ARTICLE
20 October 2020

SEC Updates "Auditor Independence" Framework

CW
Cadwalader, Wickersham & Taft LLP

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Cadwalader, established in 1792, serves a diverse client base, including many of the world's leading financial institutions, funds and corporations. With offices in the United States and Europe, Cadwalader offers legal representation in antitrust, banking, corporate finance, corporate governance, executive compensation, financial restructuring, intellectual property, litigation, mergers and acquisitions, private equity, private wealth, real estate, regulation, securitization, structured finance, tax and white collar defense.
The SEC adopted a final rule that updates its "auditor independence" rules and codifies certain staff consultations.
United States Corporate/Commercial Law

The SEC adopted a final rule that updates its "auditor independence" rules and codifies certain staff consultations.

As previously covered, the amendments to Rule 2-01 of Regulation S-X ("Qualifications of accountants") would, among other things:

  • clarify certain affiliate relationships in common control scenarios;
  • shorten the look-back period for domestic first-time filers when assessing compliance with the independence requirements;
  • expand the categorical exclusions from independence-impairing lending relationships to include certain student loans and de minimis consumer loans;
  • replace the reference to "substantial stockholders" under the "business relationship rule" with a substantial influence analysis; and
  • introduce a transition framework that addresses "inadvertent" independence violations that result from corporate events such as mergers and acquisitions.

The final rule goes into effect 180 days after its publication in the Federal Register.

Primary Sources

  1. SEC Press Release: SEC Updates Auditor Independence Rules
  2. SEC Final Rule: Qualifications of Accountants
  3. SEC Joint Statement, Allison Herren Lee, Caroline A. Crenshaw: Who Watches the Watchers?
  4. SEC Statement, Jay Clayton: Promoting an Effective Auditor Independence Framework

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