SEC Approves Changes to Ease Auditor-Independence Rules for Companies, Audit Firms

The changes will make it easier for companies and audit firms to avoid violations, especially involving IPOs and lending relationships

U.S. Securities and Exchange Commission Chairman Jay Clayton.

Photo: Lamkey Rod/Zuma Press

The U.S. Securities and Exchange Commission adopted changes that relax some conflict-of-interest rules for companies and audit firms, making it easier for them to avoid violating auditor independence in certain situations.

The amendment, passed by the SEC on Friday, gives auditors more discretion in assessing conflicts of interest in their relationships with the businesses they audit, in situations such as those involving affiliates of their clients or past lenders. The rule also intends to lessen the burden for companies trying to go public.

香蕉视频苹果下载The SEC, however, said the changes won’t loosen the requirements but rather boost audit quality by increasing the number of qualified audit firms from which a company can choose.

“These modernized auditor independence requirements will increase investor protection by focusing audit clients, audit committees and auditors on areas that may threaten an auditor’s objectivity and impartiality,” said SEC Chairman Jay Clayton.

An SEC official said the amendment won’t result in any changes to the scope of an audit firm’s services or to a company’s approach to financial statements.

香蕉视频苹果下载SEC Commissioners Caroline Crenshaw and Allison Herren Lee opposed the changes, saying they introduce greater opportunity for error and uncertainty and reduce investors’ visibility into how auditors make judgments.

The regulator had proposed the revisions last December.

The new rule revises the definition of affiliates of an audit client, which states that the independence rules governing an auditor of a portfolio company also extend to any other portfolio company controlled by the same private fund. The amendment allows companies and auditors to determine whether another portfolio company under the fund is material to the fund. If they determine it isn’t material, the other portfolio company wouldn’t be considered an affiliate under the rule.

The rule shortens the period during which U.S. companies planning to go public ensure their auditor’s independence before an IPO. It reduces the time frame, known as a “look-back” period, to one year from three years for U.S. companies.

香蕉视频苹果下载The rule also builds on loan-related changes the regulator made to auditing rules last year. Under the new rule, the student loans of certain employees who are involved in or are in a position to influence an audit are no longer deemed compromising to the independence of the audit firm. The existing rules applied restrictions to those employees who had obtained student loans from an audit client through normal lending procedures before their employment at the firm.

The rule change will take effect 180 days after publication in the Federal Register.

Write to Mark Maurer at

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香蕉视频苹果下载 Appeared in the October 19, 2020, print edition as 'SEC Eases Regulations On Auditor Independence.'