The CPA s Guide to Professional Ethics: New SEC Rules

Transcription

1 Page 1 of 18 The CPA s Guide to Professional Ethics: New SEC Rules In November 2000, the SEC issued an extensive number of new requirements and amendments to existing independence rules. The authors included a two-page summary of the new rules which appears in the front of The CPA s Guide to Professional Ethics (the Guide). The following presents a chapter-by-chapter summary of some of the most significant changes to the Guide. The summary indicates where blocks would need to be added, revised, or deleted. A block is a section of text delineated by heavy black lines in the Guide. The requirements for independence are in a state of flux and will be until the AICPA, the Independence Standards Board, and state societies of CPAs and state boards of accountancy decide what amendments are needed to their existing rules. During this transition period, if conflicts exist among such organizations, the authors believe that the most stringent requirement should be followed. This is the approach we have used in preparing this update. Even if the AICPA issues a position statement stating that if a member follows a less stringent SEC rule, the more stringent AICPA rule will not be enforced, the fact that other organizations, such as state boards, may enforce the more rigorous requirement should be considered. Effective Date In general, the effective date for the new SEC rules is February 5, The SEC has granted additional time to meet certain requirements. These extended effective dates are noted in the appropriate sections. Chapter 1 Importance of Independence New Block: General Standards of Independence Independence rules and interpretations do not cover all independence issues. Therefore, the concepts of independence in fact and independence in appearance must be considered in resolving issues that are not explicitly addressed in the various rules and interpretations. In fact, these general standards should be considered in resolving all independence issues. In addition, the SEC requires auditors to consider the following general standards. Does the relationship or the service provided: 1. Create a mutual or conflicting interest with the client? 2. Place the auditor in a position of auditing his or her own work? 3. Result in the auditor acting as management or an employee of the client? 4. Place the auditor in a position of being an advocate for the client?

2 Page 2 of 18 Chapter 2 - Organizations Involved in the Development, Regulation and Enforcement of Ethics Requirements Section C, Independence Standards Board (ISB) The Guide mentions that the ISB has issued Standard No. 2, Certain Independence Implications of Audits of Mutual Funds and Related Entities and Standard No. 3 Employment with Audit Clients. (ISB Standard No. 2 is discussed in Chapter 9, and Standard No. 3 is discussed in Chapters 11 and 16). ISB 2 was scheduled to become effective 60 days after the SEC changed its independence rules. Since the SEC has issued guidance similar, but not identical to, ISB 2, it is expected that the ISB will withdraw this standard. The SEC expects firms to follow the steps described in ISB 3. However, the new SEC rule requires firms to settle, in certain circumstances, capital and retirement obligations owed to former firm professionals employed by firm audit clients. These requirements supersede those in ISB 3. The ISB is expected to formally delete the superseded financial settlement provisions of ISB 3. Chapter 8 - Definition of Member for Purposes of Independence Requirements Section A, Who is a member? Revision to Category 2 Professional Employees Who Participate in the Engagement The SEC rules no longer expands the AICPA definition to include any professional employee: Providing any professional service to the client In any line of service, (e.g., audit, tax, consulting) Revision to Category 5 Other Members However, it should be noted in Category 5, that the SEC is more restrictive than the above AICPA rule. The SEC rule is that no professional person/employee of the CPA firm (located anywhere) can be employed by, or serve on the governing board of the client.

3 Page 3 of 18 The SEC redefines member as the CPA firm and covered persons. Covered persons include partners, principals, shareholders, and employees of the CPA firm who: 1. Are on the audit engagement team (including concurring partners and all persons who consult with others on the audit, review or attest engagement). 2. Are in the chain of command who (a) supervise or have direct responsibility for the engagement (including all levels through the CPA firm s chief executive), (b) evaluate the performance or recommend the compensation of the engagement partner, (c) provide quality control or oversight of the engagement. 3. Provide 10 or more hours of non-audit services to the audit client during the fiscal year (beginning on the date the individual performs the 10 th hour of service) through the audit report date or who expect to provide 10 or more hours of non-audit services on a recurring basis (excluding nonmanagerial employees). Note: For example, if the client is on a calendar year basis, and an individual providing non-audit services to the client has eight hours of service on March 12 and two hours on June 16, the period of being a member runs from June 16 until the CPA firm has signed the audit report. 4. Are partners, principals, or shareholders in the office of the CPA firm in which the lead engagement partner practices. Chapter 9 - Direct and Indirect Financial Interests in Clients New Block: SEC Rule on Five Percent Ownership of Client According to the SEC, if a (1) partner, principal, or shareholder (who is not a covered person as defined in Chapter 8) (2) professional employee (who is not a covered person ), (3) spouse, spousal equivalent, or dependent, or (4) any group of (1), (2), and (3) above owns more than five percent of or controls an audit client (requiring the filing of Schedule 13-D or 13-G), the CPA firm is not independent. Note: The current AICPA requirements and the definition of member (see Chapter 8) are more stringent, except for (2) above, and would cause the CPA firm s independence to be impaired if persons in (1) or (3) above had any financial interest in a client. New Block: Exception for Unsolicited Inheritance and Gift

4 Page 4 of 18 If any person receives an unsolicited financial interest that would impair independence, such financial interest may be disposed of as soon as practicable and independence is maintained. Note: The SEC specifies that unsolicited financial interests must be disposed of not later than 30 days after having knowledge of and the right to dispose of the interest. Revision to Examples of Indirect Financial Interest Note: The SEC rules indicate that an investment (aggregated by the member and his or her immediate family) of 5 percent or less in a diversified investment company is not a material indirect investment. In essence, this allows CPA professionals and their family members to invest (up to the 5 percent cap) in diversified mutual funds that are not audit clients or part of an investment company complex that includes an audit client. Revision to Financial Interest/Investment Held by a Close Family Member/Relative According to AICPA requirements, if an individual participating in the engagement has a close relative that (1) has a financial interest in the client, (2) that is material to that relative, and (3) the individual has knowledge of the relative s financial interest, independence is impaired. The SEC rule only addresses investments and expands the individuals covered to close family members/relatives of (1) proprietors, partners, or shareholders of the CPA firm, (2) professional employees providing 10 or more hours of non-audit services to the client, (3) spouses, spousal equivalents, and dependents of any person in (1) or (2), and (4) any group of persons in (1), (2) or (3). If such person(s) owns 5 percent or more of or controls an audit client, (as evidenced by filed Schedule 13D or 13G), the CPA firm is not independent. Note: Close family members/relatives are the individual s: Nondependent children (including grandchildren and stepchildren). Brothers and sisters. Grandparents, parents, and parents-in-law. Spouses of any of the above. The SEC defines close family members as including only nondependent children, brothers and sisters, and parents. However, the broader and more stringent definition of close relatives (as presented above) must be applied until the AICPA relaxes its coverage. Subsection C, Deposits in a Client Financial Institution

5 Page 5 of 18 New Block: Exception to Uninsured Account Balances for CPA Firm Account According to the SEC, a CPA firm may have an uninsured balance provided that the likelihood of the financial institution experiencing financial difficulty is remote. Note: Under the AICPA requirements, the materiality of the uninsured balance governs, not the likelihood of financial difficulty. Subsection D, Accounts with Client Broker-Dealer and Futures Commission Merchants Remove block: Self-Directed IRAs Revision to Items That Impair Independence (block is retitled Broker- Dealer Accounts ) Independence is impaired : 1. If the account includes any asset other than cash or securities, and 2. The value of the assets in 1. above exceeds the amount subject to the Securities Investor Protection Corporation (or protection provided by a similar program), or 3. If the broker-dealer extends credit to the member (Chapter 15). New Block: Futures Commission Merchant Accounts Independence is impaired if a member has a futures, commodity, or similar account with a futures commission merchant audit client. Subsection I, Nonclient Mutual Funds Addition to Indirect Financial Interest Note: The SEC rules indicate that an investment (aggregated by the member and his or her immediate family) of 5 percent or less in a diversified investment company is not a material indirect investment. In essence, this allows CPA professionals and their family members to invest (up to the 5 percent cap) in diversified mutual funds that are not audit clients or part of an investment company complex that includes an audit client. Revision to Audits of Investment Adviser, Sister Funds, or Related Nonfund Entities

6 Page 6 of 18 Note for Sections I and J: ISB No. 2 was scheduled to become effective 60 days after the SEC changed its independence rules. Since the SEC has issued guidance similar, but not identical to, ISB No. 2, it is expected that the ISB will withdraw this standard at its next meeting. Add new Subsection K, Insurance Policies If a member has an individual insurance policy from an audit client, independence is impaired unless: 1. The policy was acquired prior to becoming a member, and 2. The likelihood of the insurer becoming insolvent is remote. Note: If the likelihood of the insurance audit client becoming insolvent is not remote, independence is impaired without regard to the member s status at the time the policy was acquired. Note: A member meeting conditions 1. and 2. above may renew the policy or increase the coverage for preexisting policies without impairing independence. Chapter 10 - Financial Interests in Nonclients That are Related to Clients Addition to Important Definitions Intermediary investor An entity in which a member invests that, in turn, invests in a client. Common investee An entity in which both the member and the client invest. Chapter 11 - Former Practitioners Revision to: Additional Restrictions of the SEC The SEC s new rules expand the coverage above to include CPA firm professional employees that are employed by audit clients in an accounting or financial reporting oversight role. Independence will not be impaired if a former partner, professional employee, etc., does not have an accounting or financial reporting oversight role with the audit client.

7 Page 7 of 18 If the former partner, principal, or shareholder has an accounting or financial reporting oversight role at the audit client, independence will not be impaired if the individual does not: 1. Influence the firm s operations or financial policies, 2. Have a capital balance in the firm, or 3. Have a financial arrangement with the firm other than a fully-funded, fixed payment retirement account (not dependent on the CPA firm s financial results). Note: A rabbi trust (or similar arrangement in a jurisdiction not having rabbi trusts) may be used in lieu of a fully funded retirement plan. (A rabbi trust is an irrevocable trust whose assets are not accessible to the CPA firm until all benefit obligations are met. However, a rabbi trust is subject to creditor claims in bankruptcy.) For a former professional employee of the CPA firm (not a partner, principal or shareholder) who has not been associated with the CPA firm for five or more years, independence is not impaired if the fixed payments are immaterial to the employee. Note: The new SEC rules for employment relationships are effective on May 7, New Block: ISB Rule When Former Practitioner is Employed by Client According to ISB No. 3, Employment with Audit Clients, a CPA firm may not be independent if a firm professional (FP) is employed by an audit client. If FP has knowledge of and relationships with the firm that could adversely influence the audit, independence is impaired unless the firm implements the following safeguards. Addition to: Accepting Employment-Safeguards Note: The SEC expects firms to follow the steps described in ISB 3. However, the new SEC rule requires firms to settle, in certain circumstances, capital and retirement obligations owed to former firm professionals employed by firm audit clients. These requirements supersede those in ISB 3. The ISB is expected to formally delete the superseded financial settlement provisions of ISB 3. Chapter 13 - Performance of Other Services for Clients Revision to SEC Position on Bookkeeping Services

8 Page 8 of 18 With two exceptions, the SEC considers an auditor to not be independent if the auditor: 1. Maintains or prepares client accounting records. 2. Prepares financial statements (or the basis of such statements) that are filed with the SEC. 3. Prepares source data underlying financial statements. Revision to Exceptions to the SEC s Position on Bookkeeping Services The SEC will not deem independence to have been impaired in the following circumstances: In rare emergency/unusual situations when the auditor does not undertake managerial actions or make managerial decisions. Note: The registrant and auditor should contact the SEC relative to the application of the emergency exception. Accounting services for a foreign component of a domestic client, provided all of the following six conditions are met: 1. The services are limited, routine, or ministerial bookkeeping services. 2. It is impractical to make other arrangements. 3. The foreign entity is not material to the consolidated financial statements. 4. The foreign entity does not have employees capable or competent to perform the services. 5. The services are consistent with the professional ethics rules in the foreign location. 6. Total fees for the bookkeeping services for all foreign entities collectively do not exceed the greater of 1% of the consolidated audit fee or $10,000. New Block: SEC s New Proxy Disclosure Requirement The SEC s new rules require that a company disclose, in all annual proxy statements filed after February 5, 2001, aggregate fees billed for non-audit services provided to the client during the most recent fiscal year. The company must disclose aggregate fees billed for information technology services under the caption Financial Information Systems Design and Implementation Fees, and disclose aggregate fees for all other non-audit services under the caption All Other Fees. A company must also disclose whether an audit committee (or board of directors if there is no audit committee) considered whether the provision of information technology and other non-audit services from its auditor is compatible with maintaining the auditor s independence.

9 Page 9 of 18 Subsection D, Investment Advisory or Investment Management (Including Broker-Dealer Services) Addition to Example Activities that Would Impair Independence Act as a broker-dealer, promoter, or underwriter for a client. Recommend an audit client s securities to anyone. Subsection F, Appraisal, Valuation, or Actuarial (Including Fairness Opinions) Revision to Example Activities that Would Impair Independence! Prepare a valuation of an employer s securities contained in an employee stock ownership plan (ESOP) to support transactions with participants, and allocations within the ESOP, when the client is not in a position to have an informed judgment on the results of this valuation.! Prepare an appraisal, valuation, or actuarial report using assumptions determined by the member and not approved by the client. With four exceptions consistent with the above AICPA requirement, the CPA firm is not independent if it provides any of these services and the results are material to the financial statements or will be audited by the CPA firm. The four exceptions are: 1. The client or specialist employed by the client provides primary support for the recorded balances. 2. For pensions, other post-employment benefit, or similar liabilities, the client takes responsibility for all significant assumptions and data. 3. The valuation is performed in the context of a tax engagement. 4. The valuation does not affect the financial statements. Note: The listed exceptions above do not include an exception for purchase price allocation in an acquisition. Fairness opinions are opinions on the adequacy of consideration in a transaction. In foreign jurisdictions, contribution-in-kind reports may be required. Auditors should contact the SEC with questions involving such reports. The new SEC auditor independence rules are effective for appraisal or valuation services or fairness opinions on August 5, Subsection G, Executive or Employee Search (and Human Resource Services) New Block: SEC Rule The SEC (consistent with SECPS requirements) is more stringent and explicit than the AICPA requirements above in that the auditor may not:

10 Page 10 of Search for, seek out, or perform reference check of prospective candidates for managerial, executive, or director positions. 2. Engage in psychological testing or other formal evaluations. 3. Act as a negotiator on the client s behalf. 4. Recommend a specific candidate for a specific job. Note: The auditor may interview candidates or advise the client, at the client s request, on a candidate s competence for accounting-related positions. Subsection I, Information Systems Design, Installation, or Integration New Block: Explicit SEC Requirements Relating to Hardware or Software Underlying Financial Statements When designing or implementing hardware/software related to a client s financial statements, the SEC explicitly requires that the following five requirements be followed. Management must: 1. Acknowledge in writing to the CPA firm and the client s audit committee (or its board of directors) the company s responsibility for controls over financial reporting. 2. Designate a competent employee or employees, preferably within senior management, to make all management decisions. 3. Make all decisions about: a. Systems to be evaluated/selected. b. Controls to be implemented. c. Scope and timetable for implementation. d. Testing. e. Training. f. Conversions. g. Other matters. 4. Evaluate the adequacy of design and results of implementation. 5. Not rely on the auditor s work as the primary basis for determining the adequacy of internal controls over financial reporting. New Block: SEC s New Proxy Disclosure Requirements Under the new SEC rules, a company must disclose, in all annual proxy statements filed after February 5, 2001, the aggregate fees billed for information technology services, as well as other non-audit services, during the most recent fiscal year. Such information technology fees should be disclosed under the caption Financial Information Systems Design and Implementation Fees. Also, as previously discussed, a company must also disclose whether an audit committee (or board of directors if there is no audit committee) considered whether the provision of information technology and other non-audit services from its auditor is compatible with maintaining the auditor s independence.

11 Page 11 of 18 Subsection J, Management Advisory New Block: SEC Rule According to the SEC, independence is impaired if the auditor acts, temporarily or permanently, as a director, officer, or employee, or performs any decisionmaking, supervisory, or ongoing management function (see Chapter 16). Add new Subsection N, Legal Services New block: Conflict Between Role of Auditor and Attorney According to the SEC, if a CPA firm provides any service to an audit client when the person providing the service must be admitted to practice before a U.S. court, the firm is not independent. Note: The SEC has a long-standing position that there is a fundamental conflict between the role of the auditor and attorney. However, persons with foreign affiliates of U.S. CPA firms who are not required to be admitted to a U.S. bar may provide legal services if: 1. Local law does not preclude the services. 2. The services relate to non-material matters. 3. The services are routine and ministerial. Add new Subsection O, Actuarial Services for Insurance Companies New block: Example Activities that Would Not Impair Independence According to the SEC, independence is not impaired if the auditor: " Assists management in developing methods, assumptions, and amounts for policy, loss reserves and other actuarial items in the financial statements. " Assists management in converting the financial statements from a statutory basis to a GAAP basis. " Analyzes actuarial alternatives for tax planning purposes. " Assists management in the financial analysis of various matters (e.g., proposed new policies, new markets, acquisitions, reinsurance needs). New block: Example Activities that Would Impair Independence According to the SEC, independence would be impaired if:! The auditor provides the client with its primary actuarial capabilities.! Management does not accept responsibility for significant actuarial methods and assumptions.! The auditor s involvement is continuous.

12 Page 12 of 18 Chapter 14 - Business Relationships; Joint, Closely Held Business Investments; Cooperative Arrangements; and Lease Arrangements (and Investments by Audit Client in Auditor) Section A, SEC Position on Business Relationships Revision to Basic Principle Direct and material indirect business relationships, other than a consumer in the ordinary course of business, with persons associated with an audit client in a decision-making capacity (such as officers, directors, or substantial stockholders), impair independence. New Block: Engaging Audit Client to Underwrite CPA Firm s Securities The SEC indicates that independence is impaired if a CPA firm engages an audit client to: 1. Underwrite any security issued by the CPA firm. 2. Act as a broker dealer, market maker, promoter, or analyst with respect to any security issued by the CPA firm. New Subsection E, Investments by Audit Client in Auditor New Block: SEC Rule Change Under the SEC s new rules (effective February 5, 2001), an auditor s independence would be impaired if the audit client or an affiliate of the client has, or agrees to acquire, any direct investment in the CPA firm. In addition, if the audit client s officers or directors own more than 5 percent of the equity securities of the CPA firm, the CPA firm is not independent. Note: The SEC rule also covers subsidiaries and associated entities of the CPA firm. Chapter 15 - Loans To and From Clients Revision to Types of Permitted Loans Note: One type of permitted loan is a credit card and cash advances where the aggregate outstanding balance is reduced to $5,000 or less by the payment due date. The new SEC rule increases this balance to $10,000.

13 Page 13 of 18 Chapter 16 - A Member s Employment by, and Connections with, Clients New Block: SEC Rule The SEC indicates that independence is impaired if any professional person (member or not) in the CPA firm (i.e., any current partner, principal, shareholder, or professional employee) is employed by the client or serves on the governing board of the client. Note: The new SEC rules on employment relationships are effective as of May 7, Chapter 17 - Employment of a Spouse, Dependent, or Close Relative by a Client Section A, Employment of Dependent or Spouse by a Client Addition to: Spouse, Cohabitant, or Dependent Employee has Significant Influence Position Note: The SEC rules use covered person (as defined in Chapter 8). Therefore, additional persons included in the definition of member for the purpose of determining significant influence would be any professional person who provides 10 or more hours of non-audit services to the client, and any professional person in the chain of command, whether or not they are partners or shareholders. The more stringent portions of the AICPA and SEC rules must be considered in applying the requirement. Note: The new SEC rules for employment relationships are effective on May 7, Addition to: Spouse, Cohabitant, or Dependent Employee has Audit- Sensitive Position Note: The SEC rule is less stringent than the AICPA rules. Audit sensitive is not used. Instead, the SEC rule applies to employment of a spouse/dependent when the person has an accounting or financial reporting oversight role that allows such person to influence the preparers or contents of the financial statements. The more stringent AICPA coverage should be applied. Delete block: SEC Rules on Employment of Spouse, Cohabitant, or Dependent

14 Page 14 of 18 Section B, Employment of Close Relative by a Client Addition to Basic Principle Note: Audit-sensitivity includes more persons than those in an accounting or financial reporting oversight role. The more extensive AICPA coverage must be followed, not the SEC s rule. Revision to Definition of Close Relative The SEC definition of close family member includes (in addition to immediate family members, which are spouses, spousal equivalents, and dependents) nondependent children, brothers and sisters, and parents. However, the broader and more stringent definition (i.e., close relative ) must be applied. (The example in this section should be deleted.) Addition to: Proprietor, Partner, or Shareholder Note: The SEC rule also includes the parents, nondependent children, and siblings of any partner, principal or shareholder in the office of the CPA firm in which the lead engagement partner practices. Such persons are included only if they are in an accounting or financial reporting oversight role, not if they are simply in an audit sensitive role. Delete block: Member (as defined by SEC) Delete block: Example of SEC s Mitigating Position Chapter 21 - Outsourcing of the Internal Audit Function and Other Extended Audit Services Addition to: Requirements for Responsibilities of the Client s Management In addition, if the CPA firm performs internal audit services related to accounting, the client s management must: Acknowledge in writing to the CPA firm and the company s audit committee (or board of directors) the company s responsibility for internal control over financial reporting, and Not rely on the auditor s work as the primary basis for determining the adequacy of its internal controls. New Block: SEC Rule Change

15 Page 15 of 18 Effective August 5, 2002, a member must limit internal audit services related to accounting systems, controls over such systems, and financial statements to 40 percent of the total hours expended by a registrant on such services (in a given fiscal year). Note: The 40% rule does not apply to companies with less than $200 million in assets. If the CPA firm performs internal audit services related to accounting, the client s management must: 1. Acknowledge in writing to the CPA firm and the company s audit committee (or board of directors) the company s responsibility for internal control over financial reporting. 2. Not rely on the auditor s work as the primary basis for determining the adequacy of its internal controls. The client s management must also meet the other four requirements listed under Requirements for Responsibilities of the Client s Management. Chapter 24 - Independence Requirements for Agreed-Upon Procedures (AUP) Engagements SSAE No. 10, Attestation Standards: Revision and Recodification, has been issued. Chapter 26 - Quality Control Systems for Independence New Block: SECPS Independence Quality Control Requirements The SECPS s membership requirements obligate each CPA firm to: 1. Establish independence policies. 2. Make the policies in 1. above available to each U.S. professional, and partners and managers in foreign-associated firms. 3. Communicate changes in 1. above on a timely basis. 4. Train each professional at the time of initial employment and periodically thereafter about independence requirements. 5. Maintain a database of restricted clients/entities. (For CPA firms with at least 7,500 professionals, the restricted entity list must be automated.) 6. Designate a senior-level person to (a) keep the restricted entity list updated on at least a monthly basis, (b) make it available to all professional personnel, (c) communicate updates (additions) to the restricted entity list at least monthly, and (d) oversee the firm s independence policies and independence consultation process.

16 Page 16 of Implement a monitoring system to test compliance with the restricted entity list. 8. Develop guidelines for actions to be taken against professionals who violate the firm s independence policies. New Block: SECPS Requirement for Partners Subject to Ethics Investigation If an audit engagement partner is subject to an ethics investigation (independence issue or otherwise), the CPA firm must: a. Terminate or retire the partner, or b. Remove the partner from performing or supervising public company audits until the ethics investigation is complete, or c. Apply additional oversight for at least one year on all of the partner s public company engagements. Note: The firm s managing partner must assign the oversight duties to a senior technical partner. This requirement is effective 1/1/2001. New Block: New SEC Rules on a Firm s Quality Control The SEC permits an auditor to remedy certain inadvertent violations (e.g., a family member makes an investment of which the member is not aware) of the independence requirements if: 1. The auditor did not know about the violation. 2. The violation was corrected promptly once it became known. 3. The firm has quality controls in place that provides reasonable assurance that the firm and its personnel maintain independence. 4. For firms that provide audit, review, or attest services to more than 500 public companies, their quality controls should include: a. Written, comprehensive independence policies and procedures. b. Automated systems to track investments in securities by partners and managerial employees that may impair independence. c. A system that provides timely notification to all professionals about entities from which independence is required. d. Annual or on-going training on independence. e. Annual internal inspection and testing of the firm s independence system.

17 Page 17 of 18 f. Notice to all firm personnel of the names and titles of senior management responsible for independence matters. g. Written policies and procedures to require firm partners and covered persons (see Chapter 8) to report promptly to the firm employment negotiations with an audit client. Note: The firm is required to immediately remove such professionals from the audit engagement and to promptly review all audit work that those professionals performed. h. Disciplinary measures to ensure compliance. Note: The SEC encourages all firms to adopt the above elements of quality controls over independence, but notes that smaller CPA firms may not need all of them. Note: The elements of quality control in 4 above do not apply to professionals participating in the audit in offices of accounting firms located outside the U.S. until December 31, New Block: SECPS Independence Quality Control Requirements Applicable to Individuals Each professional shall: 1. Review the CPA firm s restricted client list prior to: a. Acquiring any security, b. Obtaining a loan, or c. Opening or changing a brokerage account. Note: This review is also required when a spouse or dependent engages in any of the above activities. 2. Certify, near the time of initial employment and at least annually thereafter, that he or she: a. Has read the firm s independence policies. b. Understands the applicability of the policies in a. above. c. Has complied with the policies in a. above. 3. Report apparent violations of the firm s independence policies when identified and the corrective action taken (or proposed) on a timely basis.

18 Page 18 of 18 Chapter 37 - Where to Go For More Information Since the adoption of the Commission's Revised Rules on Auditor Independence, the SEC staff has received questions regarding the implementation and interpretation of the rules. The SEC encourages these questions and related correspondence regarding auditor independence. Questions should be directed to the Assistant Chief Accountant (currently Sam Burke or Esmeralda Rodriguez) in the Office of the Chief Accountant, Mail Stop 1103, 450 Fifth Street, N.W., Washington, D.C ; telephone: (202) Questions regarding disclosure in proxy statements should be directed to the Office of Chief Counsel in the Division of Corporation Finance at (202) The staff s responses to certain questions received to date can be found at