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1338 (1999). 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. Toll free: +1 866-850-1485 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. If this were the case, the accounting firm may appear to have a mutuality of interest in the success of such products and services, and directly benefit through profit margins or commissions on each sale. 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. In the event that the audit client is a fund entity or the investment advisor of a fund entity, we believe the proposed rule would unnecessarily preclude covered persons who are not on the audit engagement team from investing in non-client sister funds. Please see www.deloitte.com/about to learn more about our global network of member firms. As a member of the three funds boards and audit committees, Boynton was required to complete annual trustee and officer (T&O) questionnaires designed in part to identify conflicts of interest. 18 also recognizes that "significant influence" can be exercised in several other ways, including, among others: representation on the board of directors; participation in policy-making processes; material intercompany transactions; and interchange of managerial personnel. Doing business with restricted entities. In early March 2022, the SEC released a list of five No matter which stage of the corporate life cycle youre in, Deloitte can assist and advise on a wide range of SEC reporting mattersfrom filing an initial registration statement, to dealing with ongoing requirements, to planning for potential M&A scenarios. Certain Modifications To The Proposed Rule On Employment globalindependencesystemssupport@deloitte.com. Deloitte agreed to pay more than $1 million to settle the charges. We believe, however, that it would be preferable for the ISB to develop standards in this area. 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 SECs investigation was conducted by James J. Bresnicky and Brian M. Privor, and supervised by J. Lee Buck II. Please enable JavaScript to view the site. Release, 65 Fed. The agreement provides that NEM acts as the agent of the entity with respect to energy sales, capacity sales and environmental attributes. Exceptional organizations are led by a purpose. 9,135 and 9,136 (1998). Reg. 3, "Employment with Audit Clients," directly addresses the provisions of the proposed rule relating to an auditor's employment with audit clients. entities within a family tree? Will client access be allowed to the system for them to fill in this information? Transforming technical accounting, governance, and controllership, Benefits and challenges of non-GAAP reporting. Washington D.C., July 1, 2015 . is sorely needed. The Use Of The "Office" Concept Does Not Provide We are committed to conducting business with honesty and the utmost professionalism. Broker-dealer/securities accounts (including Demat accounts*, retirement (IRA), health savings accounts, and trust accounts). Rule 2-01(c) provides a nonexclusive list of financial, employment, business and non-audit service relationships that the SEC views to be inconsistent with the independence standard in Rule 2-01(b). In May 2020, the SEC issued a final rule2 to improve the information investors receive regarding acquired or disposed businesses, reduce the complexity and costs of preparing the required disclosures, and facilitate timely access to capital. 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. As noted in the Release, the "materiality" concept for purposes of auditor independence should not be confused with the meaning of "materiality" pursuant to Staff Accounting Bulletin ("SAB") No. This Roadmap is not a substitute for the exercise of professional judgment, which is often essential to applying the financial reporting guidance for various business acquisitions and pro forma financial information. Absent evidence to the contrary, beneficial ownership of twenty percent or more of an audit client's equity securities should be considered to constitute significant influence over the audit client. APB Opinion No. 18, "The Equity Method of Accounting for Investments in Common Stock" (Mar. "60 Because credit card balances are akin to loans, we agree that a credit card balance might create a perception that independence has been impaired. We believe that the materiality determination should be based upon a comparison of the auditor's or accounting firm's proportionate interestof the investment in the audit client with the net worth of the auditor or the accounting firm at the time of the investment.33. The Proposed Exception Should Be Modified Securities are placed on a bank's restricted list when 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 issuer's (the company's) securities. This means that all PwC audit clients are restricted entities, AND any of their affiliates are also considered restricted entities. Our Code includes and then expands on these principles by adding requirements that are unique to us in the United States. 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. Influence (ownership 20-50%)/ Immaterial (<5%) ( I ). Related to Restricted Entity List. 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 . 450 Fifth Street, N.W. Formore information about this requirement, candidates should discuss the Broker Data Import Program with Independence Compliance Onboarding team by email (. 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. In general, that helps us proactively advise you on the issues affecting your business while saving you headaches down the road. Telecommunications, Media & Entertainment. There is no evidence that an auditor's objectivity would be im paired when the financial interest is immaterial to the auditor and the auditor cannot dispose of the financial interest. 6LinkedIn 8 Email Updates. The entries for "Dow Technology" and "Hassan Dow" were added to the Entity List on February 23, 2016 . "29 The proposed rule is vague because it does not provide sufficient guidance in applying materiality. These individuals should be considered to be in the same position as the accounting firm's professionals on the audit engagement team. *** Ministries. 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. 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). List of Excel Shortcuts 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). Independence and quality are essential to Deloittes objectivity, integrity, impartiality, responsibility to the investing public, and ability to attract and retain clients. We respectfully submit that the proposed rule should provide for an exception when: (1) the indirect financial interest in the audit client is immaterial to the covered person; (2) the beneficiary has no direct or indirect control over the investment decisions or assets of the trust; and (3) the trust was not created by the covered person named as a beneficiary. 43,148. Explore Deloitte University like never before through a cinematic movie trailer and films of popular locations throughout Deloitte University. An Article Titled SEC Reporting Services already exists in Saved items. This box/component contains code needed on this page. This exception is necessary in light of the difficulty that many people face in securing life insurance coverage. Do not delete! DTTL and each of its member firms are legally separate and independent entities. Given the way in which business is conducted and people communicate today, the "physical proximity" denoted by the address on one's business card does not necessarily equate to "frequent contact" with others sharing that address. Absent the specific relationships above, a Spousal Equivalent relationship may still exist based on individual facts and circumstances. Even Proscribed/restricted category 1 & 2 - All ranks who are part of the audit engagement team, providing any amount of time or Partners /principals, associate partners, partner equivalents who are always covered person, chain of command should verify that they are not a covered person related to the entity or its affiliates before investing in . 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. When a 100% ownership interest in a subsidiary Under the proposed rule, this applications service provider 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. "69, VII. In addition to the specific provisions discussed above, the proposed rule also contains a broad provision which states that "[i]n determining whether an accountant is independent, the Commission will consider all relevant circumstances, including all relationships between the accountant and the audit client or the affiliatesof the audit client. The Proposed Rule Should Not Restrict The Employment Relationships Of The Close Family Members Of Uninvolved Partners, B. They also agreed to settle the charges. 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.) 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. Proposed rule 2-01(c)(1)(ii)(E) provides that an accountant is not independent when the accounting firm, any covered person, or any of his or her immediate family members has "any credit card balance in excess of $10,000 owedto a lender that is an audit client or an affiliate of an audit client. Standards for independence are shaped by legislation, regulations, professional requirements and public expectations. Certain services may not be available to attest clients under the rules and regulations of public accounting. However, this is not entirely clear considering the inclusion of the accounting firm as a "covered person" for purposes of the proposed rule. Proposed rule 2-01(c)(1)(ii)(F) provides that an accountant is not independent when the accounting firm, any covered person, or any of his or her immediate family members has "any individual policy or professional liability policy originally issued by an insurer that is an audit client or an affiliate of an auditclient. GMF ID". Second, the proposed definition uses an overbroad and unworkable definition of the term "office" that would include as covered persons partners who have absolutely no involvement with the audit and therefore no ability to influence the audit; indeed, with a more focused definition of "chain of command," the "office" concept becomes unnecessary. Makes The "Office" Concept Unnecessary, 2. items marked with an asterisk (*) are common in India. 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. Following the text of the proposed rule to its logical conclusion, the investments enumerated in (1) and (2) would be material indirect investments. A Modified "Chain Of Command" Concept Makes The "Office" Concept Unnecessary, The proposed rule defines "chain of command" to include, among others, "all persons having any supervisory, management, quality control, compensation, or other oversight responsibility over either any member of the audit engagement team or over the conduct of the audit. The parties hold themselves out as married. Please enable JavaScript to view the site. These policies impact not only your own personal financial relationships, but also those of your spouse, spousal equivalent and dependents. for all of the entities in the family tree is critical for providing the Furthermore, under the proposed rule, an accounting firm's independence would be deemed impaired if an uninvolved partner's spouse obtains any stock options in an affiliate of an audit client served by the partner's office. We respectfully submit, however, that this proposed rule would be more practical and meaningful with the changes set forth below. Proposed rule 2-01(c)(1)(ii)(A). However, the Release does not explain why a definition found in the Investment Company Act is applicable to auditor independence. The parent's or investor's equity in Issuers must also be aware that, according to the SEC, the factual inquiry must "look through" some entities to the people that control them. 