Audit Conduct

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SEC Chief Accountant's December 10 Update (AICPA Conference on SEC & PCAOB Developments)

In his remarks before the 2018 AICPA Conference on Current SEC and PCAOB Developments, SEC Chief Accountant Wes Bricker provided an update on the Office of the Chief Accountant's (OCA's) activities, observations and goals. As usual, this blog post extracts the information related to auditor independence and related quality controls, which are summarized below.

The Loan Rule - Mr. Bricker said the May 2018 proposed amendments to the loan rule would clarify what has been a source of ambiguity and uncertainty for investors, management, audit committees, and auditors. Adding that the SEC also sought input on whether other changes should be made to the auditor independence requirements, he said the SEC received thoughtful comments that were generally supportive of the proposed rule and included recommendations for other changes to the independence rules. They are currently analyzing the comments and considering next steps. He noted that the SEC's regulatory agenda targets the loan rule for final rule-making in 2019.

Independence Consultations - (A perpetual area of focus is auditor independence.)  Mr. Bricker indicated that the flow of auditor independence consultations continues to be steady, but their nature and number fluctuate over time.  The consultations, he said, help inform their thinking about whether there is a need to recommend changes to the independence rules or update existing staff guidance (as was the case with the loan rule).  

Investing in Quality Control to Protect Independence in Fact & Appearance - Mr. Bricker noted, "As audit firms consider how they can contribute to better financial reporting as part of the overall business landscape, we encourage them to invest in their policies, procedures, and training, among other elements of a quality control system, that provide an audit firm with reasonable assurance that independence is maintained (in fact and appearance).  Independence is not only a legal requirement but also a professional and ethical duty.  Audit firms must promote ethical behavior by their staff, as a misstep here could impair the auditor's independence in fact or appearance.".

Working with the Audit Committee - Mr. Bricker also emphasized the need to enhance compliance with auditor independence rules by enlisting the company and its audit committee's help. He noted that companies can help promote compliance by monitoring corporate structural changes or other operational events (such as acquisitions) that may result in new affiliates or business relationships and timely communicating the changes to the audit firm. He also encouraged managements and audit committees, along with audit firms, to evaluate the sufficiency of their monitoring processes and practices in these areas.