(The news featured below is a selection from the news covered in the Federal Securities Report Letter, which is distributed to subscribers of the Federal Securities Law Reports.)

Auditor Independence Rules Proposed

The SEC proposed amendments to its existing requirements regarding auditor independence. According to the Commission, these proposals would enhance the independence of accountants that audit and review financial statements and prepare attestation reports filed with the agency.

In accordance with Section 208(a) of the Sarbanes-Oxley Act, the proposed rules would: 1) revise the Commission's regulations related to the non-audit services that, if provided to an audit client, would impair an accounting firm's independence; 2) define the circumstances whereby an issuer's audit committee can and should pre-approve all audit and allowable non-audit services provided to the issuer by the auditor of an issuer's financial statements; 3) prohibit partners on the audit engagement team from providing audit services to the issuer for more than five consecutive years; 4) prohibit an accounting firm from auditing an issuer's financial statements if certain members of management of that issuer had been members of the accounting firm's audit engagement team within the one-year period preceding the commencement of audit procedures; and 5) require that the auditor of an issuer's financial statements report certain matters to the issuer's audit committee, including critical accounting policies used by the issuer.

In addition to the provisions required by the act, the SEC also proposed rules defining an accountant as not being independent from an audit client if any partner, principal or shareholder of the accounting firm who is a member of the engagement team received compensation based on any service provided or sold to that client other than audit, review and attest services. Additionally, the SEC proposed to amend and require additional disclosures to investors of information related to the audit and non-audit services provided by, and fees paid by the issuer to, the auditor of the issuer's financial statements. Comments are due to the SEC within 30 days from the date of publication in the Federal Register.

¨ Release No. 33-8154 will be published in a forthcoming REPORT