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before income taxes for the year is clearly not indicative of the past or Although there is no evidence of any threat to independence in this situation, the proposed rule presents the dual-career couple with the choice ofselecting a potentially less attractive insurance option or changing the status, role, or location of the auditor, which in many cases would be impractical. This complex system ofreinsurance and spreading of risk across a number of insurance companies may effectively prevent accounting firms from obtaining adequate professional liability insurance and insurers from obtaining audits. Can I change data for any entity on the FCT? The application of the proposed rule to certain relationships between auditors and affiliates of audit clients should be limited to only those affiliates that are material to the audit client.18 This modification is more likely to identify thoserelationships that may impair an auditor's independence and would avoid undue hardships to registrants and accounting firms in situations where registrants have numerous affiliates that are immaterial to them. This model includes all individuals having any supervisory responsibility, or other control, over the conduct of an audit, review or attestation engagement. Certain services may not be available to attest clients under the rules and regulations of public accounting. Such a result would undermine any hope that the proposed rule would provide clear guidance that would allow accountants, clients, and other persons affected by the proposed rule, to understand the prohibited interests and relationships with respect to audit clients. Close Family Members includes your parents, step-parents, non-dependent children and siblings. APB Opinion No. Passwords must be at least eight characters long with a maximum length of 16 characters, and require at least three of the following: Numbers For example, under the proposed rule an accounting firm's independence would be impaired if a first year New York office staff accountant with no involvement in the audit has a spouse who beneficially owns 5.1% of theequity securities of a public audit client that is controlled by unrelated third parties and is audited by personnel in the firm's Los Angeles office. Should Include Certain Leased Personnel, III. The SEC Staff has acknowledged that the perception of independence is based on these factors.49 However, it does not appear that the proposed rule on "other financial interests" considers these factors. Social login not available on Microsoft Edge browser at this time. A Restricted List is a list of securities that a banks employees are prohibited from buying or selling, either themselves or via any other person or third party. Deloitte Platforms Navigation. As experienced auditors serving attest and non-attest clients, we understand what both your auditor and the SEC is looking for in your financial reporting. As a member of the three funds boards and audit committees, Boynton was required to complete annual trustee and officer (T&O) questionnaires designed in part to identify conflicts of interest. 2. Fullwidth SCC. Be A "Covered Person", 3. Registrants may be required under SEC rules to file the acquirees separate annual and interim preacquisition financial statements along with the related pro forma financial information. Answer: Risk Management has deemed that accounting The funds also did not have sufficient written policies and procedures to prevent other types of auditor independence violations, nor did they provide sufficient training to assist board members in the discharge of their responsibilities related to auditor independence. Finally, we believe the proposed rule would not prohibit group insurance policies, such as group health or group life insurance policies. Although this proposed rule represents a significant step towards modernizing the independence rules regarding the employment of relatives at audit clients, certain modifications are needed to further the Commission's objective of modernizing the independence rules in light of changes to the traditional family structure. Proposed rule 2-01(c)(1)(ii) lists several "other financial interests" between an auditor and an audit client that would impair independence because, according to the Release, "they create a debtor-creditor relationship or other commingling of the financial interests of the auditor and the audit client. Deloitte & Touche, like other major accounting firms, has a number of relationships with other companies that provide the firm with access to diverse skills, tools and technologies that enhance audit quality. DTTL and each DTTL member firm and related entity is liable only for its own acts and omissions, and not those of each other. Furthermore, the Release provides no explanation of how such a loan would impair an auditor's objectivity. Rather, consistent with our proposeddefinition of "affiliate of the audit client," independence should be required only with respect to those non-client non-fund entities that are material to the audit client.66. They will similarly be in a position to influence the quality of the audit, and the accounting firm's independence may be impaired if they have a prohibited financial interest in an audit client. Many public companies can put out periodic filings, but find themselves in uncharted waters when mergers, acquisitions, or other developments change their SEC obligations. Deloitte's independence requirements are defined by specific sets of policiesand external rules and regulations to help both you and the organization remain independent when providing services to attest (audit) clients. This information will assist you in determining whether or not acquiring or having certain financial relationships would create a potential independence issue. In early March 2022, the SEC released a list of five To stay logged in, change your functional cookie settings. Audit committee guide: Evolving from good to great Event summary. The proposed rule provides an exception for the following loans obtained from a financial institution under its normal lending procedures, terms and requirements: (1) automobile loans and leases collateralized by the automobile; (2) loans fully collateralized by the cash surrender value of an insurance policy; (3) loans fully collateralized by cash deposits at the same financial institution; and (4) a mortgage loan collateralized by the accountant's primary residence provided the loan was not obtained while the borrower was a covered person in the firm or an immediate family member of a covered person in the firm. Why is that entity not listed? Each member of Crowe Global is a separate and independent legal entity. We respectfully submit, however, that this proposed rule would be more practical and meaningful with the