Sections 201 and 202 of the Sarbanes-Oxley Act provide that an issuer's auditing committee must pre-approve "allowable services" to be provided by the auditor of the issuer's financial statements in order to assure the independence of such auditor. The rules will implement those sections of the Act by requiring that the auditing committee pre-approves all services. In doing so, the auditing committee may establish policies and procedures for pre-approval provided they are consistent with the Act, detailed as to the particular service, and designed to safeguard the continued independence of the accountant.

Thus "Actuarial Services", usually provided by the "Big 4" auditing firms on tax planning or tax optimizations, are now restricted. "Expert services unrelated to the audit, usually provided by legal and tax divisions of auditing and accounting firms" to clients audited, or to its legal representatives, are now restricted too. Likewise, "outsourcing services provided by an audit firm to their audit clients" could not be subject to audit procedures during an audit of the client's financial statements. Same happens on transactions as broker or dealer, investment adviser, or investment banking services, usually provided on the acquisitions of cash companies, losses, assets, by the "Big 4" auditing firms, who use to act as promoter or underwriter on behalf of an audit client.

Finally, one of the most sensitive areas, Legal Services, usually provided by auditing firms through their Tax & Legal Departments, may jeopardize the independence required by US SEC. We understand why companies engage tax and legal services with the audit firms. In the past the sole trademark of a big auditing firm was extremely important to avoid risks. From Sarbanes-Oxley Act, the risks involved in their advise have substantially changed the market of legal and tax services.

Currently, from our view, any legal and tax assistance provided by attorneys at law should now be provided by independent and experienced legal and tax firms. Only a few of them existed in the past, where tax experts were mainly working with the "Big 4" firms. Nevertheless, from now on you can count on TAX & LEGAL CHILE as your experienced legal and tax services provider, to avoid risks and future unsuspected liabilities and impacts arisen from Sarbanes-Oxley Act.

Chile is one of those countries where the legal work must be made by admitted qualified attorneys at law. Of course, such professionals may be employed by auditing firms to provide legal and tax services, because no local restriction is applicable. Thus, Tax & Legal Divisions of the auditing firms include attorneys at law directly depending from Senior Auditing Partners or Managing Partners, adding more risk to their legal and tax opinions and suggestions. Furthermore, in the new scenario, our view is that even a Lawyer-Partner could be deemed as an Audit-Partner, if he/she is involved with the opinions given on engagements to audited clients, affecting eventually the Client’s liability. Sarbanes-Oxley Act’s regulations are not totally clear on the effects and limits against legal services from the Tax & Legal Divisions of the auditing firms, where other restrictions are applicable to attorneys at law in the US to practice law within such firms.

Sarbanes-Oxley Regulations are not totally clear on the effects and limits arising from providing legal services from the tax & legal divisions. Notwithstanding, the new rules provide that foreign accounting firms (such as the Chilean "Big 4" auditing firms) or foreign private issuers (Chilean Clients of them) may face additional issues in implementing certain rules. Changes to the proposed rule, relating to the depth of partners rotation and the scope of personnel subject to the "cooling off" period, apply to foreign accounting firms. Moreover, additional time is being afforded to foreign accounting firms with respect to compliance with rotation requirements. The release also provides guidance on the supply of non-audit services by foreign accounting firms, including the treatment of legal services and tax advice. The SEC also stands ready to work with other regulatory bodies on these issues.

Nevertheless, the Chilean SEC (Superintendencia de Valores y Seguros -SVS) went further than the US SEC against auditing firms. Thus, SVS stated that among non-audit services affecting independence (forbidden services) are the following:

• Bookkeeping.
• Bonds ADR’s, and Shares.
• Actuarial services in certain circumstances.
• Financial information systems design and implementation.
• Internal audit outsourcing services.
• Management functions or human resources including headhunting for key professionals.
• Legal services which could affect the financial statements.
• Expert services, appraisal or valuation services, fairness opinions, or contribution-in-kind reports.
• Any other service that the Chilean SEC by a General Ruling if the product is reflected in the accounting records or financial statements of the audit client.

The other Non-Audit Services must be approved by the Board of Directors of the Company after a report of the Board Committee. More Restrictions will be imposed.

For a complete reference of the Chilean regulations, please click here

In view of the above, and of the diluted Client's Privilege, our suggestion will always be to avoid professional assistance from such firms on legal and tax matters. In any case, the US SEC allows certain non-audit services (tax services) to registered public accounting firms, such as tax compliance, tax planning and tax advice to audit clients, provided that they have not been expressly prohibited, after audit committee pre-approval if the independence of an accountant is not breached. In any case, in our view such provision should be amended because it is breaking the intended independence's target.

In determining whether or not a service would impair the accountant's independence solely because the service is labeled as a legal service in a foreign jurisdiction, it is clearly stated that the US SEC will consider whether the supply of the service would be prohibited in the United States as well as in the foreign jurisdiction.

Finally, the fines and penalties are being imposed to auditing firms and their clients as a result of the "independence issue". For more information on this regard, please click here