It also recognizes that certain individuals are in a position to influence the audit because of their positions in the firm and others who are brought in to the chain of command because they are consulted with respect to a specific accounting or auditing matter. We combine our size and scope with our knowledge and experience to help you understand and comply with your reporting and disclosure requirements. ), Leasing space to/from a restricted entity (i.e., rent), Ownership of a franchise or a personal business, Severance or any other payments (bonus, 401(k) contribution, etc.) The investing public depends on independent auditors like Deloitte to test the reliability of publicly-reported financial statements, and they have front-line responsibility for ensuring their own independence, said Stephen L. Cohen, Associate Director of the SECs Division of Enforcement. DTTL (also referred to as Deloitte Global) and each of its member firms and related entities are legally separate and independent entities, which cannot obligate or bind each other in respect of third parties. Please see www.deloitte.com/about to learn more. Passwords must be at least eight characters long with a maximum length of 16 characters, and require at least three of the following: Numbers We believe such a result would be inequitable because the employee might be restricted from selling the stock for a period of time, or until the stock is vested. Under the proposed rule, this applications service provider may be deemed an "affiliate of the accounting firm" subject to all of the independence requirements, including prohibitions on investments in our audit clients and their affiliates. This Roadmap is intended to help registrants navigate their SEC reporting requirements related to the acquisition or probable acquisition of a business. continuing operations before income taxes. "21 While we support the use of a "chain of command" model, the proposed definition of "chain of command" is overbroad in its inclusion of all individuals who have any type of responsibility over any member of the audit engagement team, regardless of whether such responsibility has any bearing on the audit. DTTL does not provide services to clients. As discussed below, we believe that this modified "chain of command" or "position to influence" concept makes the inclusion of an "office" concept unnecessary. 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. The SECs investigation was conducted by James J. Bresnicky and Brian M. Privor, and supervised by J. Lee Buck II. Even Deloittes extensive experience underpins the valuable perspective we bring to SEC reporting. at 43,180. It combines the SECs guidance on reporting for business acquisitionsincluding acquisitions of real estate operations and pro forma financial informationwith Deloittes interpretations (Q&As) and examples in a comprehensive, reader-friendly format. We suggest that the definition be limited to the partners and managerial employees responsible for the consulting and other non-audit services provided to the audit client as they may be in a position to influence the audit, whereas staff level employees are not. For existing audit clients, a Deloitte firm must evaluate the independence implications of other Deloitte firms' contemplated relationships with that client, including the provision of non-assurance services. How do I delete an entity from the Firm Contribution Tool? Clearly, this outcome is not in the public interest. Furthermore, under the proposed rule, an accounting firm's independence would be deemed impaired if an uninvolved partner's spouse obtains any stock options in an affiliate of an audit client served by the partner's office. Makes The "Office" Concept Unnecessary, 2. Proposed rule 2-01(f)(5). What is the value of keeping track of all of the entities within a family tree? before income taxes for the year is clearly not indicative of the past or However, the proposed rule should be modified to conform with AICPA guidance that independence is not impaired if the credit card balance owed to an audit client or a material affiliate of an audit client is not in excess of the proscribed limit "by the payment due date. The final rule must be adopted for fiscal years beginning after December 31, 2020; however, early application is permitted. "62 This proposed rule is unnecessary because there is no nexus between insurance coverage and threats to independence. It is also not a substitute for consulting with Deloitte professionals on complex transactions and SEC reporting matters. tree it is located? Once added to the RE List , all Covered Persons (see definition in Appendix A) must be in compliance with the SEC and AICPA independence . 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. 7507, 63 Fed. In this instance, one should not presume that a public utility partner in Virginia would influence the audit of a California public utility client. Note that unlike your spouse, spousal equivalent and dependents, when it comes to Close Family Members, if you are not aware of these situations, you are not required to ask. This message will not be visible when page is activated. For Employer-Sponsored Benefit Plans, The proposed rule should provide exceptions for employer-sponsored benefit plans of the immediate family members of certain covered persons, when those benefit plans involve: (1) insurance products;37 (2) direct investments;38 and (3) investment company complexes.39 Such exceptions would further the Commission's goal of modernizing the independence rules in light of the increase in dual-career families.40. is moved from one branch to another, why should it matter where in the family While we believe the Commission should defer to the ISB, the proposed rule, if adopted, would lead to unintended consequences, raising a number of concerns, including the following: II. and entities five percent or more of whose [voting] securities. Deloitte confirmed that Stephen Peers and the West End and City leasing teams, as well as Tony Guthrie and the Lease Advisory team and Mike McChesney and the Dilapidations team will move to Gerald Eve. In addition, bank employees cannot personally trade in securities of any issuer subject to trading restrictions by virtue of being on the Restricted List. Attention: Mr. Jonathan G. Katz, Secretary, Re: Revision of the SEC's Auditor IndependenceRequirements, File No. This problem will be exacerbated where third parties have relationships with more than one major accounting firm, requiring the third party to comply with the independence requirements applicable to each of those accounting firms. Should Include Certain Leased Personnel, III. As a result, certain registrants, and investors, would lose the benefit of the expertise of these retired partners. 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. Audit committee guide: Evolving from good to great Event summary. Title: Investment policy for partners of KPMG (the . A significant number of partners at the local, regional and national levels have input in deciding a particular partner's compensation, even though many of these partners have no other relationship with the partner under consideration or with the partner's audit clients. The definition of "covered persons" should include leased accounting personnel, employed full-time or part-time by an accounting firm, on the audit engagement team. Restricted Entity means a Person principally engaged in the business of owning, operating, managing, franchising or branding retail nutrition supplement stores, or developing or manufacturing nutritional supplements, that, in each case, competes with the Company and is listed on Exhibit B attached hereto, as such list may be amended by the Company acting . The proposed definition of "contingent fee" is largely consistent with existing guidance, which has been applied in practice for many years. See Terms of Use for more information. ", A manager or senior staff accountant who does not participate in the audit but who may supervise or evaluate an assistant staff accountant who also works on other unrelated audit engagements would appear to be included in the proposed definition of "chain of command.". The proposed rule should be modified to provide an exception when the financial interest in the inheritance or gift is immaterial to the covered person and the covered person is restricted from disposing of the financial interest for an extended period. To the Securities and Exchange Commission, Mr. Donald J. Kirk (the Independent Reporter), Deloitte & Touche LLP, Ernst & Young LLP, KPMG LLP, and PricewaterhouseCoopers LLP: We have reviewed the design, implementation, and operating effectiveness of the systems, procedures, and Rather, the purpose of the Investment Company Act is to provide a framework to regulate the investing, reinvesting and trading in securities by investment companies, not the independence of auditors. First, the addition of "value added" to what constitutes a contingent fee represents an unneeded expansion of the definition. Considering the large market capitalization of many of today's public companies, a modest investment would often place such a company in a position to exercise significant influence, even though the investment is not material to the investor.
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