The SEC has proposed amendments to the auditor independence rules that would not preclude fund audits by firms that also provide services to portfolio companies. Amendments to Rule 2-01 would modernize the definition of affiliate relationships so that minor engagements with portfolio companies would not violate the auditor independence rules for the fund engagement. The proposal would also allow audit partners to carry student loans and de minimis consumer loans without impairing independence. The proposal also adds a governance framework to address inadvertent independence violations resulting from merger and acquisition transactions.
Modernizing the auditor independence rules will facilitate more competition and hopefully drive down audit costs. Also, rigid auditor independence rules oftentimes exclude an audit firm that may be best positioned through knowledge or experience to conduct an audit.