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First, the addition of "value added" to what constitutes a contingent fee represents an unneeded expansion of the definition. Deloitte's SEC reporting advisory services can help public entities looking to address or improve their present and private companies preparing for their future. The ISB draft Exposure Draft,"Financial Interest of the Auditor in, and Family Relationships between, the Auditor and the Audit Client" (June 19, 2000) (hereinafter, the "ISB draft Exposure Draft"), also goes further to exclude as covered persons a partner or manager who participates in a non-audit engagement for less than ten hours because that "person's services could not have any direct effect on the financial statements being audited . is moved from one branch to another, why should it matter where in the family However, the Release does not explain why a definition found in the Investment Company Act is applicable to auditor independence. 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. 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. Explore the principles and values found in the code, an integral part of the commitment Deloitte makes to our common underlying belief that ethics and integrity are fundamental and non-negotiable. This proposed rule does not provide an exception for investments, in the form of stock compensation, by the immediate family members of such persons obtained through employer-sponsored benefit plans. +++ DO NOT USE THIS FRAGMENT WITHOUT EXPLICIT APPROVAL FROM THE CREATIVE STUDIO DEVELOPMENT TEAM +++, Telecommunications, Media & Entertainment. However, the inability to participate in the employee benefit plan is a substantial penalty to immediate family members. This box/component contains code The proposed rule should be modified to provide an exception when the financial interest in the inheritance or gift is immaterial to the covered person and the covered person is restricted from disposing of the financial interest for an extended period. Explore Deloitte University like never before through a cinematic movie trailer and films of popular locations throughout Deloitte University. Proposed rule 2-01(c)(1)(ii)(B) would prohibit "any savings, checking or similar account at a bank, savings and loan or similar institution that is an audit client or an affiliate of an audit client, if the account has a balance that exceeds the amount insured by the Federal Deposit Insurance Corporation or any similar insurer." An entity is a smaller reporting company if it has a public float (the . The SECs investigation was conducted by James J. Bresnicky and Brian M. Privor, and supervised by J. Lee Buck II. The definition of covered persons and proposed rule 2-01(c)(1)(ii)(F) would prohibit the immediate family members of covered persons from obtaining an individual insurance policy originally issued by an insurer that is an audit client or an affiliate of an audit client. Deloitte Consulting acquired a proprietary brainstorming business methodology from Boynton in 2006 and collaborated with Boynton to implement it and serve both internal and external firm clients through 2011. This minimizes much of the administrative nature of maintaining Tracking & Trading and ensures brokerage account transactions are recorded timely and completely. For these reasons, we generally agree that, depending on the facts and circumstances, reselling activities could be a business relationship. Deloitte Entity Search and Compliance (DESC) System -An internal system that, among other things, contains information regarding entities that are restricted for independence purposes. ", The term "uninvolved partner" as used in this letter refers to those partners, principals and shareholders that are "covered persons," as defined in the proposed rule, because they are located in an office that participates in a significant portion of the audit, but are not on the "audit engagement team" or "chain of command.". See how we connect, collaborate, and drive impact across various locations. Such transactions should not be significant to the financial condition or results of operation of either the audit firm or the audit client. These policies impact not only your own personal financial relationships, but also those of your spouse, spousal equivalent and dependents. Second, the proposed rule omits important portions of AICPA Rule 302 and its related interpretation. Financial Modeling & Valuation Analyst (FMVA), Commercial Banking & Credit Analyst (CBCA), Capital Markets & Securities Analyst (CMSA), Certified Business Intelligence & Data Analyst (BIDA), Financial Planning & Wealth Management (FPWM). To stay logged in, change your functional cookie settings. Any direct or material indirect investment in audit client. List of Companies (Corrected) A | B | C | D | E | F | G | H | I | J | K | L | M | N | O | P | Q | R | W | T | U | V | W | X | Y | Z | : 3Com Corp 3M Company A.G . Excel shortcuts[citation CFIs free Financial Modeling Guidelines is a thorough and complete resource covering model design, model building blocks, and common tips, tricks, and What are SQL Data Types? Passwords must be at least eight characters long with a maximum length of 16 characters, and require at least three of the following: Numbers "61 This modification will provide definitive guidance to members of the audit engagement team on how to handle credit card balances with audit clients. Registrants may be required under SEC rules to file the acquirees separate annual and interim preacquisition financial statements along with the related pro forma financial information. 