Federal Register / Vol. 85, No. 229 / Friday, November 27, 2020 / Notices 76131 

13 17 CFR 200.30–3(a)(12). 

the competition with other exchanges. 

Rather, the Exchange believes the 

proposed changes will enhance 

competition for listings, as it will 

increase the competition for new 

listings and the listing of companies that 

are currently listed on other exchanges. 

Other exchanges can also offer similar 

services to companies, thereby 

increasing competition to the benefit of 

those companies and their shareholders. 

Accordingly, the Exchange does not 

believe the proposed rule change will 

impose any burden on competition that 

is not necessary or appropriate in 

furtherance of the purposes of the Act. 

In addition, the Exchange does not 

believe that the proposal to extend the 

period for which it provides certain 

complimentary products and services to 

Eligible New Listings and Eligible 

Transfer Companies will impose any 

burden on competition that is not 

necessary or appropriate in furtherance 

of the purposes of the Act. In this 

regard, the NYSE notes that the specific 

tools and services offered to Eligible 

New Listings and Eligible Transfer 

Companies as part of the complimentary 

offering limited to those categories of 

issuers under Section 907.00 are 

provided solely by third-party vendors. 

In addition, the NYSE may choose to 

use multiple vendors for the same type 

of product or service. The NYSE also 

notes that currently listed and newly 

listed companies would not be required 

to accept the offered products and 

services from the NYSE, and an issuer’s 

receipt of an NYSE listing is not 

conditioned on the issuer’s acceptance 

of such products and services. In 

addition, the NYSE notes that, from 

time to time, issuers elect to purchase 

products and services from other 

vendors at their own expense instead of 

accepting the products and services 

described above offered by the 

Exchange. 

Moreover, the number of companies 

eligible for the complimentary products 

and services for a longer period of time 

(i.e., companies newly listing on the 

NYSE) will be very small in comparison 

to the total number of companies that 

comprise the target market for the 

services (i.e., all public companies), so 

that there can be no competitively 

meaningful foreclosure of similar 

services offered by third parties if the 

proposed rule is approved. 

C. Self-Regulatory Organization’s 

Statement on Comments on the 

Proposed Rule Change Received From 

Members, Participants, or Others 

No written comments were solicited 

or received with respect to the proposed 

rule change. 

III. Date of Effectiveness of the 

Proposed Rule Change and Timing for 

Commission Action 

Within 45 days of the date of 

publication of this notice in the Federal 

Register or up to 90 days (i) as the 

Commission may designate if it finds 

such longer period to be appropriate 

and publishes its reasons for so finding 

or (ii) as to which the self-regulatory 

organization consents, the Commission 

will: 

(A) By order approve or disapprove 

the proposed rule change, or 

(B) institute proceedings to determine 

whether the proposed rule change 

should be disapproved. 

IV. Solicitation of Comments 

Interested persons are invited to 

submit written data, views, and 

arguments concerning the foregoing, 

including whether the proposed rule 

change is consistent with the Act. 

Comments may be submitted by any of 

the following methods: 

Electronic Comments 

• Use the Commission’s internet 

comment form (http://www.sec.gov/ 

rules/sro.shtml); or 

• Send an email to rule-comments@

sec.gov. Please include File Number SR– 

NYSE–2020–94 on the subject line. 

Paper Comments 

• Send paper comments in triplicate 

to: Secretary, Securities and Exchange 

Commission, 100 F Street NE, 

Washington, DC 20549–1090. 

All submissions should refer to File 

Number SR–NYSE–2020–94. This file 

number should be included on the 

subject line if email is used. To help the 

Commission process and review your 

comments more efficiently, please use 

only one method. The Commission will 

post all comments on the Commission’s 

internet website (http://www.sec.gov/ 

rules/sro.shtml). Copies of the 

submission, all subsequent 

amendments, all written statements 

with respect to the proposed rule 

change that are filed with the 

Commission, and all written 

communications relating to the 

proposed rule change between the 

Commission and any person, other than 

those that may be withheld from the 

public in accordance with the 

provisions of 5 U.S.C. 552, will be 

available for website viewing and 

printing in the Commission’s Public 

Reference Room, 100 F Street NE, 

Washington, DC 20549 on official 

business days between the hours of 

10:00 a.m. and 3:00 p.m. Copies of the 

filing also will be available for 

inspection and copying at the principal 

office of the Exchange. All comments 

received will be posted without change. 

Persons submitting comments are 

cautioned that we do not redact or edit 

personal identifying information from 

comment submissions. You should 

submit only information that you wish 

to make available publicly. All 

submissions should refer to File 

Number SR–NYSE–2020–94 and should 

be submitted on or before December 18, 

2020. 

For the Commission, by the Division of 

Trading and Markets, pursuant to delegated 

authority.13

J. Matthew DeLesDernier, 

Assistant Secretary. 

[FR Doc. 2020–26143 Filed 11–25–20; 8:45 am] 

BILLING CODE 8011–01–P 

SECURITIES AND EXCHANGE 

COMMISSION 

[Release No. 34–90473; File No. PCAOB– 

2020–01] 

Public Company Accounting Oversight 

Board; Notice of Filing of Proposed 

Rules on Amendments to PCAOB 

Interim Independence Standards and 

PCAOB Rules To Align With 

Amendments to Rule 2–01 of 

Regulation S–X 

November 20, 2020. 

Pursuant to Section 107(b) of the 

Sarbanes-Oxley Act of 2002 (the ‘‘Act’’ 

or ‘‘Sarbanes-Oxley Act’’), notice is 

hereby given that on November 20, 

2020, the Public Company Accounting 

Oversight Board (the ‘‘Board’’ or 

‘‘PCAOB’’) filed with the Securities and 

Exchange Commission (the 

‘‘Commission’’ or ‘‘SEC’’) the proposed 

rules described in Items I and II below, 

which items have been prepared by the 

Board. The Commission is publishing 

this notice to solicit comments on the 

proposed rules from interested persons. 

