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Auditors Must Reveal Conflicts of Interest Immediately

A new PCAOB rule requires an auditor to affirm its independence in writing coming in the door.

By David Corrado | Updated on September 02, 2008

Public accounting firms must tell a potential client’s auditing committee before they are hired about conflicts of interest they may have and how their independence could be compromised as a result, according to a Public Company Accounting and Oversight Board (PCOAB) rule effective Sept. 30. Once hired, the auditor will be required to continue to disclose its potential conflicts of interest and affirm its independence in writing to the committee at least once a year. The new rule was approved by the Securities and Exchange Commission (SEC) on Aug. 22 after a public comment period. Ernst and Young had cautioned in a comment letter that the new rule might delay a company’s Initial Public Offering (IPO), which requires the firm to first engage an auditor to conform previously issued financial statements to the standards of the PCAOB and SEC.

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