SEC Acting Chief Accountant Reminds Audit Firms of the "Fundamental Importance of Independence"

SEC Acting Chief Accountant Paul Munter highlighted audit firms' responsibilities as independent gatekeepers and the need to be vigilant in protecting investors. He warned that failure to comply with independence obligations may subject firms to SEC or Public Company Accounting Oversight Board ("PCAOB") enforcement actions.

In a published statement, Mr. Munter identified the risks associated with certain sale and divestiture deals, noting that they may present heightened risks to the independence of audit firms. In particular, Mr. Munter said that firms seeking to sell a portion of their business while maintaining an equity interest in the business, or divesting their consulting practices to third-party entities, must keep in mind their obligations with regard to independence and disclosure.

Private equity investments in accounting firms may present particular concerns, Mr. Munter said, as complex private equity structures require careful evaluations to determine potential auditor independence issues. Mr. Munter suggested that an accounting firm providing services to any entity in a private equity structure that holds interests in the firm would call into question the firm's ability to comply with the SEC's standards of auditor independence.

To ensure adequate independence when dealing with complex arrangements - in the private equity context and elsewhere - Mr. Munter warned that firms must implement and maintain robust monitoring with respect to independence requirements, audit quality, general ethical obligations and investor protection.