SEC Proposal Mandates New Independence Disclosures

By Anthony J. Mancuso, CPA

The Independence Standards Board, the regulatory group formed jointly by the Securities and Exchange Commission and the AICPA, recently issued an exposure draft that requires auditors of public companies to discuss their independence with their clients' audit committees or boards of directors annually during the course of the audit.

The auditors also must disclose in writing all relationships between auditors and clients, including personnel matters, that may reasonably be thought to impact independence. The proposal specifically requires auditors to disclose and discuss such situations as consulting contracts, family connections, and former CPA firm staff who have become employees of
the client.

In the last few years, the SEC has taken particular interest in the growing trend of CPA firms accepting lucrative consulting contracts from clients for whom they also provide attest services. The potential impact of such consulting engagements on independence in the attest function was one of the driving forces behind the creation of the ISB.