We believe, however, that it would be preferable for the ISB to develop standards in this area. Second, the proposed rule omits important portions of AICPA Rule 302 and its related interpretation. These relationships are beneficial to investors, audit clients and the public. They also allow us to work closely with other companies to provide better and more affordable products and services. First, the proposed definition of "chain of command" includes all individuals who have any type of responsibility over members of the audit engagement team even though many of these individuals will have no influence over the audit. Insert Custom CSS fragment. The SECs order censures Deloitte for violating the auditor independence standards of Rule 2-02(b) of Regulation S-X, and sanctioned Deloitte for causing the funds to violate Sections 20(a) and 30(a) of the Investment Company Act and Rule 20a-1 thereunder. The Proposed Business Relationship Rule, IX. This model includes all individuals having any supervisory responsibility, or other control, over the conduct of an audit, review or attestation engagement. 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. For example, the proposed rule would unnecessarily require the spouse of a covered person to transfer assets out of his or her brokerage account held at an immaterial affiliate of an audit client to the extent the value of such assets exceed the Securities Investor Protection Corporation ("SIPC") coverage.19 There is no threat to an accounting firm's independence where the affiliate is not material to the audit client, and the accounting firm does not audit the affiliate. At Deloitte, our purpose is to make an impact that matters by creating trust and confidence in a more equitable society. No matter which stage of the corporate life cycle youre in, Deloitte can assist and advise on a wide range of SEC reporting mattersfrom filing an initial registration statement, to dealing with ongoing requirements, to planning for potential M&A scenarios. The order finds that Boynton was a cause of the same reporting violations and ALPS caused the funds related compliance violations under Rule 38a-1 of the Investment Company Act. Email Name: DTTL INTL Restricted Entities (US) Email Address: globalindependencesystemssupport@deloitte.com Entity Updates Hotline: +1 212-492-2803 Kerry Gahwyler, Project Manager Email: kgahwyler@deloitte.com Phone: +1 203-761-3046 Joshua Brown, Director of Global Independence Operations Email: josbrown@deloitte.com Phone: +1 203-761-3216 The parent's or investor's aggregate Clearly, this outcome is not in the public interest. Deloitte refers to one or more of Deloitte Touche Tohmatsu Limited, a UK private company limited by guarantee ("DTTL"), its network of member firms, and their related entities. For example, the beneficial owner of 5.1% of the equity securities of an immaterial affiliate of a public audit client, controlled by unrelated third parties, would not be in a position to influence the audit client. taxes exceeds 5 percent of the parent's or investor's consolidated income from In addition to the specific provisions discussed above, the proposed rule also contains a broad provision which states that "[i]n determining whether an accountant is independent, the Commission will consider all relevant circumstances, including all relationships between the accountant and the audit client or the affiliatesof the audit client. It's pretty confusing at first, but basically certain companies are restricted in owning shares in or using certain companies because of the relationship that Deloitte has with that company. subsidiaries if at least a 20% controlling or significant interest is Independence and quality are essential to Deloitte's objectivity, integrity, impartiality, responsibility to the investing public, and ability to attract and retain clients. For example, the final rule modifies certain significance tests to reduce the potential for anomalous results that may have required a registrant to provide acquiree financial statements that may not be material to investors. 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. being received from previous employer, Former employer 401(k) plans or any other employee benefit plan, including stock option, profit sharing, and stock purchase plans (divestiture of prior employer benefit plans is required within 60 days of hire). 2. If a 20% . . 7507, 63 Fed. Auditor independence rules require outside auditors to remain independent from their clients to ensure there is not even the appearance of a firm compromising its objectivity and impartiality when auditing financial statements. Explore Deloitte University like never before through a cinematic movie trailer and films of popular locations throughout Deloitte University. 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 A domestic partnership registered with a governmental body. Deloitte actively supports multiple efforts to eradicate corruption throughout the world. Deloitte is made up of firms that are members of Deloitte Touche Tohmatsu Limited (also referred to as "Deloitte Global"), a private company limited by guarantee, incorporated in England & Wales. Social login not available on Microsoft Edge browser at this time. The definition of "covered persons in the firm" is overbroad in its inclusion of all professionals who provide consulting or other non-audit services tothe audit client.26 The Release states that these professionals are included "because the auditing literature, quite appropriately, directs the audit engagement team to discuss certain matters with the firm personnel responsible for providing such services to that client. II 1997) (repealed 1999). The only point in