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. is not reflected in the text of the proposed rule. We also have a relationship with a software company to whom we pay an annual fixed fee for the right to market software programs designed to monitor and help assess internal control systems. Proposed rule 2-01(c)(1)(i)(A) would prohibit any investment in an audit client or an affiliate of the audit client by covered persons and their immediate family members. . All Deloitte people are required to follow the independence policies and procedures, which address professional and regulatory requirements related to the provision of services, as well as business, employment and financial relationships. ** This letter addresses all aspects of the proposed rule except those relating to scope of services, which are addressed in a separate comment letter. STAY CONNECTED 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. However, this is not entirely clear considering the inclusion of the accounting firm as a "covered person" for purposes of the proposed rule. You should report issues concerning potential violations of the law, regulations, professional standards, policy, or the applicable Code of Ethics and Professional Conduct that you believe are not being handled properly. 6LinkedIn 8 Email Updates. See how we connect, collaborate, and drive impact across various locations. Firm," "Affiliate Of The Audit Client" And "Covered Persons used in the calculation described above. Terms in this set (3) An audit or attest client and its affiliates. Requiring third parties to comply with the independence rules applicable to accounting firms would be impractical. In addition, the proposed rule should also extend the safe harbor for accounts with SIPC protection to instances where the value of assets in the account does not exceed, by a material amount, the aggregate of SIPC protection and the broker-dealer's insurance from unaffiliated private insurers. "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. Generally accepted auditing standards require the audit engagement team to, The ISB is contemplating the same approach. 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. Should all mutual funds be entered in as entities? The Use Of The "Office" Concept Does Not Provide 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. 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. This model includes all individuals having any supervisory responsibility, or other control, over the conduct of an audit, review or attestation engagement. This proposed rule uses the same definition of covered persons applicable for "investments in audit clients" in proposed rule 2-01(c)(1)(ii), even though the delineated "other financial interests" are not of the same nature as investments in audit clients, which are more likely to cause an independence concern. Answer: DTTL Global Independence believes that companies are A bright-line threshold of five percent applicable to all firm employees and their family members would create an undue burden . These relationships are beneficial to investors, audit clients and the public. Explore Deloitte University like never before through a cinematic movie trailer and films of popular locations throughout Deloitte University. At Deloitte, the responsibility for ethical behavior is taken seriouslyby everyone, at every level. This Roadmap is intended to help registrants navigate their SEC reporting requirements related to the acquisition or probable acquisition of a business. determinations is the average for the preceding three years of income before We believe that if the "chain of command" concept is modified to include all professional personnel who have the ability to influence the conduct of the audit, the "office" concept is unnecessary. The agreement provides that NEM acts as the agent of the entity with respect to energy sales, capacity sales and environmental attributes. Deloitte organization structure. Conversely, an investment of less than 20% of the voting stock of an investee should lead to a presumption that an investor does not have the ability to exercise significant influence unless such ability can be demonstrated." These partners appear to be included in the proposed definition of "chain of command. The Definition Of "Covered Persons In The Firm"Unnecessarily Includes All Professionals Providing Non-Audit Services. These individuals should be considered to be in the same position as the accounting firm's professionals on the audit engagement team. More specifically, you might benefit from: Matt is an Audit & Assurancepartner for Deloitte & Touche LLP with vast experience in public accounting. Professionals who are employed by Deloitte are required to comply with our independence policies. Stocks of an issuer are placed on the Restricted Trading List when either: When a securities issuer is subject to trading restrictions by being placed on a banks Restricted Trading List, unless the Chairman of the bank otherwise approves trading (in consultation with the banks Legal and Compliance Departments), subject to certain exceptions, the bank will not trade as a principal in securities of the issuer or publish any equity research reports concerning the issuer. and entities five percent or more of whose [voting] securities. This will not be the case in all situations. Exceptional organizations are led by a purpose. continuing operations before income taxes. 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. Certain Persons To Focus On Significant Influence Or Control. 7870 (June 30, 2000) (the "Release"). Attention: Mr. Jonathan G. Katz, Secretary, Re: Revision of the SEC's Auditor IndependenceRequirements, File No. Furthermore, the proposed rule should provide an exception for policies obtained in the ordinary course of business from an insurer before the insurer became an audit client. 