Audit Conduct

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SEC updates independence guidance

On June 27, 2019, the Securities and Exchange Commission (SEC) Staff updated, Office of the Chief Accountant: Application of the Commission's Rules on Auditor Independence Frequently Asked Questions (FAQ Document). The guidance - in the form of questions and answers - provides the Staff's views on independence in certain contexts. The FAQs are not rules or statements of the SEC, which has neither approved nor disapproved them.

The Staff issued the original version of this guidance after the SEC released its first round of regulations relating to independence in 2001. With this latest update, the Staff indexed the FAQs to each section of Rule 2-01. The changes - including updates to 9 FAQs and 6 new FAQs -- may be summarized as follows: 

General Standard of Independence

  • New FAQ - unpaid fees
  • New FAQ - gifts and entertainment

Non-audit Services

  • Updated FAQs (3) - bookkeeping and not subject to audit exception
  • New FAQs (2) - "not subject to audit" exemption for certain prohibited services and non-audit services proposal while concluding audit

Partner Rotation

  • Updated FAQs (3) - partner changing firms (1) / cooling off period (2) 
  • New FAQs (4) - quarterly reviews / small firm exemption / reverse merger / IPO

Definitions

  • Updated FAQ - audit client / affiliate

Other Independence

  • New FAQs (2) - application of SEC independence rules

The Staff continues to encourage auditors and companies under audit to seek consultation on independence matters and provides guidance on how to request a consultation.