The Securities and Exchange Commission on Monday proposed changes that would ease up certain auditor independence rules regarding affiliates of audit clients and the preparation of initial public offerings.
The proposed amendments were designed to “codify certain staff consultations and modernize certain aspects of its auditor independence framework” that have been in place for almost two decades, the SEC pointed out in its announcement.
One key amendment would be a change in the definition of the term “audit client” in Rule 2-01. That rule was “designed to ensure that auditors are qualified and independent of their audit clients both in fact and in appearance,” the SEC noted in the proposed amendments posted on its website.
The SEC is proposing that certain paragraphs within that rule be changed to, among other things, “distinguish how the definition” of an affiliate “applies when an accountant is auditing a portfolio company, an investment company, or an investment adviser or sponsor,” it said.
The public will be able to comment on the proposed amendments for 60 days, the SEC said.
The proposed changes would update select aspects of the auditor independence rules to “more effectively structure the independence rules and analysis so that relationships and services that would not pose threats to an auditor’s objectivity and impartiality do not trigger non-substantive rule breaches or potentially time consuming audit committee review of non-substantive matters,” the SEC said.
The proposed amendments are “based on years of Commission staff experience in applying our auditor independence rule set and respond to recent and longer term feedback received from a wide range of market participants,” according to SEC Chairman Jay Clayton.