changes set forth below. "69, VII. The Proposed Rule On Indirect Investments In An Audit Client Should Include A Workable Materiality Standard, B. The definition of covered persons and proposed rule 2-01(c)(1)(ii)(F) would prohibit the immediate family members of covered persons from obtaining an individual insurance policy originally issued by an insurer that is an audit client or an affiliate of an audit client. Reg. 7870 (June 30, 2000) (the "Release"). Such transactions should not be significant to the financial condition or results of operation of either the audit firm or the audit client. In the United Kingdom, for example, only 90% of bank account balancesup to a total balance of 20,000 at any one banking institution are currently insured.55 Although having only 10% of the balance uninsured will not impair independence, the operation of the proposed rule in such circumstances would result in an unnecessary and undue burden in requiring auditors to transfer all of their savings and checking account balances to financial institutions that are not audit clients.56 This proposed rule should be modified to prohibit an accounting firm or a member of the audit engagement team from having a savings or checking account at an audit client or a material affiliate of an audit client only if the uninsured balance is material to the accounting firm or individual. Is there a charge code associated with the project? It is also not a substitute for consulting with Deloitte professionals on complex transactions and SEC reporting matters. 33-10786, Amendments to Financial Disclosures About Acquired and Disposed Businesses. entities within a family tree? "79 This is an important concept because when there is reasonable expectation that a court or governmental agency will be involved in determining a tax matter, the results are not determined by the auditor, and accordingly could not impair independence. Accordingly, accounting firms should not be proscribed from being compensated based on the complexity or inherent risk of the results of the services rendered. Under the proposed definition, the payroll services provided to our audit clients would be deemed to impair our independence with regard to those clients. We agree that an auditor's independence will not be impaired by the possession of a brokerage account with a broker-dealer that is an audit client if the value of the assets in the account is within Securities Investor Protection Corporation ("SIPC") coverage. Release, 65 Fed. Additionally, the Release states that entities that provide non-audit services to one or more of the accounting firm's audit clients, and in which the accounting firm has any equity interest, has loaned funds to, shares revenue with, orwith which the accounting firm or any covered persons has any direct business relationship, should be considered Second, the proposed definition uses an overbroad and unworkable definition of the term "office" that would include as covered persons partners who have absolutely no involvement with the audit and therefore no ability to influence the audit; indeed, with a more focused definition of "chain of command," the "office" concept becomes unnecessary. companies created solely for tax purposes could maintain a tax engagement or For example, the purchase of an individual insurance policy, by an immediate family member of a covered person, issued by an audit client in theordinary course of business, and under normal terms and conditions, should not impair independence.45 Products or services obtained as a consumer in the ordinary course of business, such as insurance, do not create any incentive that impairs an auditor's objectivity. . The Proposed Definitions Of "Affiliate Of The Accounting Firm," "Affiliate Of The Audit Client" And "Covered Persons In The Firm" Are Flawed And Should Be Modified, The proposed definition of "affiliate of the accounting firm" would broadly encompass, among other things, any joint venture or partnership or other undertaking in which the accounting firm participates and in which the parties agree to any form of shared benefits, including any form of shared revenue, income or equity appreciation.6 The consequences of being deemed an "affiliate of the account ing firm" are profound, in that any entity that is deemed an "affiliate of the accounting firm" would be subject to all of the independence requirements to which the accounting firm is subject.7. 65 Fed. The proposed rule to the extent it, in effect, requires firms to adopt specified quality control procedures raises substantial issues concerning the Commission's authority. List of Companies (Corrected) A | B | C | D | E | F | G | H | I | J | K | L | M | N | O | P | Q | R | W | T | U | V | W | X | Y | Z | : 3Com Corp 3M Company A.G . B. insurance, and asset management services and will be added to the Meridien Restricted Entity List ("RE List") in the next several days. They also allow us to work closely with other companies to provide better and more affordable products and services. Additionally, the Release states that entities that provide non-audit services to one or more of the accounting firm's audit clients, and in which the accounting firm has any equity interest, has loaned funds to, shares revenue with, orwith which the accounting firm or any covered persons has any direct business relationship, should be considered an "affiliate of the accounting firm" because "the actions and investments of the consulting entity are fairly attributed to the accounting firm because the accounting firm's interest in the consulting entity creates a mutuality of interest in the promotion and success of the entity's consulting projects. We respectfully submit that the proposed rule should provide for an exception when: (1) the indirect financial interest in the audit client is immaterial to the covered person; (2) the beneficiary has no direct or indirect control over the investment decisions or assets of the trust; and (3) the trust was not created by the covered person named as a beneficiary. Deloitte Global Independence leaders continually engage with external professional bodies and regulators to advance the development of independence requirements around the world. If a 20% . Unlike a material investment in a corporation, the success of which could arguably be relevant to an auditor's decision-making process, one's insurance coverage simply does not create an interest in the actual or perceived success of the insurer sufficient to influence a policyholder's judgment. Indeed, the provision would appear to allow the Commission to find that an auditor's independence has been impaired by a financial interest or activity that is not specifically set out in, or contemplated by, the proposed rule. If the entity you were seeking did not appear on the list, you may attempt a different search, or if it does not exist, add it by clicking on "add it here" on the screen. The existing independence rules relating to financial and employment relationships are set forth in Rule 2-01 of Regulation S-X 17, C.F.R. the subsidiary's or investee's income from continuing operations before income Can a client Further, the payroll service provider would be subject to all of the independence requirements, including prohibitions on investments in our audit clients and their affiliates. First, the addition of "value added" to what constitutes a contingent fee represents an unneeded expansion of the definition. Deloittes SEC reporting advisory services can help public entities looking to address or improve their present and private companies preparing for their future. 