RECENT DEVELOPMENTSOCTOBER 2, 2017
On September 28, the Securities and Exchange Commission (SEC) issued an Order providing temporary relief from certain rules under the Securities laws, including auditor independence, to companies impacted by Hurricanes Harvey, Maria and Irma and their auditors.
The Order, referencing section 10A(g)(1) of the Exchange Act and Rule 2-01(c)(4)(i) of Regulation S-X, provides that:
- The destruction of property and loss or destruction of corporate records may require extraordinary efforts to reconstruct those accounting records.
- An audit client may look to its auditor for assistance in reconstructing its accounting records because of the auditor’s knowledge of the client’s financial systems and records.
- Auditors are prohibited from providing bookkeeping or other services relating to the accounting records of the audit client (per the rule, these prohibited services are considered to be “maintaining or preparing the audit client’s accounting records” or “preparing or originating source data underlying the audit client’s financial statements”). However, the SEC believes that limited relief from these prohibitions is warranted and necessary and in the public interest and consistent with the protection of investors.
Conditions for applying this Order are as follows:
- Services performed in accordance with the Order are limited to reconstruction of previously existing accounting records that were lost or destroyed as a result of Hurricane Harvey, Hurricane Irma or Hurricane Maria.
- Auditors should cease services as soon as the audit client’s lost or destroyed records are reconstructed, its financial systems are fully operational and the client can effect an orderly and efficient transition to management or another service provider.
- As required by Rule 2-01(c)(7) of Regulation S-X, the audit client’s audit committee should pre-approve the auditor's services.