SEC amends the Loan Provision of its auditor independence rules

The SEC amended its auditor independence rules with respect to loans and debtor-creditor relationships (the Loan Provision). The SEC’s amendments refocus the analysis on debtor-creditor relationships that pose a threat to auditor independence.

Applicability

Final rule: Release No. 33-10648; 34-86127

• SEC registered companies
• SEC registered investment companies
• SEC registered broker-dealers
• Private funds managed by SEC registered investment advisers

Relevant dates

• Final rule issued: June 18, 2019
• Effective date: October 3, 2019

Key impacts

The key amendments to the Loan Provision:

• Focus the analysis only on beneficial ownership.
• Replace the existing 10% bright-line shareholder ownership test with a ‘significant influence’ test.
• Add a ‘known through reasonable inquiry’ standard with respect to identifying beneficial owners of the audit client’s equity securities.
• For a fund under audit, exclude from the definition of ‘audit client’, any other funds that otherwise would be considered affiliates of the audit client.

Report contents

• Why is the SEC amending the Loan Provision?
• Amended Loan Provision
• Other comments
• Effective dates and transition