June 9, 2022

SEC Acting Chief Accountant Issues Statement on Auditor Independence

Paul Munter, the SEC’s Acting Chief Accountant, issued a statement yesterday that focused on auditor independence. In the statement, Munter explains the auditor independence requirements in Rule 2-01 of Regulation S-X, discusses OCA’s approach to consultations on auditor independence issues, highlights some recurring issues and addresses the importance of auditors maintaining an ethical culture with respect to auditor independence.

The Statement offers some valuable insight into auditor independence issues. It is very important for companies and their counsel to understand the issues and the process, because companies have a lot at stake when an auditor independence issues arises. The nightmare scenario arising from an auditor independence issue is that a company may ultimately have to dismiss the auditor or the auditor must resign, and then the company will have to go out and engage a new auditor to re-audit the company’s financial statements. Munter notes that OCA engages in a dialogue with auditors, registrants and audit committees on auditor independence issues.

The recurring issues highlighted in the Statement include taking an inappropriate “checklist” approach to auditor independence, the proliferation of non-audit services and business relationships and the use of increasingly complex business arrangements and practice structures by accounting firms.

– Dave Lynn