Sec Pre-Approval Requirements

A: The licensing or sale of tax preparation software to an audit client is subject to the Audit Commission`s pre-approval requirements for eligible tax services. To the extent that the audit client`s audit committee pre-approves the acquisition of the tax preparation software from the accounting firm, the audit firm would be permitted to license or sell its tax preparation software to an audit client, provided that the functionality is effectively limited to preparing tax returns for tax filing. If the software performs additional functions, each function should be evaluated for its potential impact on auditor independence. A: As the company became an issuer through the IPO process, partners are now subject to rotation requirements. Q: What are the rotation requirements for the «relationship partner» who is not the «leading» or «consenting» partner? [4] A: The presentation of a «stub» period is referred to as a «transition report». A transition report on Form 10-K for a period of six months or more must be reviewed. A transition period of less than six months may be filed without review and on Form 10-Q. The audit required for a Form 10-K transition report for a period of six months or more than one year counts towards the partner rotation requirements. However, unless the issuer is required to file a separate transition report on Form 10-K, the «stub» period is not a «year» for purposes of the partner rotation requirements. Q: Can the Audit Commission`s pre-approval policies and procedures provide for complete and categorical approvals (e.g. Tax Compliance Services)? A: Yes.

The Commission`s rules (items 9(e)(1)–(e)(4) of Annex 14A) require that all fees paid to the auditor be included in the issuer`s fee publication. This includes fees related to the review of an employee benefit plan for which the issuer is the sponsor, whether the issuer has paid the fee or the issuer`s audit committee has pre-approved the fee. The issuer may choose to disclose in its information fees paid to the accountant that have not been paid by the issuer or that are subject to prior approval. A: The Commission`s rules on audit committees for listed companies (see Communication No 33-8220 (9. April 2003), the Standards for Audit Committees of Publicly Traded Companies) require audit committees to approve all audit services provided to the entity, whether provided by the lead auditor or by other entities. Therefore, the issuer`s prior approval requirements apply to auditors of foreign subsidiaries. However, the failure of the Audit Committee to pre-approve audit services to be provided by another auditor outside the network would not affect the independence of the lead auditor. See also question 1 under definitions.

Q: How would the rotation requirements for an integrated system of audit and internal control over financial reporting affect a partner primarily responsible for auditing the system of internal control over financial reporting? Does this person meet the definition of a review partner? A: A «relationship partner» meets the definition of «audit partner» and is therefore subject to partner rotation requirements. «Lead» and «competitive» partners must rotate after a maximum of five years in both roles[5] and must withdraw from the appointment for five years if rotated. The other «audit partners» are rotated after seven years and do not have to be in service for two years. A «relationship partner» who is not the «directing» or «consenting» partner would therefore be subject to the seven-year rotation requirement, followed by a two-year break. Since the first adoption of the current independence requirements in 2000 and the amendments adopted in 2003, the Commission and its services have been continuously informed of the application, efficiency and effectiveness of the statutory auditor`s independence requirements in the changing conditions of the capital market. In addition, in May 2018, in its proposal to liberalise auditor independence with regard to certain loans or creditor-debtor relationships, the Commission requested proposals for further revisions to the independence requirements. In December 2019, the Commission published the proposal to publish amendments to Rule 2-01. The final amendments take into account recent developments in capital market conditions, reflect the experience of the Commission services in managing independence requirements and take into account both current and long-term feedback. The audit committee should determine whether departmental policies and procedures require that all audit and non-audit-related services be submitted to the committee for prior approval. IMF staff believes that the same attention should apply to secondary mortgages, home improvement loans, equity lines of credit, and similar mortgage bonds secured by a principal residence obtained by a financial institution under its normal lending procedures, conditions, and requirements that is not a covered person in the business. A: No. The Commission`s rules require that the prior authorisation policy be detailed according to the different services to be provided.

The use of broad and categorical authorisations would not meet the requirement that the guidelines be detailed with regard to the respective services to be provided. Q: Do the partner rotation and compensation requirements apply to auditors of dealers or investment advisers who are not issuers? Q: Commission rules require the audit committee to give prior approval to all services provided by the independent auditor. In doing so, the audit committee may pre-approve services using policies and procedures prior to approval. Can the Commission use monetary limits as the sole basis for establishing its policies and procedures prior to approval? A: Monetary limits cannot be the sole basis for pre-approval policies and procedures. The setting of monetary limits alone would not constitute a detailed policy in relation to the different services to be provided and would not in itself inform the audit committee of each department. A: Yes. The audit committee of the parent company should act as the audit committee of the parent company and its wholly-owned subsidiaries. In this case, the subsidiary`s disclosure should include the subsidiary`s policies and procedures prior to approval and the parent company`s policies and procedures prior to approval.

It should be noted that this view does not extend to the funds sector in a way that would allow an advisor`s audit committee to pre-approve non-audit work on behalf of the funds. For more information, see News Release No. 33-8220 (9 April 2003), Standards for Audit Committees of Listed Companies. The final amendments reflect updates based on recurring factual trends observed by the Commission services during years of consultations, where certain relationships and services breached the rules of technical independence without necessarily compromising the objectivity and impartiality of an auditor.