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Vedder Thinking | Articles SEC Proposes Amendments to Auditor Independence Rules


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On December 30, 2019, the SEC proposed amendments to Rule 2-01 of Regulation S-X, which sets forth the qualifications and independence standards for public company auditors, in order to carve out certain fact patterns identified by the SEC staff over the years since the initial adoption of the auditor independence framework in 2000 that are deemed less likely to threaten an auditor’s objectivity and impartiality.

If adopted, the proposal would amend the auditor independence rules to, among other things:

  • limit the range of audit client affiliates from which an auditor must maintain its independence (1) by amending the definition of “affiliate of the audit client” to carve out affiliates under common control with the client (i.e., sister entities) that are not material to the controlling entity and, (2) with respect to the audit of an investment company (which would include a registered investment company, business development company and certain private funds), investment adviser or sponsor, by providing that the auditor and audit client would look solely to the definition of “investment company complex” to identify audit client affiliates and by amending the definition of “investment company complex” to, among other things, carve out affiliates under common control that are not material to the controlling entity;
  • shorten the look-back period for assessing compliance with independence requirements for domestic first-time filers to match the one-year look-back period for first-time filers that are foreign private issuers by amending the definition of “audit and professional engagement period”;
  • add certain student loans and de minimis consumer loans to the categorical exclusions from independence-impairing lending relationships;
  • narrow the range of persons with which an auditor may not have a direct or material indirect business relationship from “substantial stockholders” of the audit client to “beneficial owners with significant influence” over the audit client; and
  • address certain inadvertent violations of the auditor independence rules that may result from a merger or acquisition through amendments to the transition and grandfathering provisions.
    Comments on the proposal are due on or before March 16, 2020.

The SEC’s proposing release is available here.


John S. Marten


Mark Quade


Nathaniel Segal


Jacob C. Tiedt