If we have selected the wrong experience for you, please change it above. Restricted Entities means (i) the Company; (ii) any subsidiary of the Company; and ( iii) the successors and assigns of each of the Persons referred to in clauses " (i)," " (ii)" and " (iii)" of this sentence (and any one of the Restricted Entities being a " Restricted Entity "). STAY CONNECTED The services described herein are illustrative in nature and are intended to demonstrate our experience and capabilities in these areas; however, due to independence restrictions that may apply to audit clients (including affiliates) of Deloitte & Touche LLP, we may be unable to provide certain services based on individual facts and circumstances. However, in other respects the definition is both overbroad and under inclusive. sell investments in restricted entities that are not permissible. companies created solely for tax purposes could maintain a tax engagement or It combines the SEC's guidance on reporting for business acquisitionsincluding acquisitions of real estate operations and pro forma financial informationwith Deloitte's interpretations (Q&As) and examples in a comprehensive, reader-friendly format. The Securities and Exchange Commission today charged Deloitte & Touche LLP with violating auditor independence rules when its consulting affiliate maintained a business relationship with a trustee serving on the boards and audit committees of three funds it audited. Building for the next 175: Deloittes Journey to Iconic, Corporate Responsibility & Sustainability, Infrastructure, Transport & Regional Government, Telecommunications, Media & Entertainment, US Securities and Exchange Commission (SEC), Public Company Accounting Oversight Board (PCAOB). This exception is necessary in light of the difficulty that many people face in securing life insurance coverage. The Proposed Rule Should Provide Certain ExceptionsFor Employer-Sponsored Benefit Plans, V. The Proposed Rule Regarding "Other Financial Interests" Should Be Modified, VI. While we believe the Commission should defer to the ISB, the proposed rule, if adopted, would lead to unintended consequences, raising a number of concerns, including the following: II. Deloitte's independence requirements are defined by specific sets of policiesand external rules and regulations to help both you and the organization remain independent when providing services to attest (audit) clients. 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. Proposed rule 2-01(c)(5) provides that an accountant is not independent if the accountant provides any services to the audit client or an affiliate of an audit client for a contingent fee. Accounting Advisory & Transformation Services, What CFOs should know when using non-GAAP measures, Access to Deloitte national office resources (including former SEC employees), Subject-matter knowledge integrated in project teams (e.g., complex accounting, income taxes, internal controls), Professionals with direct experience who understand your business, Ability to quickly deploy local resources, Experience assisting at all stages of the corporate life cycle. The ISB's proposed approach provides that independence would be impaired if the accounting firm, or any covered person, has a material indirect interestin the audit client.34 Furthermore, the ISB's proposed approach would clearly distinguish between what would constitute an "indirect investment" and a "direct investment." This result does not promote the Commission's objective of modernizing the independence rules to accommodate two-income families. In addition, in light of the elimination of the provisions of the Glass-Steagall Banking Act which separated commercial banking from investment bank ing,57 the proposed rule should be clarified to apply to accounts insured by the Federal Deposit Insurance Corporation, or similar insurers, that Investor are now offered by traditional broker-dealers. Explore the principles and values found in the code, an integral part of the commitment Deloitte makes to our common underlying belief that ethics and integrity are fundamental and non-negotiable. In addition, the final rule gives management the option to disclose, in the form of a reconciliation in the notes to the pro forma financial information, synergies and dis-synergies (referred to as managements adjustments) if certain conditions are met. Thus, for instance, the audit engagement team should always be prohibited from entering into certain relationships with audit clients. For Employer-Sponsored Benefit Plans, The proposed rule should provide exceptions for employer-sponsored benefit plans of the immediate family members of certain covered persons, when those benefit plans involve: (1) insurance products;37 (2) direct investments;38 and (3) investment company complexes.39 Such exceptions would further the Commission's goal of modernizing the independence rules in light of the increase in dual-career families.40. See how we connect, collaborate, and drive impact across various locations. expected future amounts of such income, the reference point for materiality 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. Each member of Crowe Global is a separate and independent legal entity. activated.