There are layers of review such that the engagement partner does not work in a silo. This is a strong incentive for audit staff and partners. Performance evaluations are driven by audit quality events – both positive and negative. Within an audit firm, there are incentives for the audit engagement team to deliver a high-quality audit. The PCAOB inspects audit firms, including overseeing compliance with independence regulations. The audit committee is responsible for negotiating the level of fees (i.e., compensation) paid to the independent auditor. system designed to protect the independent work of auditors. Placing responsibility to oversee, and compensate, the external auditor in the hands of the audit committee is a feature of the U.S.

The Sarbanes-Oxley Act stipulates that the audit committee, not the Chief Executive Officer or Chief Financial Officer, has responsibility for the appointment, compensation, retention, and oversight of the company’s independent external auditor and must preapprove all non-audit and audit services provided.

Affirmation – auditors must affirm compliance with SEC and PCAOB independence rules to audit committees.īeyond strong, robust independence rules, there is oversight of the external auditor by the audit committee and the PCAOB.

Contingent fees or commissions are not allowed.

Partner rotation – the lead audit engagement partner and Engagement Quality Reviewer are required to rotate every five years.

There are other important requirements that support auditor independence, including (not all-inclusive):

Legal services and expert services unrelated to the audit.

Broker-dealer, investment adviser, or investment banking services.

Management functions or human resources.Appraisal or valuation services, fairness opinions, or contribution-in-kind reports.Financial information systems design and implementation.Specific Prohibited Non-audit Servicesīeyond the principles of the general rule, the following certain non-audit services are expressly prohibited under the SEC’s rules:

Generally, these rules also apply to family members of auditors in many circumstances in order to guard independence.

Independence Pro Keygen