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. For more information about Crowe LLP, its subsidiaries, and Crowe Global, . A. Deloitte agreed to pay disgorgement of audit fees in the amount of $497,438 plus prejudgment interest of $116,478 and a penalty of $500,000. For example, under the proposed rule an accounting firm's independence would be impaired if a first year New York office staff accountant with no involvement in the audit has a spouse who beneficially owns 5.1% of theequity securities of a public audit client that is controlled by unrelated third parties and is audited by personnel in the firm's Los Angeles office. Meaningful Protection With Certain Modifications. 3, "Employment with Audit Clients," directly addresses the provisions of the proposed rule relating to an auditor's employment with audit clients. Deloitte Global was an early signatory to the United Nations Global Compact (UNGC) and to the World Economic Forums Partnering Against Corruption Initiative (PACI). SEC Identification of U.S. Proposed rule 2-01(c)(1)(ii)(G) provides that an accountant is not independent when the accounting firm, any covered person, or any of his or her immediate family members has: An "investment company complex" is defined to include, among other things, "[a]ny entity controlled by, under common control with or controlling the investment advisor or sponsor. In addition, this concept should be extended to bank overdrafts and other similar consumer finance arrangements. * 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. 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. Add an Entity . In the United Kingdom, for example, only 90% of bank account balancesup to a total balance of 20,000 at any one banking institution are currently insured.55 Although having only 10% of the balance uninsured will not impair independence, the operation of the proposed rule in such circumstances would result in an unnecessary and undue burden in requiring auditors to transfer all of their savings and checking account balances to financial institutions that are not audit clients.56 This proposed rule should be modified to prohibit an accounting firm or a member of the audit engagement team from having a savings or checking account at an audit client or a material affiliate of an audit client only if the uninsured balance is material to the accounting firm or individual. Note that the final rules amendments are not yet reflected in this Roadmapstay tuned for future updates. This construction provides a more meaningful framework because it appropriately restricts the investment of individuals based on the particular person's ability to influence the audit, or based on whether a particular investment could create an appearance issue. If the entity you were seeking did not appear on the list, you may attempt a different search, or if it does not exist, add it by clicking on "add it here" on the screen. 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. It appears that the proposed rule is based upon the assumption that such beneficial owners can influence the audit client. Will client access be allowed to the system for them to fill in this information? The Deloitte network is committed to driving societal change and promoting environmental sustainability. This exception is necessary in light of the difficulty that many people face in securing life insurance coverage. Deloitte confirmed that Stephen Peers and the West End and City leasing teams, as well as Tony Guthrie and the Lease Advisory team and Mike McChesney and the Dilapidations team will move to Gerald Eve. Consistent with our view that those who are capable of influencing the audit process should be independent of the audit client, we believe that the term "position to influence" would be a more appropriate descriptor than "chain of command." Washington, D.C. 20549 Among other things, this business relationshipwill allow us to achieve a better understanding of web-based auditing systems and could result in the development of a sophisticated web-based auditing system that would allow for more use of advanced auditing techniques. Again, although we believe that it is unnecessary to include uninvolved partners as covered persons, at a minimum this proposed rule should provide an exemption for investments by immediate family members of uninvolved partners in client funds and non-client sister funds through an employer-sponsored benefit plan. The proposed rule could result in firms being unable to secure adequate insurance. Fourth, the definition should include leased personnel who are on the audit engagement team. A Restricted List is a list of securities that a banks employees are prohibited from buying or selling, either themselves or via any other person or third party. Rather, the purpose of the Investment Company Act is to provide a framework to regulate the investing, reinvesting and trading in securities by investment companies, not the independence of auditors. 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. Am I required to validate this entitys information as well? 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. 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. Under the proposed rule, an accounting firm's independence would be impaired if an uninvolved partner's spouse, who works for an audit client in a non-restricted role, receives matching amounts in the client's common stock for his or her contributions to a 401(k) plan. Explanation: SEC = Securities and Exchange Commission. "80 We believe that this "catch-all" is unnecessary and adds more uncertainty about what precisely the proposed rule prohibits. Deloitte & Touche* submits this letter in response to the Securities and Exchange Commission's request for comments on its proposed rule regarding Revision of the Commission's Auditor Independence Requirements, Securities Act Release No. Our shared values are not an abstract ethical philosophy, but a powerful, living compass intended to guide us all toward the right decisions and the correct actions, whatever situations we may encounter, whenever and wherever we are. The Use Of The "Office" Concept Does Not Provide A Useful Framework For Determining Who ShouldBe A "Covered Person". 