Fact Sheet: Auditor Independence – Conforming Amendments

Nov. 19, 2020

Overview

Background

In June 2019, the SEC adopted amendments to its auditor independence requirements in Rule 2-01 of Regulation S-X, Qualifications of Accountants, regarding the analysis that must be conducted to determine whether an auditor is independent when the auditor has a lending relationship with certain shareholders of an audit client. In October 2020, the SEC adopted additional amendments to Rule 2-01.

Among other things, the SEC’s October 2020 revisions to Rule 2-01 add certain student loans and de minimis consumer loans to the categorical exclusions from independence-impairing lending relationships under Rule 2-01. In certain circumstances, such loans are not currently allowed under PCAOB’s interim independence standards. The Board is amending the PCAOB’s interim independence standards to avoid inconsistent Board and SEC independence requirements on lending arrangements, which should help clarify an auditor’s independence obligations and facilitate compliance with Rule 2-01.

The SEC also adopted revisions to the definitions of several terms in Rule 2‑01, including “affiliate of the audit client,” “audit and professional engagement period,” and “investment company complex.” The Board is making amendments to the definitions of these terms in Rule 3501 to align with the definitions in Rule 2-01 to address confusion if these terms used in both the PCAOB’s and the SEC’s independence rules were defined differently.