the Release that provides any guidance on how materiality should be applied is found in Footnote 131, which states that "we have used the term 'material' in our proposed rules in the sense that it has been used in ourcurrent independence rules. Absent evidence to the contrary, beneficial ownership of twenty percent or more of an audit client's equity securities should be considered to constitute significant influence over the audit client. In fact, the Commission's proposed rule regarding financial interests and employment relationships appears to be directionally consistent with the ISB's work.5. Washington, D.C. 20549 before income taxes for the year is clearly not indicative of the past or This will not be the case in all situations. Deloitte organization structure. The parties hold themselves out as married. The funds audit committee charter addressed auditor independence generally, but the T&O questionnaires did not expressly cover business relationships with the auditors affiliates. STUDIO DEVELOPMENT TEAM +++, Put a wealth of information at your fingertips. Broker Data Import Program (BDIP)A feature of the Tracking & Trading System that allows the professional to receive automatic downloads of their financial holdings from their authorized brokerage accounts. We respectfully request that the Commission consider the changes suggested in this letter which would substantially address our concerns with the proposed rule governing financial and employment relationships. The Definition Of "Covered Persons In The Firm"Unnecessarily Includes All Professionals Providing Non-Audit Services. B. The SEC is not an exchange, so "listed" isn't the correct term here. . 106-102, 113 Stat. What is the value of keeping track of all of the entities within a family tree? To stay logged in, change your functional cookie settings. To stay logged in, change your functional cookie settings. It combines the SECs1 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. Indeed, a clear rule that can be applied to the myriad of investment products that may encompass indirect interests through other entities (e.g., mutual funds, unit investment trusts, etc.) Answer: Risk Management has deemed that accounting The services described herein are illustrative in nature and are intended to demonstrate our experience and capabilities in these areas; however, due to independence restrictions that may apply to audit clients (including affiliates) of Deloitte & Touche LLP, we may be unable to provide certain services based on individual facts and circumstances. What if, in addition to specific answers to specific SEC reporting questions, your company had a knowledgeable and experienced service provider helping foster understanding and implement new processes? Furthermore, the proposed rule should provide an exception for policies obtained in the ordinary course of business from an insurer before the insurer became an audit client. 99 used in other contexts of the federal securities laws. We also recommend that the 30-day divestment period should commence when the auditor has: (1) actual knowledge of the gift or inheritance; and (2) the right to dispose of it. This approach is consistent with the recent proposal by the International Federation of Accountants ("IFAC"). In May 2020, the SEC issued a final rule2 to improve the information investors receive regarding acquired or disposed businesses, reduce the complexity and costs of preparing the required disclosures, and facilitate timely access to capital. Forexample, we believe the following "chain of command" model based on our organizational structure provides a meaningful, yet flexible, framework that would encompass all individuals with the ability to influence the audit. Annual SEC and PCAOB update for public companies Guide. We believe that this is both unnecessary and contrary to the public interest. 7870 (June 30, 2000) (the "Release"). Certain Persons To Focus On Significant Influence Or Control. The proposed rule provides no basis for its prohibition of loans to and from beneficial owners of more than five percent of the audit client's or affiliate's equity securities. AICPA Code of Professional Conduct 101-5. There is no evidence of any threat to independence created by stock ownership in such cases, but the inability to participate in these plans would make such employment by immediate family members much less desirable.42. If we were to have a joint venture with a company such as International Business Machines ("IBM"), at a minimum the proposed definition of an "affiliate of the accounting firm" would prohibit IBM,and presumably its defined benefits pension plan, from investing in our more than 2,000 SEC audit clients. The entity that I am required to validate has immediate parents above it. Consider the following examples applicable to us: In defining the "chain of command," the proposed rule should focus upon who has the ability to influence the conduct of the audit, particularly the audit conclusions to be reached in forming an opinion on the financial statements. As a practical matter, third parties will likely sever or avoid these relationships, rather than comply with the independence rules. U.S. sanctions regulations restrict who U.S. persons (i.e., persons located in the U.S., U.S. citizens, and U.S. entities such as Rice University) may do business with, such as conducting financial transactions and shipping ANYTHING (whether or not the equipment, material or item is export controlled) to these individuals and entities. and entities five percent or more of whose [voting] securities. Release, 65 Fed. Reg. Spouses, spousal equivalents, or dependents former and/or current 401(k) plans or any other employee benefit