Deloittes SEC reporting advisory services can help public entities looking to address or improve their present and private companies preparing for their future. 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. The proposed rule could result in firms being unable to secure adequate insurance. is not reflected in the text of the proposed rule. L. No. 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. 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. 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. As a practical matter, third parties will likely sever or avoid these relationships, rather than comply with the independence rules. Do not delete! Terms in this set (3) An audit or attest client and its affiliates. List of Excel Shortcuts 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. Each Deloitte firm has a director of independence who is responsible for overseeing independence matters, including the design, implementation, operation and monitoring of independence quality controls. We are gravely concerned about the limited range of options available to accounting firms for obtaining professional liability insurance. These individuals should be considered to be in the same position as the accounting firm's professionals on the audit engagement team. items marked with an asterisk (*) are common in India. See how we connect, collaborate, and drive impact across various locations. First, professional personnel, regardless of their "office," who are consulted on substantive matters, even sporadically, by the audit engagement team would be included in our modified definition of "chain of command." A bright-line threshold of five percent applicable to all firm employees and their family members would create an undue burden . This information will assist you in determining whether or not acquiring or having certain financial relationships would create a potential independence issue. 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). The expertise and subject matter knowledge we have developed through our audit services is valuable to the success of such an initiative in the new economy. Email Name: DTTL INTL Restricted Entities (US) Email Address: globalindependencesystemssupport@deloitte.com Entity Updates Hotline: +1 212-492-2803 Kerry Gahwyler, Project Manager Email: kgahwyler@deloitte.com Phone: +1 203-761-3046 Joshua Brown, Director of Global Independence Operations Email: josbrown@deloitte.com Phone: +1 203-761-3216 For information, contact Deloitte Global. While registrants are also required to disclose the nature and financial impact of a business combination under the FASBs accounting standards, the SECs requirements are significantly more detailed and can result in considerable financial reporting responsibilities regardless of whether a company acquires businesses frequently or only occasionally. We agree that an auditor's independence will not be impaired by the possession of a brokerage account with a broker-dealer that is an audit client if the value of the assets in the account is within Securities Investor Protection Corporation ("SIPC") coverage. Deloitte frequently serves the same clients in multiple jurisdictions. When completed, the web-based auditing system would allow close integration between auditing procedures and documentation and provide access to the client's electronic records. ), Leasing space to/from a restricted entity (i.e., rent), Ownership of a franchise or a personal business, Severance or any other payments (bonus, 401(k) contribution, etc.) Through the proposed definition of a "covered person,"70 the proposed rule would unnecessarily restrict the employment of close family members of uninvolved partners. 1. The proposed rule on "other financial interests" is premised on the concept that an accounting firm must be independent not only in fact, but also in appearance. These member firms and each of their related entities (each a "Deloitte firm"), along with Deloitte Global . These policies impact not only your own personal financial relationships, but also those of your spouse, spousal equivalent and dependents. For example, the beneficial owner of 5.1% of the equity securities of an immaterial affiliate of a public audit client, controlled by unrelated third parties, would not be in a position to influence the audit client. Proposed rule 2-01(c)(3) provides that an accountant is not independent if: Although we agree with the direction of this proposed rule, it provides no basis for prohibiting business relationships with beneficial owners of more than five percent of the equity securities of the audit client or any of its affiliates. 1971). In situations where the audit of a United States multinational company may require audit services to be performed by a foreign practice. These independence policies and procedures are designed to help Deloitte professionals understand and meet independence standards and regulatory requirements to achieve excellence in service delivery. 1 Twitter 2 Facebook 3RSS 4YouTube A fresh look at SEC reporting Reporting and disclosure in accordance with SEC requirements can be difficult and demanding for many companies. We are committed to conducting business with honesty and the utmost professionalism. 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. The SEC charged the trustee Andrew C. Boynton with causing related reporting violations by the funds, and charged the funds administrator ALPS Fund Services with causing related compliance violations. The final rule must be adopted for fiscal years beginning after December 31, 2020; however, early application is permitted. If you have one or more of the financial relationships or situations described below and are unable or unwilling to divest or modify the scenario, you may want to contact Independence Compliance Onboarding by email (complianceonboarding@deloitte.com) before accepting employment with the Deloitte US Firms to discuss whether your assigned legal entity, role, or office location would require you to make changes. This message will not be visible when page is activated.+++ DO NOT USE THIS FRAGMENT WITHOUT EXPLICIT APPROVAL FROM THE CREATIVE STUDIO DEVELOPMENT TEAM +++. "59 Recognizing that SIPC protection is not available for an account maintained with a futures commission merchant, we agree that such accounts might, in certain circumstances, create a perception that an accounting firm's independence has been impaired. Time will be needed for covered persons and their family members to unwind financial interests or employment relationships. 1338 (1999). Indeed, a clear rule that can be applied to the myriad of investment products that may encompass indirect interests through other entities (e.g., mutual funds, unit investment trusts, etc.) Deloitte's SEC reporting advisory services can help public entities looking to address or improve their present and private companies preparing for their future. A significant number of partners at the local, regional and national levels have input in deciding a particular partner's compensation, even though many of these partners have no other relationship with the partner under consideration or with the partner's audit clients. The consequences of adopting this broad definition of an "affiliate of the audit client" are severe. Broker-dealer/securities accounts (including Demat accounts*, retirement (IRA), health savings accounts, and trust accounts). Deloitte Global Independence leaders continually engage with external professional bodies and regulators to advance the development of independence requirements around the world. Significant The Use Of The "Office" Concept Does Not Provide A Useful Framework For Determining Who ShouldBe A "Covered Person". At Deloitte, our purpose is to make an impact that matters by creating trust and confidence in a more equitable society. The Proposed Exception Should Cover Situations . There is no evidence of any threat to independence presented by ownership of a mutual fund in such cases, particularly when the plan sponsor is not an audit client. This approach is consistent with the recent proposal by the International Federation of Accountants ("IFAC"). A civil union in which the applicable law does not define the parties as spouses. Deloitte Global was an early signatory to the United Nations Global Compact (UNGC) and to the World Economic Forums Partnering Against Corruption Initiative (PACI). Auditor independence rules require outside auditors to remain independent from their clients to ensure there is not even the appearance of a firm compromising its objectivity and impartiality when auditing financial statements. Regarding Financial and Employment Relationships, Securities and Exchange Commission Washington D.C., July 1, 2015 . The proposed rule should be modified to provide a more meaningful and workable standard, as follows: Covered persons and their immediate family members. Please enable JavaScript to view the site. The ISB's proposed approach states that: Additionally, considering that auditors will have no practical and timely way to determine changes in the amount of a registered investment company's assets that are invested in an audit client, the determination of what percentage of a registered investment company's assets are invested in an audit client should be made at the time of the investment. However, this would not be the case in the situation of a passive investor. 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. An entity is a smaller reporting company if it has a public float (the . What types of relationships should be captured? continuing operations before income taxes. In The Firm" Are Flawed And Should Be Modified, A. When the parent or investor is a Independence and quality are essential to Deloittes objectivity, integrity, impartiality, responsibility to the investing public, and ability to attract and retain clients. We are pleased to present the 2020 edition of A Roadmap to SEC Reporting Considerations for Business Combinations. 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. The proposed rule defines a "consumer in the ordinary course of business" to mean a "purchaser of routine products or services on the same terms and conditions that are available to the seller's othercustomers or clients, as long as the purchaser does not resell the product or service or receives a commission or other fee for selling the product or service."76. activated.+++ DO NOT USE THIS FRAGMENT WITHOUT EXPLICIT APPROVAL FROM THE CREATIVE 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." The proposed rule also defines a covered person to include any other partner, principal, or shareholder from an "office" of the accounting firm that participates in a significant portion of the audit.24 As discussed above, we believe the "chain of command" concept, as modified by our comments, captures all individualsoutside the audit engagement team that could possibly influence an audit and obviates any need to include within the definition of covered persons an "office" concept. 3, "Employment with Audit Clients," addresses many of the topics covered by the proposed rule relating to employment. If we have selected the wrong experience for you, please change it above. 2023. This complex system ofreinsurance and spreading of risk across a number of insurance companies may effectively prevent accounting firms from obtaining adequate professional liability insurance and insurers from obtaining audits. See Terms of Use for more information. 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. We respectfully request that the Commission consider the changes suggested in this letter which would substantially address our concerns with the proposed rule governing financial and employment relationships. The proposed rule should also grandfather all collateralized loans obtained from a financial institution under its normal lending procedures, terms and requirements. However, the inability to participate in the employee benefit plan is a substantial penalty to immediate family members. 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. We have a relationship with an applications service provider for accounting and financial systems to develop a web-based auditing system. The proposed rule is thus too broad. Also, due to growth in the accounting profession and technological innovations, the traditional "office" has become an unusable, archaic term. "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. First, the proposed definition of "chain of command" includes all individuals who have any type of responsibility over members of the audit engagement team even though many of these individuals will have no influence over the audit. Even with an exemption, most of the time there will be some form of filing (usually a Form D) filed on the EDGAR system. These relationships are beneficial to investors, audit clients and the public. 