www.icai.org June/2012/1,000 (Reprint) The Institute of Chartered Accountants of India (Set up by an Act of Parliament) New Delhi ISBN : 978-81-88437-52-8 The SEC believes this will improve the requirements by making them more clear and less complex. OCA oversees the resolution of auditor and preparer independence … Five Threats to Auditor Independence. This is the case regardless of whether, as the SEC staff has observed in similar situations, these limited services at immaterial portfolio companies (like Companies Y and Z) have no impact on the entity under audit in any way and do not affect the objectivity and impartiality of the auditor in conducting the audit for Company X. Accordingly, this could expand the pool of auditors available to registrants, which would provide more relevant industry expertise, drive down audit costs and improve the quality of financial reporting. The SEC has made only limited modifications to its auditor independence requirements in the 20 years since their adoption. Auditors are not permitted to retroactively apply the final amendments to relationships and services in existence prior to the effective date or the early compliance date if selected by an audit firm. The final rules have also excepted most student loans obtained from a financial institution under normal conditions and prior to the person becoming covered for purposes of the requirements; clarified that more than one mortgage loan (second mortgages, home equity loans, etc.) Taking into account comments the SEC received, the final rule went a step further and adopted a dual materiality threshold, meaning that for the audit client to include a sister entity, both the entity under audit and the sister entity must be material to the common entity. The following are the five things that can potentially compromise the independence of auditors: 1. Auditor independence —meaning independence of both the firm engaged to perform external audits and the individual auditors who conduct the audits–is a central facet of external auditing. The SEC has made specific changes to the independence requirements with respect to the auditor of an investment company or an investment adviser or sponsor. These relationships either triggered non-substantive rule breaches or required potentially time-consuming audit committee review of non-substantive matters, thereby diverting time, attention, and other resources of audit clients, auditors, and audit committees from other investor protection efforts. All members are required to apply ICAEW’s Code of Ethics (‘the Code’) in all of their professional and business activities. These rules are a result of the Sarbanes-Oxley Act of 2002 (the “Act”) and were adopted by the SEC in accordance with Section 208(a) of the Act, although certain aspects of the rules expand upon the auditor independence provisions of the Act. … Washington D.C., Oct. 16, 2020 —. Required fields are marked *, You may use these HTML tags and attributes:
, Posted by Charles F. Smith, Brian V. Breheny, and Andrew J. Fuchs, Skadden, Arps, Slate, Meagher & Flom LLP, on, Harvard Law School Forum on Corporate Governance. Your email is never published nor shared. The SEC has repeatedly emphasized that “maintaining the independence of auditors is crucial to the credibility of financial reporting.” As such, auditors and audit committees constantly—both before and during an engagement—must be vigilant against impairment of their independence and devote substantial resources to verifying and maintaining that independence. Since the initial adoption of the current independence requirements in 2000 and amendments adopted in 2003, the Commission and its staff have continued to learn about the application, efficiency, and effectiveness of auditor independence requirements amidst changing capital market conditions. Auditor independence refers to the independence of the internal auditor or of the external auditor from parties that may have a financial interest in the business being audited. In complex organizational structures, there is a significant compliance burden in identifying all such affiliates and making independence determinations. Under the rules as amended, Company X would be able to engage Audit Firm A for audit services. This would in some circumstances prevent investment companies advised by related investment advisers from being swept up in the definition of “affiliate.”. The final amendments respond to recent changes in capital market conditions, reflect the Commission staff’s experience administering the independence requirements, and incorporate both recent and long-term feedback. We covered auditor independence in a recent post and decided to take a closer look at what has changed among the rules in the US..