I. Board’s Statement of the Terms of 

Substance of the Proposed Rules 

On November 19, 2020, the Board 

adopted amendments to the PCAOB’s 

interim independence standards and 

PCAOB rules to align with amendments 

by the SEC to Rule 2–01 of Regulation 

S–X (collectively, the ‘‘proposed rules’’). 

The text of the proposed rules appears 

in Exhibit A to the SEC Filing Form 

19b–4 and is available on the Board’s 

website at https://pcaobus.org/ 

Rulemaking/Pages/Docket047.aspx and 

at the Commission’s Public Reference 

Room. 


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1The term ‘‘emerging growth company’’ is 

defined in Section 3(a)(80) of the Securities 

Exchange Act of 1934 (15 U.S.C. 78c(a)(80)). See 

also Inflation Adjustments and Other Technical 

Amendments Under Titles I and III of the JOBS Act, 

Rel. 33–10332 (Mar. 31, 2017), 82 FR 17545 (Apr. 

12, 2017). 

2 15 U.S.C. 7213. 

3See Section 2(a)(7) of the Act, 15 U.S.C. 

7201(a)(7). 4See 17 CFR 210.2–01. 5PCAOB Rule 3523. 

6See Qualifications of Accountants, Release No. 

33–10876 (Oct. 16, 2020) (‘‘2020 Adopting 

Release’’). 

7See, e.g., Strengthening the Commission’s 

Requirements Regarding Auditor Independence, 

Release No. 33–8183 (Jan. 28, 2003), 68 FR 6006, 

6044 (Feb. 5, 2003) (identifying the SEC’s statutory 

bases to adopt independence requirements). 

8See Amendments to Rule 2–01, Qualifications of 

Accountants, Release No. 33–10738 (Dec. 30, 2019), 

85 FR 2332 (Jan. 15, 2020) (‘‘2020 Proposing 

Release’’). 

9See Rule 2–01(c)(5)–(8) and Rule 2–01(d)–(e). 

II. Board’s Statement of the Purpose of, 

and Statutory Basis for, the Proposed 

Rules 

In its filing with the Commission, the 

Board included statements concerning 

the purpose of, and basis for, the 

proposed rules. The text of these 

statements may be examined at the 

places specified in Item IV below. The 

Board has prepared summaries, set forth 

in sections A, B, and C below, of the 

most significant aspects of such 

statements. In addition, the Board is 

requesting that, pursuant to Section 

103(a)(3)(C) of the Sarbanes-Oxley Act, 

the Commission approve the proposed 

rules for application to audits of 

emerging growth companies (‘‘EGCs’’).1

The Board’s request is set forth in 

section D. 

A. Board’s Statement of the Purpose of, 

and Statutory Basis for, the Proposed 

Rules 

(a) Purpose 

Summary 

The federal securities laws require, 

among other things, that issuers, 

brokers, and dealers file certain periodic 

reports with the SEC that contain 

financial statements audited by an 

independent public accountant. These 

laws recognize that audits conducted by 

objective and impartial professionals 

can protect investors and instill 

confidence in the public markets. 

Congress has provided both the SEC 

and the PCAOB with jurisdiction to 

establish auditor independence 

standards for audits of issuers and 

broker-dealers. The Sarbanes-Oxley Act 

specifically authorizes the PCAOB to 

establish independence standards and 

rules to be used by registered public 

accounting firms in the preparation and 

issuance of audit reports, and as may be 

necessary or appropriate in the public 

interest or for the protection of 

investors.2

The Board first exercised its authority 

under the Act by adopting the 

independence standards of the 

American Institute of Certified Public 

Accountants (‘‘AICPA’’), as they existed 

as of April 16, 2003, as the Board’s 

interim independence standards, and 

subsequently adopted independence 

rules set out in Section 3, Part 5 of the 

Rules of the Board. Although the 

PCAOB’s standard-setting authority 

initially extended only to audits of 

issuers, as defined in the Act,3 the 

Dodd-Frank Wall Street Reform and 

Consumer Protection Act (‘‘DoddFrank’’) extended that authority to 

include audits of brokers and dealers. 

Because both the PCAOB and the SEC 

have jurisdiction with respect to auditor 

independence, it is important for the 

PCAOB to consider how its 

independence standards and rules relate 

to the SEC’s requirements, including 

Rule 2–01 of Regulation S–X (‘‘Rule 2– 

01’’).4 The PCAOB’s interim 

independence standards, as adopted 

from the AICPA in 2003, cover many of 

the same topics as Rule 2–01. 

Recognizing the overlap, the Board 

directed audit firms in 2003 to comply 

with the more restrictive of the Board’s 

interim independence standards and 

Rule 2–01. Subsequently, the PCAOB’s 

permanent independence rules have 

imposed certain incremental 

independence obligations (e.g., 

additional prohibitions on tax services 

for persons in financial reporting 

oversight roles at issuer audit clients 5) 

on registered public accounting firms. 

The PCAOB’s independence rules use 

definitions aligned with the definitions 

in the SEC’s Rule 2–01(f). 

From 2003 to 2018, the SEC’s 

requirements and the PCAOB’s interim 

independence standards and 

independence rules worked together to 

establish the independence compliance 

requirements for auditors subject to the 

Board’s jurisdiction. In 2018, however, 

the SEC began the process of making 

certain amendments to Rule 2–01. 

