Under PCAOB Rule 3520, the auditor “must be independent of the firm’s audit client throughout the audit and professional engagement period,” which includes satisfying the independence criteria of the SEC and the PCAOB. But what happens when the auditor violates one of the independence rules—let’s say one of the specific prohibitions under Rule 2-01(c) of Reg S-X? Can the auditor’s violation be “cured”? Can the auditor still affirm its independence? How is that determined?
The SEC has posted a new rule proposal that would modify the analysis of auditor independence in the context of lending relationships between the auditor and certain shareholders of an audit client during the audit or professional engagement period. Under the current loan provision of Rule 2-01(c) of Reg S-X, some debtor-creditor relationships between an auditor and its audit client are viewed to taint auditor independence. However, the SEC now believes that some of the provisions of this Rule are not as effective as they could be and may present unnecessary practical challenges. The release indicates that the proposed amendments are designed to better focus the loan provision “on those relationships that, whether in fact or in appearance, could threaten an auditor’s ability to exercise objective and impartial judgment.” As Wes Bricker, SEC Chief Accountant, told Bloomberg, “[w]e’re trying to right-size” the Rule.The SEC is also soliciting comment on other potential changes to the loan provision or other provisions of Rule 2-01. Comments are due 60 days after publication in the Federal Register.
SEC Chair Jay Clayton has repeatedly made a point of his intent to take the Regulatory Flexibility Act Agenda ”seriously,” streamlining it to show what the SEC actually expected to take up in the subsequent period. (See this PubCo post and this PubCo post.) The agenda has just been released, and it certainly appears that Clayton has been true to his word: several items that had taken up long-term residency on numerous prior agendas seem to be absent from this one.
by Cydney Posner As discussed in this PubCo post, last week, the SEC announced settled charges against EY and individual EY auditors (and certain officers at the audit clients involved) with regard to alleged violations of the auditor independence rules as a result of “close personal relationships” with officers at […]
First SEC enforcement actions for violations of auditor independence rules resulting from personal relationships
by Cydney Posner In two orders made public today, the SEC announced settled charges against EY and individual EY auditors (and officers involved at the subject companies) with regard to alleged violations of the auditor independence rules as a result of “close personal relationships” with officers at audit clients. According […]
by Cydney Posner SEC Chair Mary Jo White and a cast of thousands from the SEC’s Office of the Chief Accountant delivered remarks yesterday before the 2015 AICPA National Conference on Current SEC and PCAOB Developments. Summarized below are some of the key themes of their speeches: