Deloitte's independence requirements are defined by specific sets of policies and external rules and regulations to help both you and the organization remain independent when providing services to attest (audit) clients. Deloitte Global CEO Punit Renjen challenges Deloitte professionals to break down barriers and work together to transform the organization from the largest professional services provider in the world into an iconic one. and entities five percent or more of whose [voting] securities. L. No. We believe that if the "chain of command" concept is modified to include all professional personnel who have the ability to influence the conduct of the audit, the "office" concept is unnecessary. Deloittes extensive experience underpins the valuable perspective we bring to SEC reporting. In other words, Company A's investment in Company B could be .001% of Company A's total assets, but Company A's auditors would have to be independent of Company B. Close Family Members includes your parents, step-parents, non-dependent children and siblings. Gramm-Leach-Biley Financial Modernization Act, Pub. Influence (ownership 20-50%)/ Immaterial (<5%) ( I ). 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. The final rule must be adopted for fiscal years beginning after December 31, 2020; however, early application is permitted. 24, 78, and 377-378 (1994 & Supp. 210.102(b). Proposed rule 2-01(c)(1)(ii)(E) provides that an accountant is not independent when the accounting firm, any covered person, or any of his or her immediate family members has "any credit card balance in excess of $10,000 owedto a lender that is an audit client or an affiliate of an audit client. . DTTL and each DTTL member firm and related entity is liable only for its own acts and omissions, and not those of each other. Following the text of the proposed rule to its logical conclusion, the investments enumerated in (1) and (2) would be material indirect investments. sell investments in restricted entities that are not permissible. The Prohibitions Against Certain Relationships With An "Affiliate Of The Audit Client" Should Be Limited To Those Affiliates That Are Material To The Audit Client, C. The Definition Of "Covered Persons In The Firm" Should Include Only Those Who Have The Ability To Influence The Audit, 1. The parent's or investor's equity in A spouse, spousal equivalent or dependent who is employed in an accounting, financial reporting or other significant role at a company, Your current or previous employer is a restricted entity, You or your spouse, spousal equivalent, or dependent is an officer or member of a board of directors or audit committee (whether for pay or not), Community activities/community leadership positions, Non-Deloitte employment or independent consulting services, including but not limited to professor/instructor roles, part-time employment (e.g., retail store, self-employment, family business, professional service, any other type of paid position), and providing independent contractor services (e.g., sales- or commissions-based activities). Under the proposed definition, the payroll services provided to our audit clients would be deemed to impair our independence with regard to those clients. non-client and its carrying amount of investments in and advances to the client See 65 FR 43,160. 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. Although no one factor will necessarily indicate the existence of a Spousal Equivalent relationship, factors to be considered in making such determinations include the following: Deloitte Entity Search and Compliance (DESC) SystemAn internal system that, among other things, contains information regarding entities that are restricted for independence purposes. In its Authorizing Release, the Commission expressed its intention to give the ISB the leading role in developing independence standards: For example, proposed rule 2-01(c)(1)(ii)(G), in certain respects, follows ISB Standard No. The SEC definition of a promoter includes a founder of the company who is still with the company, or holds at least 10% of any class of its securities. Proposed rule 2-01(c)(1)(ii)(D) provides that an accounting firm is not independent when the firm, any covered person, or any of his or her immediate family members has any "futures, commodity or similar account maintained with a futures commission merchant that is an audit client or an affiliate of an audit client. This proposed rule provides that an accountant's independence will not be impaired in the following circumstances: (B) New Audit Engagement. Indeed, ISB Standard No. 2023. These relationships are beneficial to investors, audit clients and the public. The Definition Of An "Affiliate Of The Accounting Firm" Should Be Limited To Those Third Parties That Warrant Being Treated Like The Accounting Firm For Independence Purposes, B. Covered Person Cannot Dispose Of The Financial Interest. 