+++ DO NOT USE THIS FRAGMENT WITHOUT EXPLICIT APPROVAL FROM THE CREATIVE This is not mandatory for brokerage/Demat accounts held in India. Accordingly, this proposed rule should be modified to provide that independence will not be impaired if the uninsured assets in the brokerage account are not material to the accounting firm or member of the audit engagement team. taxes exceeds 5 percent of the parent's or investor's consolidated income from "12 The proposed definition's use of "any direct business relationship" and "any equity interest" is overbroad and would capture relationships that would not create a mutuality of interest, such as the relationship with the payroll service provider described above. Meaningful Protection With Certain Modifications. Answer: DTTL Global Independence believes that companies are Deloitte & Touche* submits this letter in response to the Securities and Exchange Commission's request for comments on its proposed rule regarding Revision of the Commission's Auditor Independence Requirements, Securities Act Release No. Finally, the proposed rule should make it clear that this approach also includes similar insurance coverage in foreign countries. The prohibitions in proposed rule 2-01(c)(3) exclude relationships in which the accounting firm or a covered person provides professional services or is a "consumer in the ordinary course of business." Although this proposed rule represents a significant step towards modernizing the independence rules regarding the employment of relatives at audit clients, certain modifications are needed to further the Commission's objective of modernizing the independence rules in light of changes to the traditional family structure. For the year ended December 31, 2022, 19 of the Company's project entities have entered into EMAs with NEM and NEM received approximately $1.4 million under the EMAs. At Deloitte, our purpose is to make an impact that matters by creating trust and confidence in a more equitable society. the subsidiary's or investee's income from continuing operations before income 3, "Employment with Audit Clients," directly addresses the provisions of the proposed rule relating to an auditor's employment with audit clients. Close family members (other than immediate family members) of the members of the audit engagement team. The system then monitors these entities against the restricted entity list and informs you if there is a potential exception or conflict. STUDIO DEVELOPMENT TEAM +++, Telecommunications, Media & Entertainment, Stay current: Audit & Assurance subscriptions. This proposed rule uses the same definition of covered persons applicable for "investments in audit clients" in proposed rule 2-01(c)(1)(ii), even though the delineated "other financial interests" are not of the same nature as investments in audit clients, which are more likely to cause an independence concern. The Proposed Definitions Of "Affiliate Of The Accounting Firm," "Affiliate Of The Audit Client" And "Covered Persons In The Firm" Are Flawed And Should Be Modified, The proposed definition of "affiliate of the accounting firm" would broadly encompass, among other things, any joint venture or partnership or other undertaking in which the accounting firm participates and in which the parties agree to any form of shared benefits, including any form of shared revenue, income or equity appreciation.6 The consequences of being deemed an "affiliate of the account ing firm" are profound, in that any entity that is deemed an "affiliate of the accounting firm" would be subject to all of the independence requirements to which the accounting firm is subject.7. It is also not a substitute for consulting with Deloitte professionals on complex transactions and SEC reporting matters. The entity that I am required to validate has immediate parents above it. Anyone can log onto or call the Integrity Helpline to request assistance or report a potential violation. 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. Should all mutual funds be entered in as entities? This box/component contains code Under the proposed rule, this software company may be deemed an "affiliate of the accounting firm" subject to all of the independence requirements, including prohibitions on investments in our audit clients and their affiliates. 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. 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). Transforming technical accounting, governance, and controllership, Benefits and challenges of non-GAAP reporting. Certain Modifications To The Proposed Rule On Employment Deloitte Global was an early signatory to the United Nations Global Compact (UNGC) and to the World Economic Forums Partnering Against Corruption Initiative (PACI). Add an Entity . They also allow us to work closely with other companies to provide better and more affordable products and services. 7507, 63 Fed. Deloitte Global Independence leaders continually engage with external professional bodies and regulators to advance the development of independence requirements around the world. 