Another perspective on independence & indemnity

If an auditor’s client agrees to indemnify the firm in the event the firm must respond to an investigation on behalf of the client impair independence?  The SEC has argued for many years that the client’s agreement to indemnify the auditor removes the auditor’s incentive to perform a quality audit.  Some (myself included) have questioned whether this is truly a threat to the auditor’s independence — versus an audit quality issue unrelated to independence.  The debate continues in light of a 2014 enforcement case concluded earlier this year…  Click here to read an article on the topic.


SEC issues No-Action Letter on Loan Provision

On June 20, 2016 the SEC Division of Investment Management issued a “no action” letter (NAL) to Fidelity Management & Research Co et al. (Fidelity) on an independence issue that has recently received some press.  The NAL was in response to Fidelity’s request that the SEC not take enforcement action against the company and certain of its affiliates for its auditor’s noncompliance with an SEC independence rule that prohibits the auditor from having a loan with a greater than ten percent shareholder of a Fidelity entity (subject to certain conditions that Fidelity and the auditor have satisfied).  The SEC Staff agreed to not pursue action against the company, subject to the conditions noted in the letter, for a period of eighteen (18) months after which the assurance may or may not be renewed.  The NAL noted that the Division of Investment Management consulted with the SEC’s Office of the Chief Accountant and Division of Corporate Finance in developing its analysis.


Comment period ending for AICPA Cloud Services Interpretation

An AICPA Exposure Draft proposing a new independence interpretation on hosting services was released in May 2016. Interested parties have until July 18, 2016 to comment.  The proposal would deem situations where a member is engaged to have custody or control of an attest client’s data or records used in its business operations to create a management responsibility that impairs independence.   Examples of situations that create / do not create insurmountable threats to independence are provided.


The Skinny on Business Relationships – Audit Conduct Summer Newsletter

What types of activities with attest clients trigger business relationships that impair independence – either in fact or in appearance?  This issue of Audit Conduct News addresses that question from both the AICPA’s and the SEC’s perspectives.  Happy reading !  Audit Conduct News Summer 2016


Highlights – May 5 AICPA PEEC Meeting

The AICPA’s Professional Ethics Executive Committee (PEEC) held an open meeting in Durham, NC on May 5th.  Topics on the agenda included: cyber-security, how to define client, and cloud hosting services.  Highlights are available here.


PCAOB Proposes Amendments and New Standard on Firms’ Use of Other Auditors

On April 12, 2016, the PCAOB released proposed amendments to the auditing standards on an audit firm’s use of other audit firms and proposed a new standard, Dividing Responsibility for the Audit with Another Accounting Firm.  The proposals seek  to enhance the transparency of firms’ use of other audit firms, especially by firms domiciled outside the US (e.g. extent to which the other firm contributed to the audit), and also prescribes responsibilities to the lead auditor regarding, for example, planning, supervision, evaluation, communication and workpaper access.  Comments on the proposals are due July 29, 2016.


…and US Audit Reform?

In his speech, “Issues for the Academic Community to Consider,” PCAOB member Steven Harris relays concerns he has heard re: auditor independence as chair of the Board’s Investor Advisory Group.   Investors also wondering what happened to recommendations of the U.S. Treasury’s Advisory Committee on the Auditing Profession (ACAP) 2008 report ….


KPMG Update on EU Audit Reforms

KPMG released an update today on the status of EU member states’ adoption of “individualized” versions of the new EU audit rules in its “Defining Issues” publication.  Rules include those on mandatory firm rotation and nonaudit services restrictions.  Many more countries have not yet adopted the rules, which allow significant tailoring and go into effect June 17, 2016.  The seven (7) nations that have have adopted the rules have unfortunately moved in different directions. According to a KPMG survey cited in the publication, a third of the largest 125 EU companies have put their audits out to bid and 75 percent of those have resulted in an auditor change.   In addition, other countries, e.g. India and Brazil, either have or are considering similar audit reforms as the EU according to the article.


PCAOB Inspection Observations on Communications with Audit Committees

A PCAOB report released 4/5/16 examined firms’ implementation of new PCAOB audit committee communication standard AS1301 – indicates firms have implemented and most (but not all) audit teams have properly applied.  The PCAOB also observed noncompliance / lack of understanding by some auditors with existing independence rule 3526 to communicate with the audit committee about independence.


Stakeholders Discuss Implementation of EU Audit Rules

On 4 March 2016, Directorate General Financial Stability, Financial Services and Capital Markets Union (DG FISMA) organised a one-day stakeholder workshop on the new EU rules on statutory audit. About 80 participants attended, including representatives of the audit profession, of companies, of investors and of business associations. Discussions focused on how to facilitate an effective and coherent application of the new rules across the Union.   A summary appears on the European Commission’s Banking and Finance Web Site along with the presenters’ discussion slides.
The Directorate-General for Financial Stability, Financial Services and Capital Markets Union (DG FISMA) is one of the Directorates-General and specialised services that make up the European Commission.DG FISMA is responsible for initiating and implementing policy in the area of Banking and Finance.