Who runs the profession? SEC olive branch as review of audit independence rules announced

The move, which is seen as an olive branch to the profession following a spate of high-profile clashes – including the resignation of UK PricewaterhouseCoopers partner Geoff Westmore – will encompass the rules that govern certain investments and employment relationships by auditors and their families in clients.

SEC chief accountant Lynn Turner said: ‘The core principle of independence is immutable, but the rules which weave the fabric around independence must continually be scrutinised. Recently, some have said certain aspects of the independence rules are unfair, too cumbersome and just unrealistic.’

Chairman Arthur Levitt has asked for the review to be completed by next month and any recommendations to be put forward.

Any changes will be unlikely to have saved Westmore because his brother-in-law, financial controller of Reuters, would still have been deemed too close to the audit of his company.

But other UK partners and staff may find that the outcome lifts some of the harsh restrictions governing their investments in US clients and may also lead to the redefinition of what employment relationships compromise the audit.Auditing Practices Board chairman Ian Plaistowe and Arthur Andersen partner said: ‘Anything like this is positive but what the SEC ought to be looking at is the approach taken in the UK where we identify threats to audit independence and in some circumstances there is outright prohibition. Auditors are faced with a list of principles that they can deal with.’

Many UK firms, not just the Big Five, have to comply with the tough SEC regulations because an increasing number of domestic companies are seeking a listing in America, which has the biggest capital market in the world.English ICA deputy president Graham Ward announced last week that he will be seeking a meeting with the SEC in order to improve communication between the two bodies and ensure that regulation is carried out with transparency and consultation.

PwC splits: Analysis and comment

Related reading