By Ken Tysiac
January 2, 2020
SEC proposes updating auditor independence rules
A Securities and Exchange Commission proposal is designed to amend rules that indicate auditor independence breaches in situations when no substantial threat to independence exists.
Auditor independence rules would change under a new SEC proposal designed to permit relationships in situations when independence is not substantially threatened.
If adopted, the proposed amendments to the independence rule (Rule 2-01) would:
- Amend the definitions of affiliate of the audit client, in Rule 2-01(f)(4), and Investment Company Complex, in Rule 2-01(f)(14), to address certain affiliate relationships, including entities under common control;
- Amend the definition of the audit and professional engagement period, specifically Rule 2-01(f)(5)(iii), to shorten the lookback period for domestic first-time filers in assessing compliance with the independence requirements;
- Amend Rules 2-01(c)(1)(ii)(A)(1) and (E) to add certain student loans and de minimis consumer loans to the categorical exclusions from independence-impairing lending relationships;
- Amend Rule 2-01(c)(3) to replace the reference to “substantial stockholders” in the Business Relationships Rule with the concept of beneficial owners with significant influence;
- Replace the transition and grandfathering provision in Rule 2-01(e) with a new Rule 2-01(e) to introduce a transition framework to address inadvertent independence violations that only arise as a result of merger-and-acquisition transactions; and
- Make certain miscellaneous updates.
Comments are due 60 days after the proposal is published in the Federal Register.