SEC Proposes Amendments to Auditor Independence Rules | DART

The SEC has issued a proposed rule, Amendments to Rule 2-01, Qualifications of Accountants.

The proposed rule would codify certain SEC staff consultations and modernize various aspects of the SEC’s auditor independence framework 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.” As indicated in the SEC’s press release, the proposal would make the following changes to Regulation S-X, Rule 2-01:

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 look-back period, for domestic first time filers in assessing compliance with the independence requirements;
Amend Rule 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 relationship rule with the concept of beneficial owners with significant influence;
Replace the outdated transition and grandfathering provision in Rule 2-01(e) with a new Rule 2-01(e) to introduce a transition framework to address inadvertent independence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 on the proposed rule are due 60 days after the date of its publication in the Federal Register.