SEC Proposes Amendments to Auditor Independence Framework

The Harvard Law School Forum on Corporate Governance and Financial Regulation 2020-01-22

Posted by Lisa Stimmell, Richard Blake, and Courtney Mathes, Wilson Sonsini Goodrich & Rosati, on Wednesday, January 22, 2020
Editor's Note: Lisa Stimmell and Richard Blake are partners, and Courtney Mathes is a practice support lawyer at Wilson Sonsini Goodrich & Rosati. This post is based on their WSGR memorandum.

On December 30, 2019, the U.S. Securities and Exchange Commission (SEC) announced that it was proposing several amendments to “codify certain staff consultations and modernize certain aspects of its auditor independence framework.”

The auditor independence framework, set forth in Rule 2-01 of Regulation S-X, requires, among other things, auditors to be independent of their audit clients “both in fact and in appearance.” Rule 2-01(b) sets forth the general auditor independence standard [1] and Rule 2-01(c) provides a non-exclusive list of relationships and circumstances, including certain financial, employment, and business relationships, in which an accountant would not be considered “independent” from an audit client.