflict of interest because accounting firms then ultimately audit their own work. The proposed rule is the latest blow to what has been a growing and profitable business for the accounting firms.

PwC and KPMG have both criticized the proposals, which must be finalised by the end of January. Mike Rake, global chairman of KPMG, said the SEC's proposals on auditor independence, which are tougher than similar provisions in the SarbanesOxley act, could damage audit quality, the Financial Times reported.

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