Specifically, the Commission proposed 

in 2018, and then adopted in 2019, 

amendments to Rule 2–01(c)(1)(ii)(A) to 

refocus the analysis that must be 

conducted to determine whether an 

auditor is independent when the auditor 

has a lending relationship with certain 

shareholders of an audit client at any 

time during the audit and professional 

engagement period. The Commission 

next proposed in 2019, and then 

adopted in 2020, additional 

amendments to address certain 

arrangements and relationships that the 

SEC believed were less likely to threaten 

an auditor’s objectivity or impartiality, 

so that auditors and audit committees 

could spend more time focusing on 

relationships that are more likely to 

pose such threats.6 Several commenters 

on the latter proposal noted that the 

SEC’s proposed amendments 

overlapped with the PCAOB’s 

requirements relating to lending 

arrangements and further observed that 

the SEC’s proposal to amend certain 

definitions in Rule 2–01(f) might give 

rise to differences with some of the 

Board’s existing definitions in Rule 

3501. 

To avoid differences and duplicative 

requirements, and to provide greater 

regulatory certainty, the Board adopted 

targeted amendments to its interim 

independence standards applicable to 

lending arrangements between auditors 

and audit clients. In addition, the Board 

adopted targeted amendments to align 

certain terms defined in Rule 3501 with 

the Commission’s recent amendments to 

its definitions of those terms in Rule 2– 

01(f). 

Background 

SEC Authority and Independence 

Requirements 

The federal securities laws authorize 

the SEC to establish independence 

requirements for audits of financial 

statements filed with the Commission.7

The SEC’s rule on auditor independence 

is Rule 2–01, which the SEC has 

described as setting forth a 

‘‘comprehensive framework governing 

auditor independence.’’ 8 Under the 

general standard in Rule 2–01(b), the 

SEC ‘‘will not recognize an accountant 

as independent, with respect to an audit 

client, if the accountant is not, or a 

reasonable investor would conclude that 

the accountant is not, capable of 

exercising objective and impartial 

judgment on all issues encompassed 

within the accountant’s engagement.’’ 

In addition to the general standard in 

Rule 2–01(b), the rule includes a nonexclusive specification of circumstances 

that are inconsistent with Rule 2–01(b). 

Rule 2–01(c)(1)–(4) addresses financial, 

employment, and business relationships 

between accountants and their audit 

clients, as well as the performance of 

certain non-audit services. Other 

provisions of Rule 2–01(c)–(e) address 

contingent fees, partner rotation on 

audit engagements, audit committee 

administration of the audit engagement, 

partner compensation, independence 

quality controls, and grandfathering and 

transition provisions.9 Rule 2–01(f) 


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10See Codification of Financial Reporting 

Policies, Section 600, Matters Relating to 

Independent Accountants. 

11See Office of the Chief Accountant: Application 

of the Commission’s Rules on Auditor 

Independence Frequently Asked Questions, 

available at https://www.sec.gov/info/accountants/ 

ocafaqaudind080607.htm. 

12See Sections 103(a)(1) and 103(b) of the Act, 15 

U.S.C. 7213(a)(1) and (b). 

13See Section 103(a)(3)(A) of the Act, 15 U.S.C. 

7213(a)(3)(A). 

14See Section 103(a)(3)(B) of the Act, 15 U.S.C. 

7213(a)(3)(B). 

15See PCAOB Rel. No. 2003–006, Establishment 

of Interim Professional Auditing Standards (Apr. 

18, 2003) (‘‘2003 Adopting Release’’). 

16See id. at 3. 

17Rule 3500T also requires compliance with (1) 

certain independence standards and interpretations 

of the former Independence Standards Board, to the 

extent not superseded by the Board and (2) certain 

ethics standards described in Rule 102 of the 

AICPA Code and the related interpretations and 

rulings thereunder, as in existence on April 16, 

2003, to the extent not superseded or amended by 

the Board. 

18See also PCAOB Release No. 2013–010, 

Amendments to Conform the Board’s Rules and 

Forms to the Dodd-Frank Act and Make Certain 

Updates and Clarifications (Dec. 4, 2013) at 20 fn. 

60 (stating that the Note to Rule 3500T ‘‘means that 

the less restrictive rule still applies but satisfying 

the more restrictive rule is deemed to satisfy the 

less restrictive rule’’). 19 In 2005, the Board adopted Rules 3501–3502 

and Rules 3520–3524. See PCAOB Release No. 

2005–014, Ethics and Independence Rules 

Concerning Independence, Tax Services, and 

Contingent Fees (July 26, 2005) (‘‘2005 Adopting 

Release’’). In 2007 and 2008, the Board adopted 

Rules 3525 and 3526, respectively. See PCAOB 

Release No. 2007–005, Auditing Standard No. 5— 

An Audit of Internal Control Over Financial 

Reporting That Is Integrated with An Audit of 

Financial Statements and Related Independence 

Rule and Conforming Amendments (May 24, 2007); 

PCAOB Release No. 2008–003, Ethics and 

Independence Rule 3526, Communication with 

Audit Committees Concerning Independence, 

Amendment to Interim Independence Standards, 

Amendment to Rule 3523, Tax Services for Persons 

in Financial Reporting Oversight Roles, 

Implementation Schedule for Rule 3523 (Apr. 22, 

2008). 

20See PCAOB Rule 3520. Registered public 

accounting firms must satisfy not only the Board’s 

independence requirements, but also all other 

independence criteria applicable to a firm’s 

engagement, including Rule 2–01. See Note 1 to 

PCAOB Rule 3520. 

21 In adopting the definitions in Rule 3501, the 

Board stated that many of those definitions were 

based on the SEC’s existing definitions of those 

terms in Rule 2–01. See, e.g., 2005 Adopting 

Release at 19 n. 36 (the Board’s definition of the 

term ‘‘audit and professional engagement period’’ in 

Rule 3501(a)(iii) ‘‘adapts the definition of ‘audit and 

professional engagement period’ from the definition 

of that term in * * * Rule 2–01 of the 

Commission’s Regulation S–X’’); id. at 21 n. 43 (the 

Board’s definitions of the terms ‘‘affiliate of the 

audit client’’ and ‘‘investment company complex’’ 

in Rules 3501(a)(i) and 3501(i)(ii) are ‘‘verbatim the 

SEC’s definitions of these same terms and should 

be understood to cover the same entities that would 

be covered by these terms in applying the SEC’s 

independence rules’’). 

