Defining Issues  |  July 2019

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

 

 

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