SEC May Make Changes to Auditor Independence Rules

By Stephen Barlas
December 1, 2018

The U.S. Securities & Exchange Commission (SEC) is contemplating changes that would affect the portion of auditor independence rules, adopted in 2000 as Rule 2-01 of Regulation S-X, that relate to auditors who may have a lending relationship with certain shareholders of an audit client.

Among the revisions proposed by the SEC, changes would include:


  • Focusing the analysis solely on beneficial ownership rather than both record and beneficial ownership,


  • Replacing the existing 10% bright-line shareholder ownership test with a “significant influence” test, and


  • Adding a “known through reasonable inquiry” standard in identifying beneficial owners of an audit client’s equity securities.


The first two changes have drawn the most interest. Matt Cagwin, senior vice president, corporate controller, and chief accounting officer of First Data Corp., wants the SEC to consider incorporating a materiality qualifier in the loan provision as it relates to both the lender’s investment in the audit client and to the loan’s significance to the auditor. That would essentially narrow the instances of where “beneficial” ownership would come into play.


Stephen Barlas has covered Washington, D.C., for trade and professional magazines since 1981 and since 1984 for Strategic Finance and its predecessor Management Accounting. You can reach him at sbarlas@verizon.net.
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