22See PCAOB Release No. 2013–010. 

23See Auditor Independence With Respect to 

Certain Loans or Debtor-Creditor Relationships, 

Release No. 33–10648 (June 18, 2019), 84 FR 32040 

(July 5, 2019) (‘‘2019 Adopting Release’’). 

24 Id. at 84 FR 32043. 

25See 2020 Proposing Release at 85 FR 2350. 

26See 2020 Adopting Release. 

defines certain terms used in Rule 2–01. 

The Commission’s interpretations on 

auditor independence are collected in 

the Codification of Financial Reporting 

Policies,10 and the SEC staff has also 

issued ‘‘Frequently Asked Questions’’ 

on auditor independence.11

PCAOB Authority and Independence 

Requirements 

Under the Act, the Board is 

authorized to establish ethics and 

independence standards to be used by 

registered public accounting firms in the 

preparation and issuance of audit 

reports, as required by the Act or SEC 

rules, or ‘‘as may be necessary or 

appropriate in the public interest or for 

the protection of investors.’’ 12 The Act 

also authorized the Board to adopt as its 

rules other professional standards that 

the Board determined satisfied the 

requirements of Section 103(a)(1) of the 

Act.13

When the PCAOB was established in 2003, 

the Board adopted the professional standards 

promulgated by other bodies, including the 

AIPCA, on an interim basis, as authorized 

under the Act,14 which assured continuity 

and certainty in the standards that govern 

audits of public companies.15 The Board 

further stated that it would determine 

whether to adopt its interim standards as 

permanent standards of the Board, or repeal 

or modify those standards, in the future.16

Currently, Rule 3500T, Interim Ethics and 

Independence Standards, requires registered 

public accounting firms to comply with 

independence standards as described in Rule 

101 of the AICPA’s Code of Professional 

Conduct (‘‘AICPA Code’’), as well as the 

AICPA’s interpretations and rulings 

thereunder that appear in ET §§ 101 and 191, 

as in existence on April 16, 2003, to the 

extent not superseded or amended by the 

Board.17 A Note to Rule 3500T also states 

that the Board’s interim independence 

standards do not supersede the Commission’s 

auditor independence rules and that 

registered public accounting firms must 

comply with the ‘‘more restrictive’’ of the 

rules.18

The PCAOB began to adopt 

permanent independence rules in 

2005.19 These rules set forth the 

fundamental ethical obligation for a 

registered public accounting firm and its 

associated persons to be independent of 

the firm’s audit clients throughout the 

audit and professional engagement 

period,20 and include definitions of 

certain terms used in the Board’s 

independence rules.21 The rules also 

prohibit contingent fee arrangements for 

any service or product a registered 

public accounting firm provides to an 

audit client (Rule 3521), restrict certain 

types of tax services that may be 

provided to an audit client and to 

persons in a financial reporting 

oversight role at an issuer audit client 

(Rules 3522 and 3523), require audit 

committee pre-approval of certain tax 

services and services related to internal 

control over financial reporting to be 

performed for an issuer audit client 

(Rules 3524 and 3525), and require 

certain communications with an audit 

client’s audit committee concerning 

auditor independence (Rule 3526). In 

2013, after Dodd-Frank was enacted, the 

Board adopted amendments to certain of 

these rules to extend their application to 

audits of brokers and dealers.22

Recent SEC Amendments to Rule 2–01 

From 2003 through 2019, there were 

no changes to Rule 2–01 by the 

Commission. In June 2019, the SEC 

adopted amendments to Rule 2– 

01(c)(1)(ii)(A) (the ‘‘Loan Provision’’) 

‘‘to refocus the analysis that must be 

conducted to determine whether an 

auditor is independent when the auditor 

has a lending relationship with certain 

shareholders of an audit client at any 

time during the audit and professional 

engagement period.’’ 23 The Commission 

further stated that the amendments 

‘‘would more effectively identify those 

debtor-creditor relationships that could 

impair an auditor’s objectivity and 

impartiality, yet would not include 

certain attenuated relationships that are 

unlikely to present threats to objectivity 

or impartiality.’’ 24

In December 2019, the SEC proposed 

further updates to Rule 2–01, including 

additional amendments to the 

provisions of Rule 2–01(c)(1) that 

address lending relationships. In 

proposing these amendments, the SEC 

stated that they were intended ‘‘to more 

effectively focus the [independence] 

analysis on those relationships or 

services that are more likely to pose 

threats to an auditor’s objectivity and 

impartiality.’’ 25 After considering 

public comments on the proposal, the 

Commission amended Rule 2–01 again 

in October 2020.26

The final amendments added certain 

student and consumer loans to the 

Commission’s categorical exclusions 

from independence-impairing lending 

relationships. The SEC also updated 

several of the definitions in Rule 2– 

01(f), including amendments to the 

definitions of the terms ‘‘affiliate of the 

audit client’’ and ‘‘investment company 

complex’’ in Rule 2–01(f)(4) and (f)(14) 

to address certain affiliate relationships, 

including entities under common 

control, and an amendment to the 

definition of ‘‘audit and professional 


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27Other revisions to Rule 2–01 adopted by the 

SEC included an amendment to the Commission’s 

restriction on business relationships in Rule 

2–01(c)(3), an amendment to replace an existing 

transition and grandfathering provision in Rule 

2–01(e) with a new transition provision addressing 

mergers or acquisitions involving an audit client, 

and certain miscellaneous updates. 

