The move follows several months of heated discussion between the US watchdog and Big Five firms, which SEC chairman Arthur Levitt has continually slammed for flouting auditor rules.
Levitt said: ‘Developments call for a significant and comprehensive re-examination of the rules that govern independence. At a time when more Americans’ economic futures are tied to the underlying health and resiliency of our capital markets, the Commission and the profession must work together to ensure that the auditor independence requirements are both effective and fair.’
The new rules will focus on investments by auditors or their family members in audit clients; employment relationships between auditors or their family members and audit clients; and the scope of services provided by the audit firms to their audit clients.
Levitt has demanded a revision of rules given the growing size of accountancy firms and the expanding menu of services offered by them. He is concerned over the profession’s ability to regulate and oversee itself following the revelation of SEC audit violations at PricewaterhouseCoopers.
The situation recently worsened with the US professional body, AICPA, withdrawing its funding of the US Public Oversight Board’s special auditor independence compliance reviews.
The initiative was specifically requested by the SEC to determine whether other major accounting firms have financial conflicts similar to the ones uncovered at PwC.
Big Five firms have, however, agreed to undertake a self-evaluation of past compliance with only serious violations resulting in a penalty.
According to the SEC, the four tenets by which an auditor’s independence should be measured are whether the accountant has a mutual or conflicting interest with the audit client, audits his or her own work, functions as management or an employee of the audit client or acts as an advocate for the audit client.SEC news
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