2023. cc: The Honorable Arthur Levitt, ChairmanThe Honorable Isaac C. Hunt, Jr., CommissionerThe Honorable Paul R. Carey, CommissionerThe Honorable Laura S. Unger, Commissioner. But they are not alone in safeguarding the audit process, and the other fiduciaries charged in this case failed to fulfill their roles and preserve investor confidence.. For example, our personnel who serve public utility clients are organized within a national practice that could under the proposed rule be deemed an "office." The Release states that the portion of the definition relating to joint ventures and partnerships is based upon the governing principle that such relationships create a "mutuality of interest between the auditor and its partner or shareholder because the revenue or profits accruing to each party depend, to some degree, on the efforts of each. income taxes from continuing operations. Integrity is the first of Deloittes four shared values. Insert Custom HTML fragment. Deloitte offers a tailored suite of services geared toward public entities who file with the SEC and private ones considering an initial public offering (IPO) or engaging with public counterparts. The consequences of adopting this broad definition of an "affiliate of the audit client" would be exacerbated by the extensive financial and employment relationship restrictions between audit clients or affiliates of audit clients and the affiliates of accounting firms. Toll free: +1 866-850-1485 Although we believe that restrictions on certain direct financial interests in an audit client, such as loans and certain credit card balances, are warranted, many of the "other financial interests" in audit clients identified in proposed rule 2-01(c)(1)(ii) are not the type of financial interests that would impair independence. Proposed Rule 2-01(c)(2)(iii) provides that an accountant is not independent when: (A) Does not influence the accounting firm's operations or financial policies; (B) Has no capital balances in the accounting firm; and, (C) Has no financial arrangement with the accounting firm other than providing for regular payment of a fixed dollar amount (which is not dependent on the revenues, profits or earnings of the firm) pursuant to a fully funded retirement plan or rabbi trust.71, While we agree with the direction of this proposed rule, we believe that its requirement that fixed-dollar payments from a retirement plan be fully funded is unnecessary.72 An accounting firm's independence is not impaired by these unfundedpayments if the dollar amount and payment schedule are fixed and immaterial to the firm.73, The proposed rule might result in a retired partner having to choose between accepting a lump sum payment (and the related tax consequences) or not serving on, or stepping down from, the board of directors of an audit client of his or her former accounting firm. Please see www.deloitte.com/about to learn more about our global network of member firms. This result does not promote the Commission's objective of modernizing the independence rules to accommodate two-income families. Related to Restricted Entity List. In turn, it could limit insurance companies' choice of auditors. Time will be needed for covered persons and their family members to unwind financial interests or employment relationships. Deloitte organization structure. Broker-dealer/securities accounts (including Demat accounts*, retirement (IRA), health savings accounts, and trust accounts). The Deloitte Global Security Office (GSO) works with member firms worldwide to help keep Deloitte people safe, particularly during times of emergency or when they are called upon by clients to work in higher-risk areas. Firm," "Affiliate Of The Audit Client" And "Covered Persons Regarding Financial and Employment Relationships, Securities and Exchange Commission The agreement provides that NEM acts as the agent of the entity with respect to energy sales, capacity sales and environmental attributes. If income from continuing operations 210.2-01, and in extensive interpretations, guidelines and examples in Section 600 of the Codification of Financial Reporting Policies, Matters Relating to Independent Accountants (the "Codification"). In the example above, independence may be impaired if covered persons of the accounting firm conducting the audit of Company A havecertain relationships with Company B including: (1) investments;14 (2) loans; (3) savings or checking accounts; (4) brokerage accounts; (5) credit card balances; (6) individual insurance policies or professional liability policies;15 (7) business relationships;16 and (8) certain employment relationships.17 Yet there is no evidence that these relationships with an "affiliate of the audit client," as defined, impair independence when the affiliate is immaterial to the audit client. Designated Officers are individuals who are charged with risk management or general oversight responsibilities and who do not direct, effect, or recommend securities and/or securities-based swap transactions or loan trades for any account. The Proposed Exceptions Would Provide More Meaningful Protection With Certain Modifications, A. 1971). The proposed definition of an "investment company complex" also would include non-client sister funds. The Release states that the definition of covered persons includes partners from an "office" that participate in a significant portion of an audit because: We disagree with this reasoning. The Proposed Exceptions Would Provide More The proposed definition of the "chain of command" would unnecessarily include many individuals who have no direct or indirect responsibility or influence over the audit and who would not be in a position to influence members of the audit engagement team. "65 This proposed rule is overbroad because the definition of an "investment company complex" would unnecessarily prohibit financial relationships with non-client entities that we believe would not impair independence. The entries for "Dow Technology" and "Hassan Dow" were added to the Entity List on February 23, 2016 . is not reflected in the text of the proposed rule.