28The Board also considered whether to amend 

the Board’s independence rules to align with the 

SEC’s new provision for addressing inadvertent 

violations described in Rule 2–01(e). Rule 2–01(e) 

provides that an accounting firm’s independence 

will not be impaired because an audit client 

engages in a merger or acquisition that gives rise to 

a relationship or service that is inconsistent with 

Rule 2–01, provided that the firm satisfies certain 

conditions, which include having a quality control 

system in place as described in Rule 2–01(d)(3) 

with specified features. The PCAOB has an ongoing 

project to consider revisions to the Board’s quality 

control standards, including an ethics and 

independence component that would address the 

fulfillment of firm and individual responsibilities 

under applicable ethics and independence 

requirements. See PCAOB Release No. 2019–003, 

Potential Approach to Revisions to PCAOB Quality 

Control Standards (Dec. 17, 2019). Accordingly, the 

Board believed it would be premature to amend its 

independence rules to conform to the SEC’s 

exemption described in Rule 2–01(e). Pending 

further action, however, the Board generally would 

not expect to consider an accounting firm’s 

independence impaired solely because an audit 

client engages in a merger or acquisition that gives 

rise to a relationship or service that is inconsistent 

with the Board’s independence rules, provided that 

the firm has satisfied all the conditions in Rule 2– 

01(e). In such circumstances, firms should also 

consider their obligations under Rule 3526, 

Communication with Audit Committees Concerning 

Independence. 

29See 2005 Adopting Release at 19–21. Several 

commenters on the 2020 Proposing Release 

identified a potential inconsistency between the 

Commission’s proposed amendments to the 

definitions in Rule 2–01 and the existing definitions 

in Rule 3501 and urged the SEC and the PCAOB 

to preserve the alignment of the definitions in Rule 

2–01 with the Board’s definitions in Rule 3501. 

30See 2019 Adopting Release at 84 FR 32042–43. 31See 2020 Adopting Release at 53–57 and 59– 

62. In proposing amendments to Rule 2–01(c)(1)(ii), 

the SEC reiterated that certain debtor-creditor 

relationships between an accounting firm, a covered 

person, or a covered person’s immediate family 

members ‘‘reasonably may be viewed as creating a 

self-interest that competes with the auditor’s 

obligation to serve only investors’ interests,’’ but 

stated that ‘‘not all creditor or debtor relationships 

threaten an auditor’s objectivity and impartiality.’’ 

See 2020 Proposing Release at 85 FR 2339, citing 

Revision of the Commission’s Auditor 

Independence Requirements, Release No. 33–7870 

(June 30, 2000), 65 FR 43148, 43161 (July 12, 2000). 

32The definition of a ‘‘covered member’’ for 

purposes of ET § 101.02 and ET § 101.07 is similar 

to the definition of a ‘‘covered person in the firm’’ 

in Rule 2–01(f)(11) in certain respects, but differs 

in other respects. For example, the AICPA’s 

definition of ‘‘covered member,’’ as of April 16, 

2003, includes an accountant’s firm, whereas the 

SEC’s definition of ‘‘covered persons in the firm’’ 

in Rule 2–01(f)(11) only includes certain natural 

persons. 

engagement period’’ in Rule 2–01(f)(5) 

to shorten the ‘‘look back period’’ for 

domestic first-time filers in assessing 

compliance with the Commission’s 

independence requirements.27

Amendments to the Board’s 

Independence Requirements 

Overview 

The Board adopted amendments to 

the PCAOB’s interim independence 

standards and independence rules to 

eliminate differences and duplicative 

requirements in its independence 

requirements following the SEC’s 

amendments to Rule 2–01 in 2019 and 

2020, respectively. Specifically, as 

discussed below, the Board amended ET 

§ 101.02 and deleted ET § 101.07, both 

of which are interpretations of Rule 101 

of the AICPA Code that are part of the 

Board’s interim independence 

standards. In addition, the Board 

deleted ET §§ 191.150–.151, ET 

§§ 191.182–.183, ET §§ 191.196–.197, 

and ET §§ 191.220–.222, which are four 

Ethics Rulings under Rule 101 that also 

address lending arrangements and are 

part of the Board’s interim 

independence standards. Finally, the 

Board amended Rule 3501, which 

defines certain terms used in Section 3, 

Part 5 of the Rules of the Board, to align 

the definitions of three terms used in 

the independence requirements of both 

the SEC and the PCAOB.28

As discussed further below, without 

amendments to the Board’s interim 

independence standards, certain 

provisions that address lending 

relationships would overlap with and 

differ from Rule 2–01, as amended. 

Specifically, ET § 101.02 and ET 

§ 101.07 would be inconsistent with the 

SEC’s restrictions on lending 

relationships and the exceptions to 

those restrictions in Rule 2–01(c)(1)(ii), 

as amended. In addition, the four Ethics 

Rulings would also be inconsistent with 

the Commission’s independence 

requirements. 

Moreover, absent amendments to the 

Board’s definitions of the terms 

‘‘affiliate of the audit client,’’ ‘‘audit and 

professional engagement period,’’ and 

‘‘investment company complex’’ in Rule 

3501(a)(ii), (a)(iii), and (i)(ii), these 

definitions would differ from the SEC’s 

definitions of those terms in Rule 2– 

01(f)(4), (f)(5), and (f)(14), as amended. 

Confusion might arise if certain terms 

used in both the PCAOB’s and the SEC’s 

independence rules were defined 

differently by the Board and the 

Commission.29

These targeted amendments to the 

Board’s independence requirements 

apply to all audits conducted under 

PCAOB standards. The amendments 

should clarify the professional 

obligations of auditors and avoid 

regulatory uncertainty regarding the 

treatment of lending arrangements and 

the scope of the definitions in the 

independence requirements of the 

PCAOB and the SEC. 

