Independence is not impaired when the total value of the assets in a brokerage account are substantially insured. We respectfully submit, however, that this proposed rule would be more practical and meaningful with the changes set forth below. It also does not contain the interpretive languageon this point set forth in AICPA Interpretation 302-1.78 Under this guidance, a contingent fee "determined based on the results of judicial proceedings or the findings of governmental agencies" is permissible if "the member can demonstrate a reasonable expectation, at the time of the fee arrangement, of substantive consideration by an agency with respect to the member's client. 210.2-01, and in extensive interpretations, guidelines and examples in Section 600 of the Codification of Financial Reporting Policies, Matters Relating to Independent Accountants (the "Codification"). There are two problems with the proposal. Subscribe to receiveRoadmap seriespublications via e-mail. who is still a covered person. Tracking & Trading SystemAn internal tool to help you monitor your compliance with independence requirements related to certain personal investments and financial relationships. VI. Absent evidence to the contrary, beneficial ownership of twenty percent or more of an audit client's equity securities should be considered to constitute significant influence over the audit client. Significant influence or control over an audit client. A bright-line threshold of five percent applicable to all firm employees and their family members would create an undue burden . When a 100% ownership interest in a subsidiary is moved from one branch to another, why should it matter where in the family tree it is located? If income from continuing operations However, as discussed in our comment letter on the scope of services provisions of the proposed rule, the appearance of auditor independence varies from country to country.48 What may appear to present an independence issue in one country may be perfectly acceptable, or even required, in another country. Transforming technical accounting, governance, and controllership, Benefits and challenges of non-GAAP reporting. The proposed rule provides no basis for its prohibition of loans to and from beneficial owners of more than five percent of the audit client's or affiliate's equity securities. In some cases you can still use services from this companies, but only certain ones and you can't work on projects for that client. Deloitte agreed to pay more than $1 million to settle the charges. 9,135 and 9,136 (1998). Reg. International: +1 503-748-0570 What happens if I cant find a D-U-N-S number for a specific entity in Dun & Bradstreet Million Dollar Database? Many public companies can put out periodic filings, but find themselves in uncharted waters when mergers, acquisitions, or other developments change their SEC obligations. Proposed rule 2-01(c)(1)(ii)(A) would prohibit any loan to or from an audit client, an affiliate of an audit client, or any officer, director, or beneficial owner of more than five percent of those entities' equity securities, with certain exceptions for collateralized loans.51 Although the proposed rule captures the accounting profession's agreement that certain loans to and from audit clients might create a financial interest that impairs independence,52 in certain respects the proposed rule is overbroad. In The Firm" Are Flawed And Should Be Modified, A. The term "foreign practice" will be used in this letter to refer to non-U.S. practices of the international accounting organization of which the accounting firm is a part. Proposed rule 2-01(c)(1)(i)(A) would prohibit any investment in an audit client or an affiliate of the audit client by covered persons and their immediate family members. 24, 78, and 377-378 (1994 & Supp. Further, the payroll service provider would be subject to all of the independence requirements, including prohibitions on investments in our audit clients and their affiliates. DTTL (also referred to as "Deloitte Global") does not provide services to clients. Designated Officers are individuals who are charged with risk management or general oversight responsibilities and who do not direct, effect, or recommend securities and/or securities-based swap transactions or loan trades for any account. Third, the proposed definition unnecessarily includes all professionals providing non-audit services to an audit client. The Proposed Exception Should Be Modified Our reputation defines us in the marketplace. As a result, business relationships that would have otherwise been undertaken with accounting firms will be unlikely to occur. The appearance of independence is dependent on many factors, including the country's culture, economic environment, business traditions, regulatory structure and legal environment. The Proposed Rule Should Not Restrict The Employment Relationships Of The Close Family Members Of Uninvolved Partners, B. First, the proposed definition of "chain of command" includes all individuals who have any type of responsibility over members of the audit engagement team even though many of these individuals will have no influence over the audit. Why is that entity not listed? In addition, this concept should be extended to bank overdrafts and other similar consumer finance arrangements. Proposed rule 2-01(c)(1)(ii)(E) provides that an accountant is not independent when the accounting firm, any covered person, or any of his or her immediate family members has "any credit card balance in excess of $10,000 owedto a lender that is an audit client or an affiliate of an audit client. Fourth, the definition should include leased personnel who are on the audit engagement team. We recognize that quality controls should be the first line of defense to guard against independence concerns with respect to an audit client. before income taxes for the year is clearly not indicative of the past or The proposed rule could result in firms being unable to secure adequate insurance. The proposed rule is thus too broad. For example, the proposed rule would unnecessarily require the spouse of a covered person to transfer assets out of his or her brokerage account held at an immaterial affiliate of an audit client to the extent the value of such assets exceed the Securities Investor Protection Corporation ("SIPC") coverage.19 There is no threat to an accounting firm's independence where the affiliate is not material to the audit client, and the accounting firm does not audit the affiliate. exceeds 5 percent of the parent's or investor's consolidated total assets. Listed Companies audited by Uninspected Audit Firms Using the determinations provided in the PCAOB's report, the SEC has begun to identify U.S.