United States

SEC proposes amendments to certain auditor independence requirements


The SEC recently issued a proposed rule, Amendments to Rule 2-01, “Qualifications of Accountants,” to update certain of its auditor independence requirements. The proposed changes are intended to more effectively focus the independence analysis on those relationships or services that are more likely to pose threats to an auditor’s objectivity and impartiality. The proposed amendments primarily focus on fact patterns in which relationships and services would not pose threats to an auditor’s objectivity and impartiality but currently would trigger non-substantive rule breaches. Among other updates, the SEC proposes to:

  • Amend the definition of an affiliate of the audit client to address certain affiliate relationships in common control scenarios and the definition of investment company complex. The proposed amendments include the addition of materiality qualifiers to the common control provisions and distinguish how the definition applies when an accountant is auditing a portfolio company, an investment company, or an investment adviser or sponsor.
  • Amend the definition of the audit and professional engagement period to shorten the look-back period to the most recently completed fiscal year for domestic first-time filers in assessing compliance with the independence requirements to be consistent with the definition that applies to foreign private issuers
  • Add certain student loans and de minimis consumer loans to the categorical exclusions from independence-impairing lending relationships
  • Replace the reference to “substantial stockholders” in the business relationship rule with the concept of beneficial owners with significant influence
  • Provide a transition framework for corporate merger and acquisition transactions so the auditor and its audit client can transition out of prohibited services and relationships that were not prohibited prior to the transaction in an orderly manner

The proposed amendments are available for comment for 60 days after publication in the Federal Register.

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