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. In some cases you can still use services from this companies, but only certain ones and you can't work on projects for that client. . Can administrative assistants use the system? The consequences of adopting this broad definition of an "affiliate of the audit client" would be exacerbated by the extensive financial and employment relationship restrictions between audit clients or affiliates of audit clients and the affiliates of accounting firms. Generally, securities will stay on the Restricted List until the securities issuer announces that the material transaction has been completed or has been aborted, or until the banks Compliance is otherwise satisfied that the bank does not possess, and will not come into possession of, material non-public information about the securities issuer. IV. The proposed rule could result in the loss of these relationships. Companies selling securities in the US or to US investors are required to either register with the SEC or have an exemption. These relationships are beneficial to investors, audit clients and the public. We refer to our audit clients, from whom we must maintain our independence, as restricted entities, because we are "restricted" from engaging in certain activities with those organizations. The Proposed Rule On Indirect Investments In An Audit Client Should Include A Workable Materiality Standard, B. Our Code of Ethics and Professional Conduct is inspired by the Global Principles of Business Conduct that articulate the standards to which we as Deloitte professionals, must hold ourselves, wherever in the world we live and work. Requiring an accountant to be independent by the time the firm has accepted the engagement may create an unnecessary burden in some situations. 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. Certain Modifications To The Proposed Rule On Employment Relationships Will Further The Commission's Objectives, A. companies created solely for tax purposes could maintain a tax engagement or How do I delete an entity from the Firm Contribution Tool? The Glass-Steagall Act is the name commonly used to refer to 16, 20, 21 and 32 of the Banking Act of 1933, 12 U.S.C. insurance, and asset management services and will be added to the Meridien Restricted Entity List ("RE List") in the next several days. In that respect, this proposed rule presents accountants with additional financial services opportunities, which were otherwise restricted. "61 This modification will provide definitive guidance to members of the audit engagement team on how to handle credit card balances with audit clients. To stay logged in, change your functional cookie settings. B. If we were to have a joint venture with a company such as International Business Machines ("IBM"), at a minimum the proposed definition of an "affiliate of the accounting firm" would prohibit IBM,and presumably its defined benefits pension plan, from investing in our more than 2,000 SEC audit clients. To Cover A Named Beneficiary Of A Trust. The SEC has five divisions, including the Division, and various offices, such as the Commission's OCA and the Office of General Counsel. Thus, for instance, the audit engagement team should always be prohibited from entering into certain relationships with audit clients. Social login not available on Microsoft Edge browser at this time. The funds audit committee charter addressed auditor independence generally, but the T&O questionnaires did not expressly cover business relationships with the auditors affiliates. the subsidiary's or investee's income from continuing operations before income 3. To learn more, please read our Integrity Helpline FAQs. What happens if I cant find a D-U-N-S number for a specific entity in Dun & Bradstreet Million Dollar Database? Insert Custom CSS fragment. Proposed rule 2-01(f)(5). Subscribe to receiveRoadmap seriespublications via e-mail. some other service that could compromise our independence. Deloitte Platforms Navigation. If we have selected the wrong experience for you, please change it above. maintained. An entity is a smaller reporting company if it has a public float (the . The definition of "covered persons in the firm" is overbroad in its inclusion of all professionals who provide consulting or other non-audit services tothe audit client.26 The Release states that these professionals are included "because the auditing literature, quite appropriately, directs the audit engagement team to discuss certain matters with the firm personnel responsible for providing such services to that client. Explanation: SEC = Securities and Exchange Commission. change your targeting/advertising cookie settings. In light of these very serious concerns, the rationale for the proposed definition is sorely deficient. Why do the Reference, Help, Contact us, and About selection on the top right hand side of the screen do nothing? Significant influence or control over an audit client. How open is the system to inappropriate changes to client data after validation? 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 210.102(b). The SEC definition of a promoter includes a founder of the company who is still with the company, or holds at least 10% of any class of its securities. 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. Permitting these investments does not pose a threat to independence given those individuals would not be investing in an audit client of the accounting firm. . 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. See Terms of Use for more information. Title: Investment policy for partners of KPMG (the . Restricted KPIs, Calculated KPIs which plays important role in Key figure information requires Info object filtering. 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. cc: The Honorable Arthur Levitt, ChairmanThe Honorable Isaac C. Hunt, Jr., CommissionerThe Honorable Paul R. Carey, CommissionerThe Honorable Laura S. Unger, Commissioner. For example, the final rule modifies certain significance tests to reduce the potential for anomalous results that may have required a registrant to provide acquiree financial statements that may not be material to investors. Internally, Deloitte Global provides Deloitte professionals worldwide with information and guidance on independence issues, as well as enabling technologies to raise awareness and help them comply with rapidly changing and increasingly complex requirements. 