It combines the SECs1 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. 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. Explore Deloitte University like never before through a cinematic movie trailer and films of popular locations throughout Deloitte University. Sample 1 Sample 2 Sample 3 Based on 3 documents Save Copy . For example, the Release states that the portion of the definition relating to "a person controlling, controlled by, or under common control with the firm, shareholders of more than five percent of the firm's voting securities, . DTTL and each DTTL member firm and related entity is liable only for its own acts and omissions, and not those of each other. 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. The application of the proposed rule to certain relationships between auditors and affiliates of audit clients should be limited to only those affiliates that are material to the audit client.18 This modification is more likely to identify thoserelationships that may impair an auditor's independence and would avoid undue hardships to registrants and accounting firms in situations where registrants have numerous affiliates that are immaterial to them. Please enable JavaScript to view the site. APB Opinion No. 2023. On the other hand, accounting firms sometimes find that a potential third party client is unwilling to consider the accounting firm's proposal to render system integration services, unless the proposed "solution" includes software offered by a vendor, which happens to be an audit client of the accounting firm. Consistent with our views on affiliates of the audit client, we believe that the relevant issues are whether the beneficial owner could exercise significant influence53 or control over the audit client or a material affiliate of the audit client and whether the beneficial owner's investment in the audit client or an affiliate is material to the beneficial owner. B. We urge the Commission to simply allow existing AICPA guidance to govern this area and not adopt this proposal. 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. However, consistent with our comments on broker-dealer accounts, this proposed rule should provide a safe harbor for accounts held by the accounting firm or members of the audit engagement team where the value of the assets in the account do not exceed, by a material amount, the private insurance coverage established on the account. This will not be the case in all situations. Deloitte actively supports multiple efforts to eradicate corruption throughout the world. The appearance of independence is dependent on many factors, including the country's culture, economic environment, business traditions, regulatory structure and legal environment. If the credit card was obtained under normal terms and conditions, it is unimportant what the credit card balance is at any one point, so long as it is promptly paid down when due. Deloitte Global CEO Punit Renjen challenges Deloitte professionals to break down barriers and work together to transform the organization from the largest professional services provider in the world into an iconic one. Certain Persons To Focus On Significant Influence Or Control. the subsidiary's or investee's income from continuing operations before income The final rule also modifies the criteria for pro forma adjustments by replacing current requirements with two categories of required adjustments that depict (1) only the accounting for the transaction (referred to as transaction accounting adjustments) and (2) the registrant as a stand-alone entity (referred to as autonomous entity adjustments). Further, it allows registrants to (1) present fewer acquiree financial statement periods, (2) present acquiree financial statements in fewer circumstances, and (3) when certain criteria are met, use abbreviated financial statements without requesting permission from the SEC staff. Once added to the RE List , all Covered Persons (see definition in Appendix A) must be in compliance with the SEC and AICPA independence . at 43,179. Relationships Will Further The Commission's Objectives. The proposal on savings and checking accounts also does not give adequate consideration to business practices in other countries. Answer: DTTL Global Independence believes that companies are used in the calculation described above. The use of an "office" concept, delineated along geographical or practice lines may result in unintended consequences. Material Subsidiary or Investee This term includes any subsidiary or 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. To stay logged in, change your functional cookie settings. The Deloitte Global Security Office (GSO) works with member firms worldwide to help keep Deloitte people safe, particularly during times of emergency or when they are called upon by clients to work in higher-risk areas. 1971). of the SEC's Auditor Independence Requirements Deloitte Platforms Navigation. Thus, for instance, the audit engagement team should always be prohibited from entering into certain relationships with audit clients. For more information about Crowe LLP, its subsidiaries, and Crowe Global, . 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. A bright-line threshold of five percent applicable to all firm employees and their family members would create an undue burden . This approach is consistent with the recent proposal by the International Federation of Accountants ("IFAC"). . Will client access be allowed to the system for them to fill in this information? 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. The parent's or investor's equity in decision. 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. The proposed definition of the "chain of command" would unnecessarily include many individuals who have no direct or indirect responsibility or influence over the audit and who would not be in a position to influence members of the audit engagement team. At Deloitte, our purpose is to make an impact that matters by creating trust and confidence in a more equitable society. of the Codification, "Interests in Nonclient Affiliates and Investee Companies" and ASR No. Finally, we believe the proposed rule would not prohibit group insurance policies, such as group health or group life insurance policies. It's administered by a third party to help maintain confidentiality and, when requested, anonymity. 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. These member firms and each of their related entities (each a "Deloitte firm"), along with Deloitte Global . The proposed rule could result in firms being unable to secure adequate insurance. 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. We are gravely concerned about the limited range of options available to accounting firms for obtaining professional liability insurance. Visit www.integrityhelp.com. 