The SEC adopted Rule 2-01(c)(1)(ii)(A) of Regulation S-X (the "Loan Provision") to change the interpretation of "auditor independence" when the auditor has a lending relationship with the shareholders of an audit client.
The Loan Provision amendments are intended to better identify debtor-creditor relationships that could impair an auditor's ability to be objective. The amendments include:
1. refocusing analysis on beneficial ownership rather than record ownership;
2. replacing the 10-percent bright-line shareholder ownership test with a "significant influence" test;
3. adding a "known through reasonable inquiry" standard when identifying beneficial owners of the audit client's equity securities; and
4. excluding investment funds from the definition of "affiliates of the audit client."
The amendments will become effective 90 days after publication in the Federal Register.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.