1 See Memorandum to Accounting/Treasurers Committee No. 30-99, SEC Rules Committee No. 71-99, dated
September 23, 1999.
[11363]
October 29, 1999
TO: ACCOUNTING/TREASURERS COMMITTEE No. 40-99
SEC RULES COMMITTEE No. 85-99
RE: ICI COMMENT LETTER ON ISB AUDITOR INDEPENDENCE PROPOSAL
______________________________________________________________________________
As we previously informed you, the Independence Standards Board issued a proposal on the
application of auditor independence rules to audits of mutual funds.1 The proposal would require a
specified set of persons in the audit firm to be independent of non-audit client "sister" funds when
auditing a mutual fund. In particular, the accounting firm itself, and its retirement plans (other than self-
directed defined contribution employee benefit plans), the audit engagement team, and its chain of
command, and the partners and managerial employees in offices participating in a significant portion of
the audit must be independent of non-audit client sister funds when auditing a mutual fund. In addition,
the proposal would permit spouses of certain partners to invest in audit client funds through an
employer sponsored benefit plan.
In the attached comment letter the Institute supports the proposed approach barring "on the
engagement" investment in non-client sister funds. The letter recommends that independence rules
applicable to fund audits should incorporate grace periods and materiality thresholds so that temporary
or de minimis violations will not disqualify auditors or call into question the validity of previously issued
audit opinions.
The Institute's letter supports the provision of the proposal that would permit spouses of
partners who are not on the engagement and not in the engagement office to invest in audit client funds
through employer sponsored benefit plans. The letter argues that these spouses should be permitted to
invest directly in audit client funds (i.e., in addition to investments through employer sponsored benefit
plans). Further, the letter recommends that spouses of partners who participate in the engagement be
permitted to invest in audit client funds, so long as the investment is made through an employer
sponsored benefit plan.
Gregory M. Smith
Director - Operations/
Compliance & Fund Accounting
Attachment