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. As experienced auditors serving attest and non-attest clients, we understand what both your auditor and the SEC is looking for in your financial reporting. "65 This proposed rule is overbroad because the definition of an "investment company complex" would unnecessarily prohibit financial relationships with non-client entities that we believe would not impair independence. These member firms and each of their related entities (each a "Deloitte firm"), along with Deloitte Global . . Depository accounts such as checking/savings accounts, certificates of deposit, salary accounts*, post office savings accounts* and cash balances associated with a health savings account (HSA). For example, in many countries, the holding of bank accounts, insurance policies and loans issued by audit clients are not perceived as impairing an auditor'sindependence, provided they are obtained in the ordinary course of business, and under normal terms and conditions.50. ** This letter addresses all aspects of the proposed rule except those relating to scope of services, which are addressed in a separate comment letter. Many companies will likely be unwilling to forfeit the investment opportunities potentially available to them from an accounting firm's numerous audit clients andaffiliates of those audit clients. While we oppose codifying SECPS requirements as SEC rules, we believe a reference to compliance with current SECPS quality controls requirementsas a predicate for the firm being excused from inadvertent violations of the independence rules is a viable and desirable alternative. Any person has a financial interest that would cause an accountant to be not independent under paragraphs (c)(1)(i) or (c)(1)(ii) of this section, and: (1) the accountant did not audit the client's financial statements for the immediately preceding fiscal year; and, (2) the accountant is independent under paragraphs (c)(1)(i) and (c)(1)(ii) of this section before the earlier of: (i) accepting the engagement to provide audit, review, or attest services to the audit client; or (ii) commencing any audit, review or attest procedures (including planning the audit of the client's financial statements).67. Generally accepted auditing standards require the audit engagement team to, The ISB is contemplating the same approach. Proposed rule 2-01(c)(1)(ii)(C) provides that an accountant is not independent when the accounting firm, any covered person, or any of his or her immediate family members has: (1) Any such accounts include assets other than cash or securities (within the meaning of "security" provided in the Securities Investor Protection Act); or, (2) The value of the assets in the account exceed the amount that is subject to a Securities Investor Protection Corporation advance, for those accounts, under Section 9 of the Securities Investor Protection Act.58. Archives are available on theDeloitte Accounting Research Toolwebsite. 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. SEC Identification of U.S. All Deloitte people are required to follow the independence policies and procedures, which address professional and regulatory requirements related to the provision of services, as well as business, employment and financial relationships. Moreover, there are many fee arrangements commonly referred to as "value added" which do not impair independence and should not be deemed the equivalent of a contingent fee. In the United States, Deloitte refers to one or more of the US member firms of DTTL, their related entities that operate using the "Deloitte" name in the United States and their respective affiliates. 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. B. II. Accordingly, the definition of "audit and professional engagement period" found in proposed rule 2-01(f)(6)(A) should be modified to read that the "the professional engagement period begins when the accountant begins review or audit procedures. Deloitte failed to discover that the required initial independence consultation was not performed until nearly five years after the independence-impairing relationship had been established between Deloitte Consulting LLP and Boynton, who was paid consulting fees for his external client work. The parties hold themselves out as married. DTTL and each of its member firms are legally separate and independent entities. Most of the updates in the 2020 edition of the Roadmap expand on or clarify existing text. Explore Deloitte University like never before through a cinematic movie trailer and films of popular locations throughout Deloitte University. appropriate scope of services. cc: The Honorable Arthur Levitt, ChairmanThe Honorable Isaac C. Hunt, Jr., CommissionerThe Honorable Paul R. Carey, CommissionerThe Honorable Laura S. Unger, Commissioner. In addition, this concept should be extended to bank overdrafts and other similar consumer finance arrangements. Requiring third parties to comply with the independence rules applicable to accounting firms would be impractical. Our reputation defines us in the marketplace. International: +1 503-748-0570 . Please see www.deloitte.com/about to learn more about our global network of member firms. The Definition Of "Covered Persons In The Firm"Unnecessarily Includes All Professionals Providing Non-Audit Services. are owned by the firm," is based generally on the provisions in Section 2(a)(3) of the Investment Company Act of 1940 (the "Investment Company Act") and on the definition of affiliate in Regulation S-X. This construction provides a more meaningful framework because it appropriately restricts the investment of individuals based on the particular person's ability to influence the audit, or based on whether a particular investment could create an appearance issue. We agree that the proposed rule should recognize situations in which an accountant might be deemed to lack independence due to events beyond his or her control, such as the receipt of a financial interest through inheritance or gift. The proposed rule provides no basis for its prohibition of loans to and from beneficial owners of more than five percent of the audit client's or affiliate's equity securities. A Restricted List is a list of securities that a banks employees are prohibited from buying or selling, either themselves or via any other person or third party. 