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SEC proposes amending auditor independence rules

Tammy Whitehouse | May 4, 2018

The Securities and Exchange Commission has proposed amendments to its auditor independence rules to loosen the limitations on situations where someone in the auditor’s camp has a lending relationship with someone in the client’s camp.

The proposed rules would “refocus the analysis” that auditors must conduct to determine whether an auditor is independent when the auditor has a loan with shareholders at an audit client during an engagement, the SEC says in its proposing release. The analysis would focus “solely on beneficial ownership rather than both record and ownership,” the proposal says, and it would eliminate the bright-line ownership test of 10 percent with a “significant influence” test, which suggests auditors will have to use some judgment.

The SEC says the amendments would add a standard it calls “known through reasonable inquiry” to the language that describes the work auditors must do to identify beneficial owners of the audit client’s equity securities....

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