Alert focuses on independence rules for auditors of certain nonissuers


The Center for Audit Quality (CAQ) and the AICPA on Wednesday issued a joint alert to provide audit firms with an overview of SEC and PCAOB independence rules that apply to financial statement audit and attestation engagements for certain nonissuers.

The alert is intended for auditors of:

  • SEC-registered, nonissuer broker-dealers; and
  • Where the engagement is subject to the requirements of the SEC “custody rule”: Rule 206(4)-2 (17 C.F.R. 275.206(4)-2), SEC-registered and state-registered investment advisers, related-party custodians, and private funds such as pooled investment vehicles.

The alert is a follow-up to independence guidance provided in a CAQ/AICPA joint alert issued in May. Wednesday’s alert also provides relevant guidance as reflected in recent PCAOB staff guidance for auditors of SEC-registered brokers and dealers, in light of a recent PCAOB report on the progress of its interim inspection program for audits of brokers and dealers. The PCAOB expressed concern in that report over the continued high number of independence findings related to audits of broker-dealers.

“While we often associate the independence rules with the audits of issuers, auditors should be aware of the application of those rules to certain nonissuer audit engagements, such as those of broker-dealers that are registered with the SEC,” AICPA President and CEO Barry Melancon, CPA, CGMA, said in a news release. “This alert is intended to give practitioners an overview of which rules are—and are not—applicable in the course of these engagements.”

Audit firms are advised in the CAQ/AICPA alert to continue to assess services and relationships with clients to ensure permissibility within the rules, and keep open lines of communication with management and audit committees to ensure understanding of issues that may affect a firm’s independence.

The CAQ is affiliated with the AICPA. In the alert, the CAQ and AICPA highlight four areas of focus:

  1. Applicability of SEC independence rules. These apply equally to nonissuer broker-dealer engagements and engagements subject to the custody rule.
  2. Bookkeeping services, including financial statement preparation. The PCAOB and SEC have focused their attention on enforcing independence rules that prohibit firms from preparing or assisting in the preparation of financial statements for audit clients.
  3. Applicability of PCAOB independence rules. These apply to nonissuer broker-dealer engagements, but not to engagements conducted pursuant to the custody rule.
  4. Other engagements subject to SEC or PCAOB independence rules. Certain other engagements are subject to independence requirements of the SEC, PCAOB, or both regulators.

“Independence is a cornerstone of audit quality,” CAQ Executive Director Cindy Fornelli said in a news release. “This alert is an important reminder for firms to review the applicable rules and regulations, and to revisit their organization’s policies on this critical issue, as needed.”

Ken Tysiac ( ) is a JofA editorial director.


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