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New Rule for Independent Auditors of Regulated Entities Issued by SEC

The Securities and Exchange Commission (SEC) has introduced a new rule requiring independent auditors of regulated entities to meet specific standards and undergo accreditation. This move aims to ensure that investors have greater confidence in the financial reporting of these companies.

Who is Affected?

The new rule applies to three categories of regulated entities:

  • Group A: Issuers of registered securities with a class of securities listed for trading on an exchange
  • Group B: Investment houses, brokers and dealers of securities, and other entities that are not part of Group A or C
  • Group C: Financing companies

Accreditation Requirements

To become accredited, independent auditors must:

  • Have at least five years of experience in external audit
  • Pass a professional ethics examination
  • Complete continuing professional education (CPE) courses

The accreditation process involves an evaluation of the applicant’s quality control procedures, including their policies and procedures related to auditing financial statements. The Commission will also review the applicant’s track record, including their experience with corporate clients and their familiarity with relevant laws and regulations.

What Does This Mean for Investors?

This new rule aims to provide greater assurance that independent auditors of regulated entities are competent and reliable. This should promote transparency and accountability in the financial reporting of these companies, ultimately benefiting investors.

How to Get Started with Accreditation

Regulated entities must submit a notarized application form (SEC Form ExA-001) to the Commission, along with supporting documents, to begin the accreditation process. The Commission will review applications and issue accreditation certificates to qualified auditors.

Consequences of Non-Compliance

Failing to comply with the new rule may result in penalties, including fines and suspension or revocation of registration.

Source: Securities and Exchange Commission (SEC)