AICPA Raises Bar on Auditor Independence

The AICPA strengthened its independence requirements for auditors of public companies. New rules, which the executive committee of the SEC practice section of the AICPA division for firms (SECPS) approved and which are intended to bolster investor confidence in financial reporting, took effect January 1, 2000.

The rules address business and financial relationships that could create a conflict of interest and undermine auditor independence if entered into by an auditor, his or her spouse or a dependent. Each of the SECPS’s 1,300 member firms is required to establish a policy prohibiting auditors from engaging in such relationships.

Each firm also must designate as its “independence champion” a partner who will see that the professional audit staff has all the information needed to comply with the new rules. In addition, all audit professionals must, when they are hired and afterward, undergo training in the new requirements, attend periodic refresher courses and certify that they have read, understood and complied with the firm’s independence policy.

Susan Coffey, AICPA vice president of self-regulation and the SECPS, said, “Independence and related quality controls are ‘top of mind’ for the profession.” She stressed the need for SECPS member firms’ leadership to set the “appropriate tone” and make certain compliance “is woven into the professional values and culture of the firm.”

The SECPS said each member firm’s independence policy must require that its auditors check, before entering into any financial or business transaction, to see whether it could compromise their impartiality. This requirement also applies to activities contemplated by an auditor’s spouse or a dependent. Auditors will make this determination by consulting a database of restricted entities, which the new rules say each member firm must create and maintain. The firm’s policies must explain why, when and how SEC-registrant clients and other related entities are included or excluded from the list.

An auditor, suspecting he or she, a spouse or a dependent has violated an independence policy, must report it in detail to his or her firm. For its part, each firm must establish a system to document such reports and the corrective actions taken in response to them.

The new independence requirements can be found on the AICPA Web site at


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