WEST PALM BEACH, Fla.,
Jan. 6, 2021 /PRNewswire/
-- Recently, the SEC adopted amendments to codify and
modernize certain aspects of the auditor independence
framework. The rule proposal was published in December 2019.
The current audit independence rules were created in 2000 and
amended in 2003 in response to the financial crisis facilitated by
the downfall of Enron, WorldCom and auditing giant Arthur Andersen,
and despite evolving circumstances have remained unchanged since
that time. The regulatory structure lays out governing
principles and describes certain specific financial, employment,
business, and non-audit service relationships that would cause an
auditor not to be independent. Like most SEC rules, the
auditor independence rules require an examination of all relevant
facts and circumstances. Under Rule 2-01(b), an auditor is not
independent if that auditor, in light of all facts and
circumstances, could not reasonably be capable of exercising
objective and impartial judgment on all issues encompassed within
the audit duties. Rule 2-01(c) provides a non-exclusive list of
circumstances which the SEC would consider inconsistent with
independence.
The underlying theory to Rule 2-01, the auditor independence
rule, is that if an auditor is not independent, investors will have
less confidence in their report and the financial statements of a
company. The more confidence an investor and the capital
markets participants have in audited financial statements, the more
a company will enjoy better access to liquidity and capital finance
in the public markets. Rule 2-01 requires that an auditor be
independent of their audit clients in "fact and appearance."
However, under the old rules, technical violations that would not
result in a lack of integrity were swept into the regulatory
structure, causing unnecessary burdens and expenses associated with
the client-auditor relationship.
The final amendments reflect updates based on recurring fact
patterns that the SEC staff observed over years of consultations in
which certain relationships and services triggered technical
independence rule violations without necessarily impairing an
auditor's objectivity and impartiality. Accordingly, the new
rules are meant to ease restrictions such that relationships and
services that would not pose threats to an auditor's objectivity
and impartiality do not trigger non-substantive rule breaches or
potentially time-consuming audit committee review of
non-substantive matters.
The SEC adopting release provides examples of the types of
concerns the new rules are designed to address, including one
related to student loans and one related to a portfolio
company. The student loan example is very straightforward,
involving the technical independence violation where an auditor in
an audit firm is still paying student loans to a large student loan
lender and the audit firm audits the lender. Under the new
rules, this would no longer create an independence violation.
Read this story in its entirety HERE.
Attorney Laura Anthony
Laura Anthony, Esq. is the
founding partner of Anthony, L.G., PLLC, a national corporate,
securities and business transactions law firm. For more than two
decades Ms. Anthony has focused her law practice on small and
mid-cap private and public companies, capital markets, NASDAQ, NYSE
American, the OTC markets, going public transactions, mergers and
acquisitions, registered public and exempt private offerings and
corporate finance transactions, Regulation A/A+, securities token
offerings, Exchange Act and other regulatory reporting
requirements, FINRA requirements, state and federal securities
laws, general corporate law and complex business transactions. The
Anthony, L.G. PLLC team has represented issuers, buyers, sellers,
underwriters, placement agents, investors, and shareholders in
mergers, acquisitions and corporate finance transactions valued in
excess of $1 billion. ALG has
represented in excess of 200 companies in reverse merger, initial
public offering and direct public offering transactions.
Palm Beach Attorney Laura Anthony is also the creator and author of
SecuritiesLawBlog.com, the host of LawCast™, Corporate
Finance in Focus and a contributor to The Huffington Post
and Law360.
Contact:
Laura Anthony, Esq.
Founding Partner
Anthony, L.G., PLLC
+1-561-514-0936
LAnthony@AnthonyPLLC.com
AnthonyPLLC.com
SecuritiesLawBlog.com
LawCast.com
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SOURCE Anthony, L.G., PLLC