Rule 2-01 of Regulation S-X restricts financial, employment, and business relationships between an audit firm and its audit client to ensure that auditors are "independent of their audit clients both in fact and in appearance." The amendments focus the revised independence requirements on relationships and services the SEC considers more likely to impair an auditor's objectivity and impartiality.
Noteworthy amendments narrow the scope of independence assessments relating to entities under common control with the audited company that particularly affect private equity structures and investment company complexes. Other amendments shorten the look-back period for which domestic IPO issuers must evaluate independence. The SEC also has established a framework that will permit the audit client and its auditor to preserve the audit relationship by transitioning out of services and relationships resulting from merger and acquisition activity that would violate independence standards.
The SEC's adopting release describing the amendments (No. 33-10876) can be accessed here.
Authored by Alan Dye, Richard Parrino, Suzanne Filippi, and Kevin Greenslade