On Tuesday, September 8th, the Public Company Accounting Oversight Board (PCAOB) updated its research and standard-setting agenda, reiterating its ongoing efforts to increase transparency and provide more timely and relevant information to stakeholders. The Board, aiming to modernize its approach in managing their agendas, is planning to only include specific projects where a public milestone (e.g., a proposal, a staff publication, or a concept release) is anticipated in the next 12 to 18 months.
With that said, the PCAOB made the following changes to its agenda:
According to the update, the Board added auditor independence to the standard-setting agenda to make targeted amendments to existing PCAOB independence rules to conform to changes the SEC is considering to its independence rules.
In June 2019, the SEC adopted amendments – which took effect on October 3, 2019 – to its auditor independence rules relating to the analysis that must be conducted to determine whether an auditor is independent when the auditor has a lending relationship with certain shareholders of an audit client.
Prior to the amendments, Rule 2-01(c)(1)(ii)(A), more commonly referred to as the “Loan Provision”, prohibited a firm from auditing a fund while also borrowing money from a lender that owns a stake of 10% or more in the same fund.
The amendment replaced the previous 10% threshold with a different form of appraisal referred to as a “significant influence test” after the rule seemed to capture relationships that did not pose threats to an auditor’s objectivity and impartiality. In addition, other changes to the Loan Provision include:
- a focus on the analysis on beneficial ownership rather than on both record and beneficial ownership;
- add a known through reasonable inquiry standard with respect to identifying beneficial owners of the audit client’s equity securities; and
- exclude from the definition of audit client, for a fund under audit, any other funds that otherwise would be considered affiliates of the audit client under the rules for certain lending relationships.
Not long after, on December 30, the SEC issued a press release proposing to modernize its auditor independence rules. The proposed changes would update certain aspects of the nearly 20-year-old auditor independence framework, aiming to “more effectively structure the independence rules and analysis so that relationships and services that would not pose threats to an auditor’s objectivity and impartiality do not trigger non-substantive rule breaches or potentially time consuming audit committee review of non-substantive matters.”