On 30 December 2019, the SEC issued a rulemaking proposal to codify positions taken by the SEC staff in consultations and modernise certain aspects of the SEC's auditor independence rules, which are set out in Rule 2-01 of Regulation S-X. The rule change principally addresses the situation of "sister" companies within private equity funds and investment companies that have investments in large numbers of portfolio companies. In this context, auditor independence issues frequently arise under the current rules in respect of an auditor of one portfolio company because such audit firm or its affiliates may also be providing non-audit services to other, non-material portfolio companies within the fund family that do not practically risk impacting the objectivity and impartiality of the auditor in conducting the audit.
The 60-day public comment period on the proposed rule is now open. Changes to the SEC's rules will not take effect until the SEC publishes a final rule.
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