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SEC Proposes Amendments to Auditor Independence Rules

The SEC has released a proposal to amend its auditor independence rules, which have presented several practical challenges to registered funds and auditors when the auditor has a lending relationship with certain shareholders of a fund client during an audit or professional engagement period. According to the SEC, the proposed amendments are designed to better focus “on those relationships that, whether in fact or in appearance, could threaten an auditor’s ability to exercise objective and impartial judgment.” The proposed amendments would, among other things: focus the auditor independence analysis solely on beneficial ownership; replace the existing 10 percent bright-line shareholder ownership test with a “significant influence” test; add a “known through reasonable inquiry” standard with respect to identifying beneficial owners of the audit client’s equity securities; and  amend the definition of “audit client” for a fund under audit to exclude funds that otherwise would be considered “affiliates of the audit client.” The SEC is seeking comment on the proposal.

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