-listed companies have used an Uninspected Audit Firm to audit their financial statements. In April 2000, the SEC Practice Section of the AICPA (the "SECPS") adopted new membership requirements concerning independence quality controls with which SECPS members must comply by December 31, 2000. In general, that helps us proactively advise you on the issues affecting your business while saving you headaches down the road. On March 30, 2022, the SEC issued a proposed rule 2 that would "enhance investor protections in [IPOs] by [SPACs] and in subsequent business combination transactions between SPACs and private operating companies [also known as de-SPAC transactions]." is sorely needed. ", The term "uninvolved partner" as used in this letter refers to those partners, principals and shareholders that are "covered persons," as defined in the proposed rule, because they are located in an office that participates in a significant portion of the audit, but are not on the "audit engagement team" or "chain of command.". Makes The "Office" Concept Unnecessary, 2. 43,148. 2023. Simply having any supervisory, management, qualitycontrol, compensation, or other oversight responsibility over members of the audit engagement would not necessarily place an individual in a position to influence either the audit or a member of the audit engagement team. This proposed rule does not provide an exception for investments, in the form of stock compensation, by the immediate family members of such persons obtained through employer-sponsored benefit plans. Such an exception should apply to all employer-sponsored benefit plans, such as 401(k) plans; matching share plans; restricted stock plans; stock purchase and award plans; and stock option plans. Furthermore, the Release provides no explanation of how such a loan would impair an auditor's objectivity. I am the Responsible Party for a US SEC Registrant that is not listed in the FCT, nor in the Responsible Party assignments email attachment. Under the proposed rule, this software company may be deemed an "affiliate of the accounting firm" subject to all of the independence requirements, including prohibitions on investments in our audit clients and their affiliates. Deloitte offers a tailored suite of services geared toward public entities who file with the SEC and private ones considering an initial public offering (IPO) or engaging with public counterparts. Instead, the proposed rule seems to be premised on the notion that the "appearance of independence" is a universal truth that the Commission can impose on the rest of the world. Answer: DTTL Global Independence believes that companies are The Definition Of An "Affiliate Of The Accounting Firm" Should Be Limited To Those Third Parties That Warrant Being Treated Like The Accounting Firm For Independence Purposes, B. is not reflected in the text of the proposed rule. taxes exceeds 5 percent of the parent's or investor's consolidated income from If we have selected the wrong experience for you, please change it above. Additionally, it would be difficult and expensive for an accounting firm to assure that none of its audit clients or their affiliates have a direct investment in third parties with which the accounting firm either has a relationship or is considering a relationship. Under the proposed definition, even when a relationship doesnot impair independence and is beneficial to investors, audit clients and the public, the relationship might nonetheless cause an entity to be deemed an affiliate of the accounting firm, subject to all of the prohibitions placed on the accounting firm. Attention: Mr. Jonathan G. Katz, Secretary, Re: Revision of the SEC's Auditor IndependenceRequirements, File No. We respectfully submit that the proposed rule should provide for an exception when: (1) the indirect financial interest in the audit client is immaterial to the covered person; (2) the beneficiary has no direct or indirect control over the investment decisions or assets of the trust; and (3) the trust was not created by the covered person named as a beneficiary. Please enable JavaScript to view the site. The proposed rule could result in the loss of these relationships. In the United States, Deloitte refers to one or more of the US member firms of DTTL, their related entities that operate using the "Deloitte" name in the United States and their respective affiliates. "69, VII. In addition to the specific provisions discussed above, the proposed rule also contains a broad provision which states that "[i]n determining whether an accountant is independent, the Commission will consider all relevant circumstances, including all relationships between the accountant and the audit client or the affiliatesof the audit client. Indeed, the provision would appear to allow the Commission to find that an auditor's independence has been impaired by a financial interest or activity that is not specifically set out in, or contemplated by, the proposed rule. Deloitte failed to discover that the required initial independence consultation was not performed until nearly five years after the independence-impairing relationship had been established between Deloitte Consulting LLP and Boynton, who was paid consulting fees for his external client work. Each member of Crowe Global is a separate and independent legal entity. For many years, the SECPS membership requirements have served as the cornerstone for the profession's peer review program. DTTL and each DTTL member firm and related entity is liable only for its own acts and omissions, and not those of each other. While we believe the Commission should defer to the ISB, the proposed rule, if adopted, would lead to unintended consequences, raising a number of concerns, including the following: II. Will the Firm Contribution Tool run in parallel with the Restricted Entity List? Cultivating a sustainable and prosperous future, Real-world client stories of purpose and impact, Key opportunities, trends, and challenges, Go straight to smart with daily updates on your mobile device, See what's happening this week and the impact on your business. For example, there is no evidence that an accounting firm's independence would be impaired if the spouse of an uninvolved partner had a $10,001 balance on a credit card issued by an audit client.46 Given these concerns, we believe the Commission should follow the ISB's proposed approach of applying restrictions on "other financial interests" to the accounting firm and professional employees directly involved in providing audit services to the audit client.47. The SEC has five divisions, including the Division, and various offices, such as the Commission's OCA and the Office of General Counsel. Our shared values are not an abstract ethical philosophy, but a powerful, living compass intended to guide us all toward the right decisions and the correct actions, whatever situations we may encounter, whenever and wherever we are. Deloitte operates in dynamic regulatory environments in which national rulemaking often has broad-reaching global implications. The Proposed Rule On Indirect Investments In An Audit Client Should Include A Workable Materiality Standard, B. Our Code includes and then expands on these principles by adding requirements that are unique to us in the United States. See Terms of Use for more information. To stay logged in, change your functional cookie settings.