SEC Hosts Alternative Practices Webinar  

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Recently, the webinar entitled, “Independence Considerations for Alternative Practice Structures,” took place on Tuesday, April 30, 2024. In recent years, there has been a significant amount of consolidation of public accounting firms using alternative practice structures. This activity has raised concerns about the impact such acquisitions may have on auditor independence.   

Shana Wolfson, Associate Chief Accountant at the U.S. Securities and Exchange Commission, shared independence considerations for alternative practice structures with Board of Accountancy members and executive directors. Wolfson pointed out that the concept of investing in an audit firm is not new. Rule 2-01(c)(1)(iv)(A) contemplated such an instance and suggested that an accountant is not independent if its audit client has a direct investment in the audit firm or if the client officers or directors are beneficial owners of more than five percent of the equity securities of the accounting firm.   

In a 2000 release of the Commission’s auditor independence requirements, the Commission proposed a definition for “accounting firm” and “affiliate of the accounting firm.” The proposed definition for the affiliate attempted to capture entities that are financially tied to or otherwise associated with a firm enough to warrant being treated like the firm for purposes of independence. After comments and careful consideration, the adopting release and final rule revision of the 2000 Commission’s auditor independence requirements eliminated the definition of affiliate of the firm and revised the phrasing to include associated entities, including those located outside of the United States. As business arrangements continue to develop, the release acknowledged that more flexible approaches are warranted. Wolfson highlighted that this shows as far back as 2000, when the Commission recognized that the types and nature of accounting firms’ business arrangements would continue to evolve.   

Skipping ahead, Wolfson discussed more recent examples of existing alternative practice structures. She then mentioned that the SEC encourages companies and their auditors to consult with the Office of the Chief Accountant on issues regarding auditor independence and encouraged participants to apply for a consultation.