By:  Cydney Posner

The SEC is allowing companies, on a one-time only basis, to make reclassifications to cash flow without restating their financial statements. The only hitch is that the correction must be made in the first periodic report after February 15 or the opportunity will be lost--the correction would then require a restatement.

In addition, the SEC has published for comment a recent PCAOB rule filing regarding Proposed Ethics and Independence Rules Concerning Independence, Tax Services and Contingent Fees.

Among other things, the new rules set forth the fundamental ethical obligation of independence: a registered public accounting firm and its associated persons must be independent of the firm's audit client throughout the audit and professional engagement period. This requirement encompasses not only the PCAOB independence requirements set forth in specific rules, but also includes any other independence requirement applicable to the audit in the particular circumstances, such as the rules of the SEC in the case of an audit client subject to the SEC's financial reporting requirements. The rules also provide that certain contingent fees and commissions create per se conflicts that impair auditor independence. In addition, the rules would treat an auditor as not independent if the auditor markets, plans or opines in favor of a described class of tax-motivated transactions that the PCAOB views as presenting an unacceptable risk of impairment. Another rule provides that independence would be impaired if the auditor firm or any affiliate of the firm, during the audit and professional engagement period, provides any tax service to a member of management in a financial reporting oversight role at the audit client. With respect to pre-approval by an audit client's audit committee of the auditor's performance of tax services that are not otherwise prohibited, the auditor must describe, in writing, to the audit committee the nature and scope of the proposed tax service; discuss with the audit committee the potential effects on the firm's independence that could be caused by the firm's performance of the proposed tax service; and document the firm's discussion with the audit committee.

This content is provided for general informational purposes only, and your access or use of the content does not create an attorney-client relationship between you or your organization and Cooley LLP, Cooley (UK) LLP, or any other affiliated practice or entity (collectively referred to as "Cooley"). By accessing this content, you agree that the information provided does not constitute legal or other professional advice. This content is not a substitute for obtaining legal advice from a qualified attorney licensed in your jurisdiction, and you should not act or refrain from acting based on this content. This content may be changed without notice. It is not guaranteed to be complete, correct or up to date, and it may not reflect the most current legal developments. Prior results do not guarantee a similar outcome. Do not send any confidential information to Cooley, as we do not have any duty to keep any information you provide to us confidential. When advising companies, our attorney-client relationship is with the company, not with any individual. This content may have been generated with the assistance of artificial intelligence (Al) in accordance with our Al Principles, may be considered Attorney Advertising and is subject to our legal notices.