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. Considering the remote likelihood that uninvolved partners will be in a position to influence the audit, this restriction should be deleted from the proposed rule. Generally, securities will stay on the Restricted List until the securities issuer announces that the material transaction has been completed or has been aborted, or until the banks Compliance is otherwise satisfied that the bank does not possess, and will not come into possession of, material non-public information about the securities issuer. Securities are placed on a bank's restricted list when the bank is engaged with the company on non-public activity, such as mergers and acquisitions work, affiliate ownership, or underwriting activities or other distribution of the issuer's (the company's) securities. DTTL (also referred to as "Deloitte Global") does not provide services to clients. See how we connect, collaborate, and drive impact across various locations. "43 These "other financial interests" include: (1) loans; (2) savings and checking accounts; (3) broker-dealer accounts; (4) futures commission merchant accounts; (5) credit card balances; (6) insurance products; and (7) any investment in an investment company complex. We combine our size and scope with our knowledge and experience to help you understand and comply with your reporting and disclosure requirements. For example: The proposed definition of an "affiliate of the accounting firm" would stymie these relationships by broadly including in its definition relationships that are neither found in, nor contemplated by, the current definition of an "affiliate" in Regulation S-X.8 The Release provides no adequate basis or explanation for extending the definition of "affiliate" beyond that found in Regulation S-X, much less creating multiple definitions of the same term.9 In short, the proposed definition would make it virtually impossible for accounting firms to maintain relationships with third parties, including relationships with non-audit clients that have helped to enhance audit quality. The bank is engaged with the company on non-public activity, such as mergers and acquisitions work, affiliate ownership, or underwriting activities or other distribution of the issuers (the companys) securities. 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. [and] to avoid imposing unnecessary independence restrictions on a partner or managerial employee with only nominal involvement with the client and little risk of impacting the audit. We believe, however, that it would be preferable for the ISB to develop standards in this area. Audit committee guide: Evolving from good to great Event summary. At Deloitte, our purpose is to make an impact that matters by creating trust and confidence in a more equitable society. Related to Restricted Entity List. In the event that the audit client is a fund entity or the investment advisor of a fund entity, we believe the proposed rule would unnecessarily preclude covered persons who are not on the audit engagement team from investing in non-client sister funds. 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. test to differentiate when a company should or should not be listed. Fullwidth SCC. Also, due to growth in the accounting profession and technological innovations, the traditional "office" has become an unusable, archaic term. As discussed below, we believe that this modified "chain of command" or "position to influence" concept makes the inclusion of an "office" concept unnecessary. When considering whether to accept a new client or a new engagement at an existing client, each Deloitte firm must take into account the independence requirements in all applicable jurisdictions. These policies and procedures are based primarily on independence standards and regulations of the: When applicable national or regional requirements are more restrictive than the requirements in Deloitte Globals policies, Deloitte firms and their people must meet those jurisdictions requirements as well. DTTL and each of its member firms are legally separate and independent entities. See Terms of Use for more information. for all of the entities in the family tree is critical for providing the For example, there is no evidence that an accounting firm's independence would be impaired if the spouse of an uninvolved partner had a $10,001 balance on a credit card issued by an audit client.46 Given these concerns, we believe the Commission should follow the ISB's proposed approach of applying restrictions on "other financial interests" to the accounting firm and professional employees directly involved in providing audit services to the audit client.47. 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. For many years, the SECPS membership requirements have served as the cornerstone for the profession's peer review program. The proposed rule defines an "affiliate of the audit client" as an entity that has significant influence over the audit client, or an entity over which the audit client has significant influence.13 This proposed definition of an "affiliate of theaudit client" is overbroad, unnecessary and unworkable in today's global economy in which companies are highly diversified and evolve rapidly. 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. 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. Rather than the proposed rule, we believe the Commission should follow the ISB's proposed approach regarding material indirect interests, which would provide clarity and a more meaningful rule. The Definition Of "Covered Persons" The SEC is not an exchange, so "listed" isn't the correct term here. Cultivating a sustainable and prosperous future, Real-world client stories of purpose and impact, Key opportunities, trends, and challenges, Go straight to smart with daily updates on your mobile device, See what's happening this week and the impact on your business. 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.