210.102(b). 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. We combine our size and scope with our knowledge and experience to help you understand and comply with your reporting and disclosure requirements. 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. 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 See Terms of Use for more information. However, this would not be the case in the situation of a passive investor. Although there is no evidence of any threat to independence in this situation, the proposed rule presents the dual-career couple with the choice ofselecting a potentially less attractive insurance option or changing the status, role, or location of the auditor, which in many cases would be impractical. Insert Custom CSS fragment. See Terms of Use for more information. 24, 78, and 377-378 (1994 & Supp. Can a client service team restrict access to other Deloitte employees? For example, there is no evidence that an accounting firm's independence would be impaired if the spouse of an uninvolved partner had a $10,001 balance on a credit card issued by an audit client.46 Given these concerns, we believe the Commission should follow the ISB's proposed approach of applying restrictions on "other financial interests" to the accounting firm and professional employees directly involved in providing audit services to the audit client.47. Is there a charge code associated with the project? 65 Fed. An Article Titled SEC Reporting Services already exists in Saved items. "21 While we support the use of a "chain of command" model, the proposed definition of "chain of command" is overbroad in its inclusion of all individuals who have any type of responsibility over any member of the audit engagement team, regardless of whether such responsibility has any bearing on the audit. For example, the proposed rule would unnecessarily require the spouse of a covered person to transfer assets out of his or her brokerage account held at an immaterial affiliate of an audit client to the extent the value of such assets exceed the Securities Investor Protection Corporation ("SIPC") coverage.19 There is no threat to an accounting firm's independence where the affiliate is not material to the audit client, and the accounting firm does not audit the affiliate. 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. Please see www.deloitte.com/about to learn more. The proposed rule should be modified to provide a more meaningful and workable standard, as follows: Covered persons and their immediate family members. Archives are available on theDeloitte Accounting Research Toolwebsite. Affiliates of the audit client can either be "upstream" such as a parent, or "downstream" such as a subsidiary. We are gravely concerned about the limited range of options available to accounting firms for obtaining professional liability insurance. However, as discussed in our comment letter on the scope of services provisions of the proposed rule, the appearance of auditor independence varies from country to country.48 What may appear to present an independence issue in one country may be perfectly acceptable, or even required, in another country. Deloitte Platforms Navigation. Indeed, the provision would appear to allow the Commission to find that an auditor's independence has been impaired by a financial interest or activity that is not specifically set out in, or contemplated by, the proposed rule. The Proposed Definitions Of "Affiliate Of The Accounting When a 100% ownership interest in a subsidiary is moved from one branch to another, why should it matter where in the family tree it is located? Non-Audit Services, 4. 18 recognizes that "an investment of 20% or more of the voting stock of an investee should lead to a presumption that in the absence of evidence to the contrary an investor has the ability to exercise significantinfluence over an investee. B. Each party agreed to cease and desist from future violations without admitting or denying the findings. Proposed Rule 2-01(c)(2)(iii) provides that an accountant is not independent when: (A) Does not influence the accounting firm's operations or financial policies; (B) Has no capital balances in the accounting firm; and, (C) Has no financial arrangement with the accounting firm other than providing for regular payment of a fixed dollar amount (which is not dependent on the revenues, profits or earnings of the firm) pursuant to a fully funded retirement plan or rabbi trust.71, While we agree with the direction of this proposed rule, we believe that its requirement that fixed-dollar payments from a retirement plan be fully funded is unnecessary.72 An accounting firm's independence is not impaired by these unfundedpayments if the dollar amount and payment schedule are fixed and immaterial to the firm.73, The proposed rule might result in a retired partner having to choose between accepting a lump sum payment (and the related tax consequences) or not serving on, or stepping down from, the board of directors of an audit client of his or her former accounting firm. 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. The entry for Modest Marketing LLC was added to the Entity List on January 26, 2018 . The entries for "Dow Technology" and "Hassan Dow" were added to the Entity List on February 23, 2016 . Finally, we believe the proposed rule would not prohibit group insurance policies, such as group health or group life insurance policies. maintained. . In turn, it could limit insurance companies' choice of auditors. The Release explains that the term "significant influence" should be determined in light of the guidance in Accounting Principles Board ("APB") Opinion No. See Terms of Use for more information. 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. With info object association this data search would be faster.