The Public Company Accounting Oversight Board (PCAOB) on Thursday announced it would adopt amendments to its independence standards to align with recent updates initiated by the Securities and Exchange Commission.
The SEC updates, which took place between 2019 and 2020, are the first to Rule 2-01 of Regulation S-X since 2003. The PCAOB is overseen by the SEC, and its adoption of the changes is subject to SEC review.
“The Board’s targeted amendments are intended to avoid confusion, differences, and duplication between PCAOB and SEC independence requirements,” said PCAOB Chairman William Duhnke III in a press release.
The SEC’s first update to Rule 2-01 came in June 2019 and relaxed the “loan provision” of the rule, which had faced criticism for being too restrictive with regard to auditor lending relationships with shareholders of audit clients. Last month, the SEC updated Rule 2-01 again, this time redefining conflict-of-interest rules in three areas: affiliate of the audit client, investment company complex, and audit and professional engagement period.
The changes are part of a larger push by the SEC under outgoing Chairman Jay Clayton to simplify compliance efforts for registrants. “Our auditor independence rules are far-reaching and restrictive. They should be, as even the appearance of inappropriate influence can undermine confidence,” Clayton said during a speech to the Economic Club of New York on Thursday. “… These organic improvements to [Rule 2-01]—driven by the Office of the Chief Accountant, led by Sagar Teotia—were modest and tailored to reduce or eliminate … adverse effects on auditor choice without detracting from the independence obligations of auditors and issuers.”
The October rule change was approved by a 3-2 vote, with the two Democratic SEC commissioners in their dissenting opinion sharing concerns the rules were being loosened too much.