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. Proposed rule 2-01(c)(1)(ii)(A). . The Definition Of "Covered Persons In The Firm"Unnecessarily Includes All Professionals Providing Non-Audit Services. Please enable JavaScript to view the site. 65 Fed. Passwords must be at least eight characters long with a maximum length of 16 characters, and require at least three of the following: Numbers before income taxes for the year is clearly not indicative of the past or 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. Each member of Crowe Global is a separate and independent legal entity. Thats why Deloitte ethics teams continue to proactively strengthen our culture of integrity across the network. The Proposed Exceptions Would Provide More A roadmap to SEC reporting considerations for business combinations has been saved, A roadmap to SEC reporting considerations for business combinations has been removed, An Article Titled A roadmap to SEC reporting considerations for business combinations already exists in Saved items. Consider contacting Independence Compliance Onboarding if you are aware of a Close Family Member who has one of the following situations: a financial interest in a company that is material to his/her net worth or employment in an accounting, financial reporting or other significant role at a company. Explore Deloitte University like never before through a cinematic movie trailer and films of popular locations throughout Deloitte University. The consequences of adopting this broad definition of an "affiliate of the audit client" are severe. Matt specializes in serving clients in the energy and resources industry, including exploratio More. Annual SEC and PCAOB update for public companies Guide. For example, an automobile insurance policy obtained in the ordinary course of business, and under normal terms and conditions, from an audit client will not impair independence. Please see www.deloitte.com/about to learn more about our global network of member firms. As discussed below, we believe that this modified "chain of command" or "position to influence" concept makes the inclusion of an "office" concept unnecessary. ), 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.) Broker Data Import Program (BDIP)A feature of the Tracking & Trading System that allows the professional to receive automatic downloads of their financial holdings from their authorized brokerage accounts. 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). Deloitte failed to discover that the required initial independence consultation was not performed until nearly five years after the independence-impairing relationship had been established between Deloitte Consulting LLP and Boynton, who was paid consulting fees for his external client work. "62 This proposed rule is unnecessary because there is no nexus between insurance coverage and threats to independence. 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. Also consider certain relationships that you are aware of pertaining to your Close Family Members. Following the text of the proposed rule to its logical conclusion, the investments enumerated in (1) and (2) would be material indirect investments. 1 Twitter 2 Facebook 3RSS 4YouTube The Proposed Exception Should Be Modified 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. Non-Audit Services, 4. Such a standard would provide further protection against unavoidable, inadvertent violations of the independence rules and would simplify the independence rules relating to investments in common investment vehicles such as mutual funds and unit investment trusts. appropriate scope of services. 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. Any direct or material indirect investment in audit client. Social login not available on Microsoft Edge browser at this time. Fullwidth SCC. Accordingly, the definition of "audit and professional engagement period" found in proposed rule 2-01(f)(6)(A) should be modified to read that the "the professional engagement period begins when the accountant begins review or audit procedures. Add an Entity . Close family members (other than immediate family members) of covered persons (other than the audit engagement team). Close family members (other than immediate family members) of the members of the audit engagement team. 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. Makes The "Office" Concept Unnecessary, 2. These individuals should be considered to be in the same position as the accounting firm's professionals on the audit engagement team. If you clicked a link from a site other than DeloitteNet, please contact the CallCenter at 2222 or +1 800 DELOITTE (1-800-335-6488). The Proposed Rule On Employment Of Former Employees May Hinder Retired Partners From Serving On Boards, VIII. Partners and their immediate family members. 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. carrying amount of investment in and advances to the subsidiary or investee . Deloittes extensive experience underpins the valuable perspective we bring to SEC reporting. proportionate share of the client subsidiary's or investee's total assets is Fund Complexes) ( A ). * 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. We believe that this is both unnecessary and contrary to the public interest. When the parent or investor is a Absent the specific relationships above, a Spousal Equivalent relationship may still exist based on individual facts and circumstances. You may be considered a restricted/covered person if you are on an audit engagement team, in the chain of command, or if you provide 10 or more . 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. A domestic partnership has been declared by the parties for joint coverage under an employer health and welfare benefit plan. Deloitte offers a tailored suite of services geared toward public entities who file with the SEC and private ones considering an initial public offering (IPO) or engaging with public counterparts. ", A manager or senior staff accountant who does not participate in the audit but who may supervise or evaluate an assistant staff accountant who also works on other unrelated audit engagements would appear to be included in the proposed definition of "chain of command.". Indeed, ISB Standard No. In light of these very serious concerns, the rationale for the proposed definition is sorely deficient. 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. The final rule must be adopted for fiscal years beginning after December 31, 2020; however, early application is permitted. If a 20% . 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." A domestic partnership registered with a governmental body. See how we connect, collaborate, and drive impact across various locations. Although we believe that restrictions on certain direct financial interests in an audit client, such as loans and certain credit card balances, are warranted, many of the "other financial interests" in audit clients identified in proposed rule 2-01(c)(1)(ii) are not the type of financial interests that would impair independence. What is the value of keeping track of all of the entities within a family tree? The proposed rule defines the professional personnel in the accounting firm to whom the independence rules apply through its definition of "covered persons" and includes four categories of persons: (1) the audit engagement team; (2) those in the "chain of command"; (3) any other employee of the accounting firm whois "involved in providing any professional service to the audit client or an affiliate of the audit client"; and (4) partners, shareholders and principals in any "office" of the accounting firm that participates in a significant portion of the audit.20 We agree that those who are in a position to influence an audit should be included in the definition of "covered persons" under the proposed rule. ** This letter addresses all aspects of the proposed rule except those relating to scope of services, which are addressed in a separate comment letter. Indeed, the current independence rules appropriately recognize that materiality is relevant in determining whether independence is required. Deloitte Global was an early signatory to the United Nations Global Compact (UNGC) and to the World Economic Forums Partnering Against Corruption Initiative (PACI). When adding a new entity does the Firm Contribution Tool assign a temporary GMF ID? 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. It is also not a substitute for consulting with Deloitte professionals on complex transactions and SEC reporting matters.