79.31 Section 602.02.b.iii. Why does the Get Unique Temp GMF ID selection do nothing? We suggest that this proposed rule be expanded given that an accounting firm's independence will not be impaired if a member of the audit engagement team has a brokerage account with immaterial assets in excess of SIPC coverage. Following the text of the proposed rule to its logical conclusion, the investments enumerated in (1) and (2) would be material indirect investments. In light of these very serious concerns, the rationale for the proposed definition is sorely deficient. Proposed rule 2-01(c)(1)(ii)(G) provides that an accountant is not independent when the accounting firm, any covered person, or any of his or her immediate family members has: An "investment company complex" is defined to include, among other things, "[a]ny entity controlled by, under common control with or controlling the investment advisor or sponsor. If the audit client is a non-fund entity, the proposed rule should not automatically extend the independence requirements to all other non-client non-fund entities in the investment company complex. 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. *** Ministries. "27 However, the professional personnel in accounting firms who would be responsible for providing consulting and other non-audit services, and who are likely to be consulted by the audit engagement team, would be partners and managerial employees, not all of the professional personnel who provided such services. Each party agreed to cease and desist from future violations without admitting or denying the findings. When The Gift Or Inheritance Is Immaterial And The Audit committee guide: Evolving from good to great Event summary. Social login not available on Microsoft Edge browser at this time. The SEC Staff has acknowledged that the perception of independence is based on these factors.49 However, it does not appear that the proposed rule on "other financial interests" considers these factors. non-client and its carrying amount of investments in and advances to the client Proposed rule 2-01(c)(1)(i)(A) would prohibit any investment in an audit client or an affiliate of the audit client by covered persons and their immediate family members. We do not believe an accounting firm's independence is impaired if an audit client acquires a financial institution at which a covered person has a savings account with an immaterial uninsured balance. For example, our personnel who serve public utility clients are organized within a national practice that could under the proposed rule be deemed an "office." For example, an accounting firm may be unable to relocate an uninvolved partner41 from an office that participates in a significant portion of the audit, effectively leaving the couple with choosing a less desirable insurance policy as the only alternative option. Many public companies can put out periodic filings, but find themselves in uncharted waters when mergers, acquisitions, or other developments change their SEC obligations. Under the proposed definition, even when a relationship doesnot impair independence and is beneficial to investors, audit clients and the public, the relationship might nonetheless cause an entity to be deemed an affiliate of the accounting firm, subject to all of the prohibitions placed on the accounting firm. They allow us to better understand the businesses and dynamics of audit clients. ", The term "uninvolved partner" as used in this letter refers to those partners, principals and shareholders that are "covered persons," as defined in the proposed rule, because they are located in an office that participates in a significant portion of the audit, but are not on the "audit engagement team" or "chain of command.". II 1997) (repealed 1999). Standards for independence are shaped by legislation, regulations, professional requirements and public expectations. In April 2000, the SEC Practice Section of the AICPA (the "SECPS") adopted new membership requirements concerning independence quality controls with which SECPS members must comply by December 31, 2000. Reg. How does the FCT relate to Global Independence systems such as DESC? The Release states that the "chain of command" is "defined broadly to refer to the group of people in the accounting firm who, while not directly on the audit engagement team, are capable of influencing the audit process either through their oversight of the audit itself or through their influence over any member of the audit engagement team."22. We note that the ISB's and IFAC's proposed approach would not restrict the ability of accounting firms to obtain any type of insurance coverage from audit clients.63.
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