As reflected in its current Reg-Flex Agenda, the SEC today issued proposed amendments to the Rule 2-01 auditor independence requirements that address certain aspects of the current rules that unnecessarily hinder audit firm selection and availability based on technical independence violations that don't in fact threaten or prevent auditor objectivity and impartiality. The proposals are based largely on the SEC staff's consultation experience with recurring fact patterns over a 10-year period and changes in market conditions and industry practices over time.
Specifically, the proposed amendments would - among other updates:
- Amend the definitions of affiliate of the audit client and Investment Company Complex to address certain affiliate relationships, including entities under common control
- Amend the definition of the audit and professional engagement period to shorten the look-back period for domestic, first-time filers in assessing compliance with the independence requirements
- 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
- Replace the transition and grandfathering provision in Rule 2-01(e) with a new transition framework to address inadvertent independence violations that only arise as a result of M&A transactions
SEC Chair Jay Clayton commented: "The proposal is consistent with the Commission’s long-recognized view that an audit by an objective, impartial, and skilled professional enhances both investor protection and market integrity, and, in turn, facilitates capital formation. In practice, the proposed amendments also would increase the number of qualified audit firms an issuer could choose from and permit audit committees and Commission staff to better focus on relationships that could impair an auditor’s objectivity and impartiality."
The proposal is subject to a 60-day comment period following publication in the Federal Register.
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