plan (including pension, stock option, profit sharing, and stock purchase plans). Deloitte frequently serves the same clients in multiple jurisdictions. Representation on Independence, Ethics and ComplianceA personal declaration or statement regarding the facts and circumstances associated with the various financial or other relationships you, your spouse or spousal equivalent, and certain family members may have that directly impact the ability of the Deloitte US Firms to conduct business. See how we connect, collaborate, and drive impact across various locations. Significant influence or control over an audit client. cc: The Honorable Arthur Levitt, ChairmanThe Honorable Isaac C. Hunt, Jr., CommissionerThe Honorable Paul R. Carey, CommissionerThe Honorable Laura S. Unger, Commissioner. Among other things, this business relationshipwill allow us to achieve a better understanding of web-based auditing systems and could result in the development of a sophisticated web-based auditing system that would allow for more use of advanced auditing techniques. We demonstrate this strength of character through our actions. 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. A. Active efforts to resell an audit client's products or services could create the appearance that the accounting firm is effectively a distributor of the client's products or services. Gramm-Leach-Biley Financial Modernization Act, Pub. 1338 (1999). The Proposed Exception Should Cover Situations First, professional personnel, regardless of their "office," who are consulted on substantive matters, even sporadically, by the audit engagement team would be included in our modified definition of "chain of command." words to the right of the temporary GMFID field labeled "Get Unique Temp 17 C.F.R. B. These modifications would create a more meaningful rule that identifies those insurance policies that are similar to direct financial interests in the audit client. used in the calculation described above. On the other hand, accounting firms sometimes find that a potential third party client is unwilling to consider the accounting firm's proposal to render system integration services, unless the proposed "solution" includes software offered by a vendor, which happens to be an audit client of the accounting firm. Yes, the temporary GMFID is automatically assigned by selecting the 210.102(b). Indeed, the current independence rules appropriately recognize that materiality is relevant in determining whether independence is required. 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. The Proposed Five Percent Rule Should Be Modified For Certain Persons To Focus On Significant Influence Or Control, IV. II. Nonetheless, under our proposed modified concept of "chain of command," the Virginia partner would be restricted from investing in the California client if he or she was in fact consulted on the audit of that client. Maintaining independence in fact and appearance is a professional obligation to which all Deloitte people must adhere. Please enable JavaScript to view the site. A roadmap to SEC reporting considerations for business combinations has been saved, A roadmap to SEC reporting considerations for business combinations has been removed, An Article Titled A roadmap to SEC reporting considerations for business combinations already exists in Saved items. Accordingly, the definition of "audit and professional engagement period" found in proposed rule 2-01(f)(6)(A) should be modified to read that the "the professional engagement period begins when the accountant begins review or audit procedures. The Proposed Exceptions Would Provide More Meaningful Protection With Certain Modifications, A. The expertise and subject matter knowledge we have developed through our audit services is valuable to the success of such an initiative in the new economy. Such a result would suggest that independence would be impaired if an accounting firm invests an immaterial amount to acquire 5.1% of a company of which the audit client owns one share. The ISB's proposed approach states that: Additionally, considering that auditors will have no practical and timely way to determine changes in the amount of a registered investment company's assets that are invested in an audit client, the determination of what percentage of a registered investment company's assets are invested in an audit client should be made at the time of the investment. Comment Letter of Deloitte & Touche on the Proposed Revision For these reasons, we generally agree that, depending on the facts and circumstances, reselling activities could be a business relationship. Proposed rule 2-01(c)(3) provides that an accountant is not independent if: Although we agree with the direction of this proposed rule, it provides no basis for prohibiting business relationships with beneficial owners of more than five percent of the equity securities of the audit client or any of its affiliates. 1 Twitter 2 Facebook 3RSS 4YouTube The Proposed Rule Should Provide Certain ExceptionsFor Employer-Sponsored Benefit Plans, V. The Proposed Rule Regarding "Other Financial Interests" Should Be Modified, VI. companies created solely for tax purposes could maintain a tax engagement or These individuals should be considered to be in the same position as the accounting firm's professionals on the audit engagement team. Again, although we believe that it is unnecessary to include uninvolved partners as covered persons, at a minimum this proposed rule should provide an exemption for investments by immediate family members of uninvolved partners in client funds and non-client sister funds through an employer-sponsored benefit plan.

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