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The changes adopted by the SEC this week are designed to help determine whether an auditor’s loan relationship with certain shareholders of an audit client undermines the auditor’s independence.
Rule 2-01 (c) (1) (ii) (A) of Regulation SX, known as the “Loan Arrangement”, generally states that an auditor is not independent when in office. a loan relationship with an audit client. But the SEC had become aware of certain lending relationships that the existing rules identified as threats to independence but did not affect the impartiality or objectivity of the auditor.
Amendments aim to focus independence rules on lending relationships that may affect the impartiality or objectivity of the external auditors.
“The changes we are making today will more effectively identify debtor-creditor relationships that could undermine the objectivity and impartiality of an auditor, as opposed to some more muted relationships that are unlikely to pose such threats.” SEC Chairman Jay Clayton said in a press release.
The new amendments:
- Focus the independence analysis on beneficial ownership rather than beneficial and registered ownership.
- Replace the current 10% shareholder ownership test with a significant influence test.
- Add a “known through reasonable investigation” standard for identifying the beneficial owners of the audit client’s equity securities.
- Exclude from the definition of audited client, for an audited fund, any other fund that would otherwise be considered affiliates of the audited client under the rules applicable to certain loan relationships.
The changes will take effect 90 days after their publication in the Federal Register.
– Ken tysiac ([email protected]) is the JofAeditorial director of.
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