Amendments to Interim Independence 

Standards 

The SEC’s 2019 amendments to Rule 

2–01(c)(1)(ii)(A)(1) replaced the category 

of owners of an audit client’s equity 

securities whose lending relationships 

with an accountant may impair 

independence (‘‘any individuals owning 

ten percent or more of the client’s 

outstanding equity securities’’) with 

‘‘beneficial owners (known through 

reasonable inquiry) of the audit client’s 

equity securities where such beneficial 

owner has significant influence over the 

client.’’ At that time, the Commission 

stated that it had become aware that ‘‘in 

certain circumstances, the existing 

[requirement] may not be functioning as 

it was intended,’’ and that the 

amendments ‘‘would more effectively 

identify those debtor-creditor 

relationships that could impair an 

auditor’s objectivity and impartiality,’’ 

while excluding ‘‘certain attenuated 

relationships that are unlikely to present 

threats to objectivity or impartiality.’’ 30

In addition, as amended in October 

2020, Rule 2–01(c)(1)(ii)(A)(1) includes 

an exception from the scope of the Loan 

Provision for student loans obtained 

from a financial institution client under 

its normal lending procedures, terms, 

and requirements by a covered person 

in a firm or his or her immediate family 

members, provided the loans were not 

obtained while the covered person was 

a covered person. The amendments also 

replace a prior exception in Rule 

2–01(c)(1)(ii)(E) for certain credit card 

balances and cash advances from a 

lender that is an audit client with an 

exception for consumer loans, provided 

that the aggregate outstanding balance is 

reduced to $10,000 or less on a current 

basis taking into consideration the 

payment due date and any available 

grace period.31

The amendments to Rule 2–01 in 

2019 and 2020 created differences 

between Rule 2–01 and the Board’s 

independence requirements. Under Rule 

3500T, registered public accounting 

firms and their associated persons must 

comply with independence standards in 

Rule 101 of the AICPA Code and the 

interpretations and rulings thereunder, 

as in existence on April 16, 2003, to the 

extent not superseded or amended by 

the Board. These interpretations include 

ET § 101.02, which provides, among 

other things, that loans from owners of 

10% or more of an audit client’s equity 

securities to an accounting firm, other 

individuals who fall within the 

definition of a ‘‘covered member’’ of the 

firm,32 and the immediate family of 


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33 In addition, ET §§ 191.–182–.183 (Ethics Ruling 

91) and ET §§ 191.220–.221 (Ethics Ruling 110) are 

less restrictive in certain respects than Section 

602.02.e of the Codification of Financial Reporting 

Policies. In particular, ET §§ 191.–182–.183 (Ethics 

Ruling 91) permits an auditor to enter into certain 

operating leases with an audit client without regard 

to the materiality of the lease, which is inconsistent 

with Section 602.02.e, while ET §§ 191.220–.221 

(Ethics Ruling 110) differs from Section 602.02.e in 

describing the circumstances in which a loan to or 

from an audit client from an entity with which an 

auditor is connected as an officer, director, or 

shareholder may impair independence. 

34A few commenters did not support the SEC’s 

proposals, and one of these commenters expressed 

the view that the proposals could negatively affect 

investor protection and capital formation. This 

commenter suggested that, in lieu of the proposals, 

more should be done to strengthen auditor 

independence standards and the enforcement of 

such standards. See 2020 Adopting Release at 5–6. 

such covered members may impair the 

accounting firm’s independence, unless 

permitted by ET § 101.07. ET § 101.02 

also includes provisions relating to the 

collection and repayment of loans by 

covered members who were formerly 

employed by or otherwise associated 

with an audit client. In turn, ET 

§ 101.07, which is also an interpretation 

of Rule 101 of the AICPA Code, 

reiterates the restrictions on certain 

loans in ET § 101.02, but provides 

exceptions for certain grandfathered and 

permitted loans that are not deemed to 

impair a covered member’s 

independence. Following the SEC’s 

amendments to Rule 2–01 in 2019 and 

2020, the requirements under existing 

ET § 101.02 and ET § 101.07 with 

respect to lending arrangements are 

inconsistent with the Commission’s 

requirements under Rule 2–01, as 

amended. 

ET §§ 191.150–.151, ET §§ 191.182– 

.183, ET §§ 191.196–.197 and ET 

§§ 191.220–.221 are four Ethics Rulings 

under Rule 101 of the AICPA Code, as 

in existence on April 16, 2003. These 

rulings (Ethics Rulings 75, 91, 98, and 

110) discuss the application of ET 

§ 101.02 and ET § 101.07 regarding 

lending arrangements in specific 

circumstances and include references to 

ET § 101.02, ET § 101.07, or both: 

• Ethics Ruling 75 addresses 

membership in a client credit union and 

conditions to be followed to preserve 

independence if loans are made to the 

auditor, including compliance with 

requirements with respect to lending 

arrangements under ET § 101.02 and ET 

§ 101.07. 

• Ethics Ruling 91 addresses the 

leasing by an auditor of property to or 

from a client and provides that certain 

capital leases would be considered a 

loan that impairs independence unless 

the arrangement complied with 

requirements with respect to lending 

arrangements under ET § 101.02 and ET 

§ 101.07. 

• Ethics Ruling 98 addresses an 

auditor’s loan from a nonclient 

subsidiary or parent of an attest client 

and provides, among other things, that 

a loan from a nonclient subsidiary 

would impair the auditor’s 

independence unless it was a 

grandfathered or permitted loan 

pursuant to ET § 101.07. 

• Ethics Ruling 110 addresses, among 

other things, loans from an audit firm’s 

client to or from an entity over which 

an auditor has control and provides 

that, in such situations, independence is 

impaired unless the loan is permitted 

under ET § 101.07. 

Each of these rulings also includes 

other language that is inconsistent with 

the SEC’s independence requirements. 