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 services of these retired partners are now in demand more than ever because of the new self-regulatory organization rules adopted at the Commission's urging which require the members of audit committees to be financially literate, with one member having accounting or related financial management expertise.74. Be A "Covered Person", 3. and entities five percent or more of whose [voting] securities. 3, "Employment with Audit Clients," addresses many of the topics covered by the proposed rule relating to employment. These policies and procedures are based primarily on independence standards and regulations of the: When applicable national or regional requirements are more restrictive than the requirements in Deloitte Globals policies, Deloitte firms and their people must meet those jurisdictions requirements as well. 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. See Terms of Use for more information. continuing operations before income taxes. DTTL does not provide services to clients. "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. The SEC is an independent, nonpartisan, regulatory agency that has five commissioners, one of whom serves as the chairman. From determining the financial statements required for an acquisition to the creation of pro forma financial information, complying with Securities and Exchange Commission (SEC) rules and regulations can be difficult. * As used in this letter, Deloitte & Touche includes Deloitte & Touche LLP and Deloitte Consulting L.P. ** The Release can be found in the Federal Register at 65 Fed. Active efforts to resell an audit client's products or services could create the appearance that the accounting firm is effectively a distributor of the client's products or services. We also believe that the modificationsdiscussed below would further the Commission's objectives to modernize the independence rules. 7507, 63 Fed. Accordingly, the proposed rule would prohibit the immediate family members of an uninvolved partner from investing in an audit client fund or non-client sister fund through an employer-sponsored benefit plan. investee in which: 1. For example, there is no evidence that an auditor's independence would be impaired if a covered person had a checking account containing an immaterial uninsured balance.44. 1 For a list of abbreviations used in this publication, see Appendix E. 2 SEC Final Rule Release No. Disclosure of this information can be important to investors because an acquisition will generally affect a registrants financial condition, results of operations, liquidity, and future prospects. "1 Indeed, the increase in dual-career families, the increased mobility of professionals, and the broadening international presence of audit firms and their clients have altered the landscape in which the accounting profession operates.2 The financial interests and employment relationship rules are in need of updating and we support efforts to realize this goal.3, We believe, however, that it would be preferable for the Independence Standards Board ("ISB") to develop standards in this area, and we believe that the Commission should defer to the ISB as the appropriate private sector body for that purpose.4 Indeed, the ISB already has several projects underway or completed in this area. Independence is integrity, professional skepticism, intellectual honesty, and objectivityfreedom from conflicts of interest. In these circumstances, the accounting firm should be permitted to take title to the software and resell it to the third party client, as an accommodation to the third party, provided the accounting firm purchases the software on substantially the same terms and conditions available to the audit client's other comparable customers and the accounting firm does not profit from the transaction (i.e., the purchase price for the software is effectively passed on to the third party client andthe audit firm is not paid a commission on the transaction). +++ DO NOT USE THIS FRAGMENT WITHOUT EXPLICIT APPROVAL FROM THE CREATIVE Finally, we believe the proposed rule would not prohibit group insurance policies, such as group health or group life insurance policies. Private companies planning to go public have reams of regulations to get familiar with and analyses to perform. Audit committee guide: Evolving from good to great Event summary. 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. In the example above, independence may be impaired if covered persons of the accounting firm conducting the audit of Company A havecertain relationships with Company B including: (1) investments;14 (2) loans; (3) savings or checking accounts; (4) brokerage accounts; (5) credit card balances; (6) individual insurance policies or professional liability policies;15 (7) business relationships;16 and (8) certain employment relationships.17 Yet there is no evidence that these relationships with an "affiliate of the audit client," as defined, impair independence when the affiliate is immaterial to the audit client. Attention: Mr. Jonathan G. Katz, Secretary, Re: Revision of the SEC's Auditor IndependenceRequirements, File No. being received from previous employer, Former employer 401(k) plans or any other employee benefit plan, including stock option, profit sharing, and stock purchase plans (divestiture of prior employer benefit plans is required within 60 days of hire). 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. 2. Additionally, the Release states that entities that provide non-audit services to one or more of the accounting firm's audit clients, and in which the accounting firm has any equity interest, has loaned funds to, shares revenue with, orwith which the accounting firm or any covered persons has any direct business relationship, should be considered Covered Person Cannot Dispose Of The Financial Interest.