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. DTTL (also referred to as "Deloitte Global") does not provide services to clients. In addition, bank employees cannot personally trade in securities of any issuer subject to trading restrictions by virtue of being on the Restricted List. Question: What is the value of keeping track of all of the This box/component contains JavaScript that is needed on this page. I am the Responsible Party for a US SEC Registrant that is not listed in the FCT, nor in the Responsible Party assignments email attachment. However, if the proposed rule is to include a prohibition with respect to insurance products, it should be limited to (1) individual life insurance products with material cash surrender values, and (2) life insurance policies or annuities that are invested in an audit client or a material affiliate of an audit client. The use of an "office" concept, delineated along geographical or practice lines may result in unintended consequences. Doing business with restricted entities. Deloitte Global supports Deloitte firms with on-going independence consultation, enabling continuous enhancements to global policies, procedural expectations, tools and practice support activities. It appears that this proposed rule is based on the assumption that such beneficial owners can influence the audit client. STUDIO DEVELOPMENT TEAM +++, Put a wealth of information at your fingertips. At Deloitte, our purpose is to make an impact that matters by creating trust and confidence in a more equitable society. But they are not alone in safeguarding the audit process, and the other fiduciaries charged in this case failed to fulfill their roles and preserve investor confidence.. 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. "80 We believe that this "catch-all" is unnecessary and adds more uncertainty about what precisely the proposed rule prohibits. 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. 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. Answer: DTTL Global Independence believes that companies are . On an annual basis, all Deloitte firms report to Deloitte Global that they have conducted procedures to confirm that their firm and professionals are in compliance with Deloitte Globals independence policies. No, all costs incurred as part of this effort are expected to be The only point in the Release that provides any guidance on how materiality should be applied is found in Footnote 131, which states that "we have used the term 'material' in our proposed rules in the sense that it has been used in ourcurrent independence rules. C. The Definition Of "Covered Persons In The Firm" Should Include Only Those Who Have The Ability To Influence The Audit. Independence and quality are essential to Deloitte's objectivity, integrity, impartiality, responsibility to the investing public, and ability to attract and retain clients. Such a construction ignores the fact that the parties also have a mutual interest in providing to their clients the best products or services possible, including those that would improve audit quality. change your targeting/advertising cookie settings. IV. 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. The Quality Controls Provisions Should Be Modified, XI. who is still a covered person. 1 For a list of abbreviations used in this publication, see Appendix E. 2 SEC Final Rule Release No. and entities five percent or more of whose [voting] securities. What if, in addition to specific answers to specific SEC reporting questions, your company had a knowledgeable and experienced service provider helping foster understanding and implement new processes? Designated Officers are individuals who are charged with risk management or general oversight responsibilities and who do not direct, effect, or recommend securities and/or securities-based swap transactions or loan trades for any account. 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. How does the FCT relate to Global Independence systems such as DESC? The ERC decided to remove these four entries based on information BIS received pursuant to 744.16 of the EAR and the review the ERC conducted in . You can learn more about independence for candidates, independence for spouses,and review a list of common independence topics. Influence (ownership 20-50%)/ Material (>5%) ( M ), Significant Thats why Deloitte ethics teams continue to proactively strengthen our culture of integrity across the network. 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. This minimizes much of the administrative nature of maintaining Tracking & Trading and ensures brokerage account transactions are recorded timely and completely. This exception is necessary in light of the difficulty that many people face in securing life insurance coverage. 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. 17 C.F.R. 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. B. Relationships with third parties would be further hampered under the prohibition on investments by audit clients or affiliates of audit clients in the affiliates of accounting firms.10 In the IBM example above, our more than 2,000 SEC audit clients and presumably their pension plans would be unable to invest in IBM. This result does not promote the Commission's objective of modernizing the independence rules to accommodate two-income families. To take your skills to the next level, these additional resources will be a big help: A free, comprehensive best practices guide to advance your financial modeling skills, Get Certified for Capital Markets (CMSA). These software programs have been adapted and used successfully by a number of registrants to sustain and improve their internal controls, including hundreds of banks which have used the programs to monitor their compliance with various banking laws. The Entity List specifies the license requirements that it imposes on each listed person. It combines the SECs guidance on reporting for business acquisitionsincluding acquisitions of real estate operations and pro forma financial informationwith Deloittes interpretations (Q&As) and examples in a comprehensive, reader-friendly format.
