No more than three commissioners are from the same political party. The use of an "office" concept, delineated along geographical or practice lines may result in unintended consequences. The proposed rule defines an "affiliate of the audit client" as an entity that has significant influence over the audit client, or an entity over which the audit client has significant influence.13 This proposed definition of an "affiliate of theaudit client" is overbroad, unnecessary and unworkable in today's global economy in which companies are highly diversified and evolve rapidly. Proposed rule 2-01(c)(1)(ii)(G) would prohibit covered persons and their immediate family members from investing in any entity in an investment company complex if the accounting firm's audit client is also an entity in the same investment company complex. determinations is the average for the preceding three years of income before Given the way in which business is conducted and people communicate today, the "physical proximity" denoted by the address on one's business card does not necessarily equate to "frequent contact" with others sharing that address. Furthermore, ISB Standard No. We combine our size and scope with our knowledge and experience to help you understand and comply with your reporting and disclosure requirements. Many public companies can put out periodic filings, but find themselves in uncharted waters when mergers, acquisitions, or other developments change their SEC obligations. Considering the remote likelihood that uninvolved partners will be in a position to influence the audit, this restriction should be deleted from the proposed rule. The SEC definition of a promoter includes a founder of the company who is still with the company, or holds at least 10% of any class of its securities. Securities are placed on a bank's restricted list when the bank is engaged with the company on non-public activity, such as mergers and acquisitions work, affiliate ownership, or underwriting activities or other distribution of the issuer's (the company's) securities. In your letter, you detail key terms of the transaction and conditions that Deloitte, including entities that have been considered part of Deloitte under Rule 2-01 (f) (2) of Regulation S-X, have complied or will comply with in connection with the completion of the transaction. Relationships with third parties would be further hampered under the prohibition on investments by audit clients or affiliates of audit clients in the affiliates of accounting firms.10 In the IBM example above, our more than 2,000 SEC audit clients and presumably their pension plans would be unable to invest in IBM. What is personal independence? Rather, the proposed rule appears to prohibit the covered person from owning more than five percent of any entity in which the audit client has any ownership interest. Doing business with restricted entities - Rice University The Quality Controls Provisions Should Be Modified, XI. 2, "Certain Independence Applications of Audits of Mutual Funds and Related Entities." Explore the principles and values found in the code, an integral part of the commitment Deloitte makes to our common underlying belief that ethics and integrity are fundamental and non-negotiable. This proposed rule uses the same definition of covered persons applicable for "investments in audit clients" in proposed rule 2-01(c)(1)(ii), even though the delineated "other financial interests" are not of the same nature as investments in audit clients, which are more likely to cause an independence concern. Close family members (other than immediate family members) of the members of the audit engagement team. A Modified "Chain Of Command" Concept See how we connect, collaborate, and drive impact across various locations. of the Codification, "Interests in Nonclient Affiliates and Investee Companies" and ASR No. What types of relationships should be captured? is not reflected in the text of the proposed rule. This proposed rule does not provide an exception for investments, in the form of stock compensation, by the immediate family members of such persons obtained through employer-sponsored benefit plans. On the other hand, the proposed rule appears to allow an accounting firm to own 4.9% of the shares of a mutual fund having a majority of its assets invested in the equity securities of an audit client. Public and private securities including stocks/shares, bonds/debentures, mutual funds (including funds held in Systematic Investment Plan* SIP), unit investment trusts, 401(k) investments, hedge funds, stock options, warrants, Digital assets (including cryptocurrencies, stable coins, and tokens of any kind) and digital wallet hosting services, Loans including mortgages/home loans, student loans, margin loans and secured/ unsecured (personal) loans, Insurance products including property & casualty (including homeowners, renters, and car/motorcycle insurance), life, health, disability, and long-term care insurance, Variable Insurance Policies or Annuities/Unit Linked Insurance Plans* (ULIP) including all underlying public and private investments, College savings plan (529 Plans), established by you, your spouse, spousal equivalent or dependent, Trusts in which you, your spouse, spousal equivalent or dependent are named as a trustee or beneficiary, Credit cards with outstanding balances over $5,000, You, your spouse, spousal equivalent or dependent is named or acting as power of attorney or executor, administrator, or trustee of a trust or estate, Uniform gifts to minors (UGMA) and Uniform transfer to minors (UTMA) accounts, Joint investment (e.g., partnership interest, vacation home, boat, airplane, etc. Further, it allows registrants to (1) present fewer acquiree financial statement periods, (2) present acquiree financial statements in fewer circumstances, and (3) when certain criteria are met, use abbreviated financial statements without requesting permission from the