PCAOB amends independence requirements to align with SEC changes

By Ken Tysiac

The PCAOB adopted amendments Thursday to align its independence requirements with recently updated SEC rules.

Last month the SEC amended its rules in an effort to prevent the triggering of auditor independence rules violations in situations that don’t necessarily impair auditor judgments. The amendments were designed to prevent unnecessary red flags that could cause auditors, their clients, and audit committees to spend time considering relationships that are not a threat to independence.

In June 2019, the SEC adopted amendments to aid in the determination of whether an auditor’s lending relationship with certain shareholders of an audit client impairs the auditor’s independence.

These amendments are reflected in the PCAOB’s rules changes. The PCAOB made targeted amendments to its interim independence standards and Part 5 of the Rules of the Board, Ethics and Independence, to conform with the SEC’s changes to Rule 2-01 of the SEC’s Regulation S-X, 17 C.F.R. §210.2.01.

The PCAOB is amending its interim independence standards to avoid having independence requirements inconsistent with the SEC’s requirements on lending arrangements, with the intent of clarifying an auditor’s independence obligations and facilitating compliance with SEC Rule 2-01.

The PCAOB also is amending definitions of certain terms in Rule 3501 to align with revised definitions in SEC Rule 2-01 and avoid confusion. The amended term definitions include:

  • “Affiliate of the audit client.”
  • “Audit and professional engagement period.”
  • “Investment company complex.”

“The board’s targeted amendments are intended to avoid confusion, differences, and duplication between PCAOB and SEC independence requirements,” PCAOB Chairman William Duhnke said in a news release.

Ken Tysiac (Kenneth.Tysiac@aicpa-cima.com) is the JofA’s editorial director.


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