SEC addresses auditor independence

Amendments adopted recently by the SEC are designed to aid in the determination of whether an auditor’s lending relationship with certain shareholders of an audit client impairs the auditor’s independence.

Rule 2-01(c)(1)(ii)(A) of Regulation S-X, known as the “Loan Provision,” generally states that an auditor is not independent when in a lending relationship with an audit client. But the SEC had become aware of certain lending relationships that the existing rules identified as independence threats but did not affect the impartiality or objectivity of the auditor.

The amendments are intended to focus the independence rules on lending relationships that actually may affect external auditors’ impartiality or objectivity.

The amendments were to take effect 90 days after publication in the Federal Register.