Maintaining Independence: Navigating SEC and PCAOB Guidance

by | Mar 16, 2020 | PKF Texas - The Entrepreneur's Playbook®

Jen: This is the PKF Texas Entrepreneur’s Playbook. I’m Jen Lemanski and I’m back again with Ryan Istre, one of our audit directors and one of the faces of the PKF Texas SEC team. Ryan welcome back to the Playbook.

Ryan: Good to be here Jen.

Jen: So, audit independence issues are always a hot topic. What are you hearing from the SEC and PCAOB?

Ryan: So, you’re right, audit independence issues are always a hot topic and every auditor always has it on their mind 100% of the time while working with their audit clients. While the vast majority of firms have processes and controls in place to get it right, to make sure they are independent with respect to their audit clients, every once in a while, little nuances slip by.

Jen: What types of nuances?

Ryan: So, the PCAOB has its own set of independence rules, the SEC has its own set of independence rules, but one thing we’ve seen recently is randomly— audit firms, for example, are not allowed to prepare tax returns for financial executives of public companies. That’s one that’s a little less known independence rule. Another item, which is a big thing, is financial statement preparation and that could be a wide variety of aspects just depending on what the public company looks like, what the audit firms are working – how they’re working with their public companies.

Jen: So, how does this affect the smaller and mid-size public companies?

Ryan: So, small or mid-size public companies are subject to generally the same rules as the larger accelerated filers for SEC’s definition, of course. But, it’s very important that the auditor keep their controls in place to ensure that they’re independent. But, as part of the audit committee’s responsibilities of evaluating its independent auditors on a regular basis, the committee itself should also familiarize itself with the rules of all jurisdictions under which it operates and discuss with the audit partners on a regular basis if any threats to independence could be present.

Jen: And I know we do see sometimes there is, in the news, where we see some auditors that have not been independent and those are the types of things we want to avoid right?

Ryan: Again yes, we always want to think that we’re all doing our jobs, we’re trying our best, and we’re doing everything we can, but there was a random issue that was noted in the news lately that a fairly sizeable audit firm was appearing to advocate for one of its public companies. Now, while this wasn’t probably anything malicious, it still does violate the rules, because as auditors we’re required to be independent in respect to appearance and in fact. So, this would tend to violate the appearance factor.

Jen: Good to know, well we’ll get you back to talk little bit more about some SEC topics, sound good?

Ryan: Yup.

Jen: Perfect. For more information related to SEC topics visit www.PKFTexas.com/SECDesk. This has been another Thought Leader production brought to you by PKF Texas The Entrepreneur’s Playbook. Tune in next week for another chapter.

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