United States

Independence rules: Proposed amendments and request for comment


In Release No. 33-10491, the SEC recently proposed to amend its auditor independence rules to refocus the analysis that must be conducted to determine whether an auditor is independent when the auditor has a lending relationship with certain shareholders of an audit client at any time during an audit or professional engagement period. If finalized, the proposed amendments related to this ‘Loan Provision’ in S-X Rule 2-01(c)(1)(ii)(A) would:

  • Focus the analysis solely on beneficial ownership rather than on both record and beneficial ownership.
  • Replace the existing 10 percent bright-line shareholder ownership test with a ‘significant influence’ test.
  • Add a ‘known through reasonable inquiry’ standard with respect to identifying beneficial owners of the audit client’s equity securities.
  • Amend the definition of ‘audit client’ for a fund under audit to exclude funds that otherwise would be considered affiliates of the audit client.

The SEC also is requesting comments on other potential changes to its auditor independence rules related to the following, among other, topics:

  • Materiality – The SEC is requesting comment on whether there should be a materiality qualifier as part of the Loan Provision.
  • Accounting firms’ ‘covered persons’ and immediate family members – The Loan Provision is implicated with respect to loans both to and from an accounting firm, and also any ‘covered person’ in the firm or any of his or her immediate family members. The SEC is requesting comment on whether it should amend the definition of ‘covered person’ for purposes of the Loan Provision or elsewhere in the auditor independence rules.
  • Evaluation of compliance – Rule 2-01(c)(1) provides that an accountant is not independent if the accountant has an independence-impairing relationship specified in the rule at any point during the audit and professional engagement period. Some existing disclosure requirements require information about beneficial owners as of a specified date. The SEC is requesting comment on whether it should make any changes related to the frequency with which, the date as of which, or circumstances under which, an auditor must assess compliance with the Loan Provision or other provisions of Rule 2-01.

The SEC also has asked a broader question of whether it should make other changes to the SEC auditor independence rules. Comments on Release No. 33-10491 should be provided on or before July 9, 2018.