SEC staff. The Proposed Exception Should Cover Situations Again, although we believe that it is unnecessary to include uninvolved partners as covered persons, at a minimum this proposed rule should provide an exemption for investments by immediate family members of uninvolved partners in client funds and non-client sister funds through an employer-sponsored benefit plan. The Release provides no explanation to grandfather only those loans fully collateralized by primary residences. transfer investments to a new broker/financial advisor, cease outside employment at restricted entities (including part-time or weekend employment at retail stores), and. A fresh look at SEC reporting Reporting and disclosure in accordance with SEC requirements can be difficult and demanding for many companies. The appearance of independence is dependent on many factors, including the country's culture, economic environment, business traditions, regulatory structure and legal environment. How do I delete an entity from the Firm Contribution Tool? Materiality should be measured by determining whether the entity is material to the parent or "upstream" entity. For information, contact Deloitte Global. Exceptional organizations are led by a purpose. Restricted Entity means a Person principally engaged in the business of owning, operating, managing, franchising or branding retail nutrition supplement stores, or developing or manufacturing nutritional supplements, that, in each case, competes with the Company and is listed on Exhibit B attached hereto, as such list may be amended by the Company acting . Accordingly, the definition of "audit and professional engagement period" found in proposed rule 2-01(f)(6)(A) should be modified to read that the "the professional engagement period begins when the accountant begins review or audit procedures. Deloitte & Touche* submits this letter in response to the Securities and Exchange Commission's request for comments on its proposed rule regarding Revision of the Commission's Auditor Independence Requirements, Securities Act Release No. For more information about the final rule, see the Changing Lanes discussion in the Roadmaps introduction; Appendix C, which summarizes a registrants disclosure requirements before and after adoption of the final rule; and Deloittes June 2, 2020, Heads Up. The SEC is not an exchange, so "listed" isn't the correct term here. List of Companies - SEC Certain Modifications To The Proposed Rule On Employment Relationships Will Further The Commission's Objectives, A. A significant number of partners at the local, regional and national levels have input in deciding a particular partner's compensation, even though many of these partners have no other relationship with the partner under consideration or with the partner's audit clients. Time will be needed for covered persons and their family members to unwind financial interests or employment relationships. 9,135 and 9,136 (1998). All entities and subentities were listed effective November 9, 2017, unless otherwise indicated. Common independence topics has been saved, Common independence topics has been removed, An Article Titled Common independence topics already exists in Saved items. The proposed rule could result in firms being unable to secure adequate insurance. . SEC announced adoption of final amendments to the auditor - Lexology We urge the Commission to simply allow existing AICPA guidance to govern this area and not adopt this proposal. 2023. These software programs have been adapted and used successfully by a number of registrants to sustain and improve their internal controls, including hundreds of banks which have used the programs to monitor their compliance with various banking laws. Securities and Exchange Commission's (SEC) Independence Rules . We agree that an auditor's independence will not be impaired by the possession of a brokerage account with a broker-dealer that is an audit client if the value of the assets in the account is within Securities Investor Protection Corporation ("SIPC") coverage. The Integrity Helpline is a confidential, 24-hours-a-day, 365-days-a-year service you can access from any location. Proposed rule 2-01(c)(1)(ii)(E) provides that an accountant is not independent when the accounting firm, any covered person, or any of his or her immediate family members has "any credit card balance in excess of $10,000 owedto a lender that is an audit client or an affiliate of an audit client. +++ DO NOT USE THIS FRAGMENT WITHOUT EXPLICIT APPROVAL FROM THE CREATIVE STUDIO DEVELOPMENT TEAM +++, Telecommunications, Media & Entertainment. Personal independence at PwC: PwC To take your skills to the next level, these additional resources will be a big help: A free, comprehensive best practices guide to advance your financial modeling skills, Get Certified for Capital Markets (CMSA). The determination should be based upon whether such beneficial owners can exercise significant influence or control over the audit client and whether the beneficial owner's investment in the audit client or its affiliate is material to the beneficial owner. Be A "Covered Person", 3. DTTL and each of its member firms are legally separate and independent entities. This box/component contains code needed on this page. income taxes from continuing operations. and entities five percent or more of whose [voting] securities. Telecommunications, Media & Entertainment. The Proposed Rule On Employment Of Former Employees May Hinder Retired Partners From Serving On Boards, VIII. As a practical matter, third parties will likely sever or avoid these relationships, rather than comply with the independence rules. These partners appear to be included in the proposed definition of "chain of command. When completed, the web-based auditing system would allow close integration between auditing procedures and documentation and provide access to the client's electronic records. "21 While we support the