1 SEC Release No. IC-23029, February 18, 1998.
[9734]
March 4, 1998
TO: ACCOUNTING/TREASURERS COMMITTEE No. 11-98
INDEPENDENT ACCOUNTANTS ADVISORY COMMITTEE No. 2-98
RE: SEC STATEMENT OF SUPPORT FOR INDEPENDENCE STANDARDS BOARD
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The SEC recently issued the attached release1 addressing the importance of auditor
independence and stating its support for the Independence Standards Board (“ISB”). The release notes
that auditor independence is crucial to the credibility of financial reporting and the capital formation
process. The release notes that various provisions of the federal securities laws give the SEC the
authority to define the term “independent” and that the Commission has exercised this authority
through rulemaking (e.g., Rule 2-01 of Regulation S-X) and extensive interpretive guidance.
The release notes that, in recent years the question of auditor independence has become more
complex as auditors have entered into new service areas for their clients, and have merged or
restructured their operations. Certain of the CommissionGs auditor independence regulations may not
provide adequate guidance in light of these changed practices.
The Commission intends to look to the ISB to improve auditor independence requirements and
to establish and maintain a body of independence standards applicable to the auditors of all SEC
registrants. The release notes that the CommissionGs relationship with the ISB will be similar to its
relationship with the Financial Accounting Standards Board, a standard setting body designated by the
accounting profession to develop and improve accounting principles.
Gregory M. Smith
Director - Operations/
Compliance & Fund Accounting
Attachment