SEC Issues Updated FAQ on Auditor Independence

The Office of the Chief Accountant has updated its responses to frequently asked questions about auditor independence. The updates cover areas related to financial relationships, prohibited and nonaudit services, audit committee preapproval, fee disclosures and the cooling off period. These are important new FAQs on the crucial issue of outside auditor independence.
The SEC staff said that an audit committee of the plan sponsor of an employee benefit plan does not have to pre-approve the audit of the plan.

The SEC's independence rules require pre-approval of services provided to the issuer and the issuer's subsidiaries, but not pre-approval of services provided to other affiliates of the issuer that are not subsidiaries. But audit committees are required to pre-approve services provided by the issuer's principal accountant to variable interest entities consolidated under FASB Interpretation No. 46.

FASB Interpretation No. 46 introduced a new set of criteria for addressing when companies need to consolidate variable interest entities. The staff said that auditors of the parent financial statements must be independent of entities consolidated solely due to the application of the interpretation.