For example, ET §§ 191.150–.151 (Ethics 

Ruling 75) permits an auditor to have 

certain uninsured deposits at a credit 

union client that are not allowed under 

Rule 2–01(c)(1)(ii)(B), while ET 

§§ 191.196–.197 (Ethics Ruling 98) 

provides that certain loans from a 

nonclient parent of an audit client 

would not impair independence, even 

though such loans are not allowed 

under Rule 2–01(c)(1)(ii)(A) in some 

circumstances.33

The Board updated its requirements 

with respect to lending relationships to 

avoid such differences and duplicative 

requirements. Specifically, the Board 

amended ET § 101.02 to delete the 

language in that interpretation that 

addresses lending arrangements and 

deleting ET § 101.07 in its entirety. In 

addition, the Board deleted ET 

§§ 191.150–.151, ET § 191.182–.183, ET 

§§ 191.196–.197 and ET §§ 191.220–.221 

(Ethics Rulings 75, 91, 98, and 110) to 

eliminate inconsistent requirements in 

these rulings relating to lending 

arrangements under the Board’s interim 

independence standards and the SEC’s 

independence rules and guidance. 

The Board took this action in light of 

the SEC’s amendments to Rule 2–01. 

Removing the provisions relating to 

lending arrangements from the Board’s 

interim independence standards, rather 

than making specific amendments to 

conform them to the SEC’s amendments 

to Rule 2–01, avoids duplicative Board 

and SEC independence requirements on 

lending arrangements and helps 

facilitate compliance with Rule 2–01, as 

amended, by clarifying a firm’s 

professional obligations. The 

amendments should also facilitate 

cooperation and coordination between 

the Board and the SEC when monitoring 

compliance with the SEC’s revised 

independence requirements in Rule 

2–01. 

In adopting the amendments to the 

interim independence standards, the 

Board also took notice of the regulatory 

process employed by the Commission to 

update its independence framework for 

lending arrangements in Rule 2–01. 

Specifically, before amending Rule 2–01 

in both 2019 and 2020, the SEC issued 

a rulemaking proposal, identified the 

Commission’s rationale for proposed 

amendments to Rule 2–01, solicited 

public comment on its proposals, and 

included an economic analysis that 

included a description of the problem, 

an analysis of potential benefits and 

costs, and a consideration of 

alternatives. After receiving public 

comments on the proposals, many of 

which broadly supported the objective 

of the proposed amendments or were 

generally in favor of the proposals, the 

Commission then adopted the 

amendments largely as proposed.34 The 

Board has considered the SEC’s 

rulemaking record on both proposals. 

The Board believed that this process— 

structured by the Commission to satisfy 

the requirements of the Administrative 

Procedure Act—is at least as robust as 

the Board’s process would have been 

had the PCAOB considered 

amendments to the Board’s 

independence requirements without the 

benefit of the SEC’s analysis. 

Accordingly, the Board did not 

perceive any reason or compelling basis 

in the SEC’s rulemaking record to 

disregard the goal of the SEC’s 2019 and 

2020 amendments or to impede the 

benefits that the Commission sought to 

achieve through its revisions to Rule 2– 

01 by maintaining differences between 

the independence requirements of the 

Board and the SEC relating to lending 

arrangements. If the Board were to 

determine at a future date that diverging 

from the SEC’s approach to lending 

arrangements is necessary or 

appropriate in the public interest or for 

the protection of investors, the Board 

retains the authority under the Act to do 

so. 

Amendments to Rule 3501 

The Board adopted Rule 3501 as part 

of a suite of independence rules in 2005. 

Although the Board’s permanent 

independence rules, which now include 

Rules 3520 through 3526, impose 

additional substantive restrictions on 

auditors beyond those set forth in Rule 

2–01, the scope of those rules has been 

consistent with the SEC’s approach in 

Rule 2–01. 

Specifically, when the Board adopted 

Rule 3501, it based the definitions of the 

terms ‘‘affiliate of the audit client’’ in 

Rule 3501(a)(ii), ‘‘audit and professional 


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35See 2005 Adopting Release at 19–21. 

36Specifically the term ‘‘investment company 

complex’’ appears in the definition of ‘‘affiliate of 

the audit client.’’ In turn, the term ‘‘affiliate of the 

audit client’’ appears in the definition of the term 

‘‘audit client,’’ which is used in each of Rules 3520 

through 3526. 

37 In addition, both the SEC and the PCAOB have 

adopted restrictions on the receipt of contingent 

fees by audit firms. The Commission’s restrictions 

are set forth in Rule 2–01(c)(5), and the Board’s 

restrictions are set forth in Rule 3521. 

38The Board only amended through crossreferences those definitions in Rule 3501 that were 

identical to the SEC’s definitions in Rule 2–01(f) 

and also the subject of the Commission’s 2020 

amendments. Certain other defined terms in Rule 

3501, such as the definitions of ‘‘financial reporting 

oversight role’’ and ‘‘immediate family member’’ in 

Rules 3501(f)(i) and 3501(i)(i), respectively, 

continue to track the text of the SEC’s definitions 

of those terms in Rule 2–01(f). 

engagement period’’ in Rule 3501(a)(iii), 

and ‘‘investment company complex’’ in 

Rule 3501(i)(ii) on the SEC’s definitions 

of the same terms in Rule 2–01.35 The 

existing definitions of ‘‘affiliate of the 

audit client,’’ and ‘‘investment company 

complex’’ in Rule 3501 largely tracked 

the SEC’s definitions of those terms 

verbatim, except for different 

formatting. The definition of ‘‘audit and 

professional engagement period’’ in 

Rule 3501 was adapted from the 

Commission’s definition of that term in 

Rule 2–01, with the only difference 

being the replacement of references to 

an ‘‘accountant’’ in Rule 2–01(f)(5) with 

references to a ‘‘registered public 

accounting firm’’ in Rule 3501(a)(iii). 

This distinction reflects the use of the 

term ‘‘accountant’’ under Rule 

1001(a)(ii) to refer to natural persons 

who are certified public accountants or 

authorized to engage in public 

accounting or participate in audits, 

whereas Rule 2–01(f)(5) defines the term 

more broadly to include accounting 

firms with which certified public 

accountants or public accountants are 

affiliated. 