use of a "chain of command" model, the proposed definition of "chain of command" is overbroad in its inclusion of all individuals who have any type of responsibility over any member of the audit engagement team, regardless of whether such responsibility has any bearing on the audit. It also does not contain the interpretive languageon this point set forth in AICPA Interpretation 302-1.78 Under this guidance, a contingent fee "determined based on the results of judicial proceedings or the findings of governmental agencies" is permissible if "the member can demonstrate a reasonable expectation, at the time of the fee arrangement, of substantive consideration by an agency with respect to the member's client. With info object association this data search would be faster. Spouses, spousal equivalents, or dependents former and/or current 401(k) plans or any other employee benefit plan (including pension, stock option, profit sharing, and stock purchase plans). Our shared values are not an abstract ethical philosophy, but a powerful, living compass intended to guide us all toward the right decisions and the correct actions, whatever situations we may encounter, whenever and wherever we are. Although we believe that restrictions on certain direct financial interests in an audit client, such as loans and certain credit card balances, are warranted, many of the "other financial interests" in audit clients identified in proposed rule 2-01(c)(1)(ii) are not the type of financial interests that would impair independence. Insert Custom CSS fragment. As a member of the three funds boards and audit committees, Boynton was required to complete annual trustee and officer (T&O) questionnaires designed in part to identify conflicts of interest. Social login not available on Microsoft Edge browser at this time. Will the Firm Contribution Tool run in parallel with the Restricted Entity List? For example, the Release states that the portion of the definition relating to "a person controlling, controlled by, or under common control with the firm, shareholders of more than five percent of the firm's voting securities, . Restricted companies means any company or a division of any company that designs, develops, manufactures, distributes or services products that compete with products designed, developed, manufactured, distributed, or serviced by the Company including but not limited to household appliances (including larger and small appliances) and associated Our reputation defines us in the marketplace. Non-Audit Services, 4. Can a client Please enable JavaScript to view the site. We believe that any potential benefit of the proposed rule would be outweighed by the unnecessary burden it would create, especially considering the high level of consolidation in the banking industry. Do not delete! Deloitte operates in dynamic regulatory environments in which national rulemaking often has broad-reaching global implications. This complex system ofreinsurance and spreading of risk across a number of insurance companies may effectively prevent accounting firms from obtaining adequate professional liability insurance and insurers from obtaining audits. On an annual basis, all Deloitte firms report to Deloitte Global that they have conducted procedures to confirm that their firm and professionals are in compliance with Deloitte Globals independence policies. The ISB's proposed approach provides that independence would be impaired if the accounting firm, or any covered person, has a material indirect interestin the audit client.34 Furthermore, the ISB's proposed approach would clearly distinguish between what would constitute an "indirect investment" and a "direct investment." These individuals should be considered to be in the same position as the accounting firm's professionals on the audit engagement team. These modifications would create a more meaningful rule that identifies those insurance policies that are similar to direct financial interests in the audit client. Deloitte refers to one or more of Deloitte Touche Tohmatsu Limited, a UK private company limited by guarantee ("DTTL"), its network of member firms, and their related entities. The proposed rule is thus too broad. Comment Letter of Deloitte & Touche on the Proposed Revision In addition, bank employees cannot personally trade in securities of any issuer subject to trading restrictions by virtue of being on the Restricted List. used in the calculation described above. "30 Footnote 131 cites to section 602.02.b.iii. For example, an accounting firm may be unable to relocate an uninvolved partner41 from an office that participates in a significant portion of the audit, effectively leaving the couple with choosing a less desirable insurance policy as the only alternative option. Toll free: +1 866-850-1485 Do not delete! You can learn more about independence for candidates, independence for spouses,and review a list of common independence topics. In early March 2022, the SEC released a list of five The ERC decided to remove these four entries based on information BIS received pursuant to 744.16 of the EAR and the review the ERC conducted in . APB Opinion No. SEC.gov | Audit Committees and Auditor Independence The Use Of The "Office" Concept Does Not Provide Rule 2-01(c) provides a nonexclusive list of financial, employment, business and non-audit service relationships that the SEC views to be inconsistent with the independence standard in Rule 2-01(b). *** Entities or subentities owned or controlled by another entity or subentity on this list are not treated as restricted unless also specified by name on the list. "29 The proposed rule is vague because it does not provide sufficient guidance in applying materiality. Deloitte refers to one or more of Deloitte Touche Tohmatsu Limited (DTTL), its global network of member firms, and their related entities (collectively, the Deloitte organization).
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