Abstract
The article discusses the impact of new auditor independence rules on accounting firms. The Securities and Exchange Commission (SEC) of the United States formulated a new auditor independence rule, which came into effect on February 5, 2001. The rule identifies certain nonaudit services that, if provided to an audit client, would impair independence. The SEC was motivated to replace the existing independence rules to protect the reliability and integrity of the financial statements of public companies. It felt significant structural changes in the accounting profession, including reorganizations and consolidations as well as demographic changes in society, necessitated revising the rules (last amended in 1983) to keep them relevant effective and fair. The new rules focus on certain areas that might impair independence. There is a chance that a national independence standard could emerge for all certified public accountants (CPA), not just those with SEC clients. The rule creates a safe harbor for otherwise proscribed activity if a CPA firm has a satisfactory quality control system designed to ensure compliance. The disclosure requirements focus on the nature and magnitude of the otherwise allowable non-audit services auditors provide to audit clients.