The Board’s definitions in Rule 3501, 

in turn, determine the scope of the 

substantive requirements in Rules 3520 

through 3526.36 Rules 3520 through 

3526 address independence matters in 

addition to those expressly addressed in 

Rule 2–01, including the impact of 

certain tax services on independence 

(Rules 3522 and 3523), audit committee 

pre-approval of certain tax services and 

services related to internal control over 

financial reporting (Rules 3524 and 

3525), and communications with audit 

committees concerning independence 

(Rule 3526).37

The SEC’s amendments to Rule 2–01 

in 2020 included revisions to the 

definitions of each of the terms ‘‘affiliate 

of the audit client,’’ ‘‘audit and 

professional engagement period,’’ and 

‘‘investment company complex’’ in Rule 

2–01(f). These amendments resulted in 

differences between the SEC’s 

definitions of those terms and the 

Board’s definitions in Rule 3501. 

Discussed in more detail below are (1) 

the relevant SEC amendments and why 

the Commission changed these 

definitions; (2) the resulting differences 

between the SEC’s amended definitions 

and the Board’s existing definitions; and 

(3) why and how the Board amended 

the definitions of these three terms in 

Rule 3501 to avoid differences with the 

SEC’s amended definitions. 

As discussed above with respect to 

the amendments to the Board’s interim 

independence standards, in amending 

the definitions of ‘‘affiliate of the audit 

client,’’ ‘‘investment company 

complex,’’ and ‘‘audit and professional 

engagement period’’ in Rule 3501, the 

Board took note of the SEC’s rulemaking 

process when the Commission amended 

the definitions of those terms in Rule 

2–01(f) in 2020. The SEC’s robust 

process included a detailed rationale for 

the amendments to the definitions and 

was also informed by public comment 

on the Commission’s proposals. The 

Board believed it was important to align 

the definitions of these terms in Rule 

3501 with the SEC’s amended 

definitions in Rule 2–01(f) to ensure 

they have the same meaning under the 

independence rules of the Board and the 

SEC and avoid the confusion that might 

arise if the same terms were used in the 

independence rules of the PCAOB and 

the Commission, but defined differently. 

‘‘Affiliate of the Audit Client’’ and 

‘‘Investment Company Complex’’ 

Definitions 

Prior to the SEC’s 2020 amendments 

to Rule 2–01, the term ‘‘affiliate of the 

audit client’’ was defined in Rule 2– 

01(f)(4) to include, in part, both ‘‘[a]n 

entity that has control over the audit 

client, or over which the audit client has 

control, or which is under common 

control with the audit client, including 

the audit client’s parents and 

subsidiaries’’ and ‘‘[e]ach entity in the 

investment company complex when the 

audit client is an entity that is part of 

an investment company complex’’ 

(emphasis added). Rule 2–01(f)(14), in 

turn, had defined an ‘‘investment 

company complex’’ to include, in part, 

‘‘[a]ny entity controlled by or 

controlling an investment adviser or 

sponsor * * * or any entity under 

common control with an investment 

adviser or sponsor * * * if the entity: 

(1) Is an investment adviser or sponsor; 

or (2) Is engaged in the business of 

providing administrative, custodian, 

underwriting, or transfer agent services 

to any investment company, investment 

adviser, or sponsor * * *.’’ 

In its 2020 amendments to Rule 2–01, 

the Commission amended these 

definitions to address challenges that 

had arisen in their application, 

including in the private equity and 

investment company contexts, and more 

effectively focus on those relationships 

and services that the SEC believed were 

more likely to threaten auditor 

objectivity and impartiality. The SEC’s 

amendments also include dual 

materiality thresholds in the respective 

common control provisions and 

distinguish how the definition applies 

when an accountant is auditing a 

portfolio company, an investment 

company, or an investment adviser or 

sponsor. 

The SEC’s amendments created 

differences with certain definitions in 

Rule 3501. Accordingly, the Board 

aligned the definitions of the terms 

‘‘affiliate of the audit client’’ and 

‘‘investment company complex’’ in Rule 

3501 to be consistent with the SEC’s 

2020 amendments to the definitions of 

these terms in Rule 2–01(f). The Board’s 

amendments to these definitions avoid 

potential confusion by auditors when 

applying the independence rules of the 

SEC and PCAOB; without such 

amendments, auditors would be 

required to undertake a different 

analysis to determine which entities fall 

within or outside the scope of the 

‘‘affiliate of the audit client’’ and 

‘‘investment company complex’’ 

definitions (and, therefore, considered 

the ‘‘audit client’’) for purposes of Rule 

2–01 and the Board’s rules. 

Accordingly, the Board amended Rule 

3501(a)(ii) and Rule 3501(i)(ii) to 

conform to the SEC’s amended 

definitions in Rule 2–01(f)(4) and 

2–01(f)(14). Specifically, the Board 

amended these definitions to 

incorporate the SEC’s amended 

definitions by cross-referencing the 

SEC’s definitions in Rule 2–01(f). This 

approach is intended to facilitate the 

continued alignment of the Board’s 

definitions in Rule 3501(a)(ii) and Rule 

3501(i)(ii) with the SEC’s definitions in 

Rule 2–01(f). In the event of later 

changes by the SEC to the scope of those 

definitions in Rule 2–01(f), the 

definitions of these terms in Rule 3501 

would automatically update, without 

requiring further action by the Board.38

The Board did not delete these 

definitions, as it did with respect to the 

provisions of the Board’s interim 

independence standards that address 

lending arrangements and overlap with 

the SEC’s independence criteria, 

because the definitions in Rule 3501 

remain relevant for purposes of Rules 


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39A ‘‘foreign private issuer’’ is any foreign issuer 

other than a foreign government, except for an 

issuer that (1) has more than 50% of its outstanding 

voting securities held of record by U.S. residents; 

and (2) any of the following: (i) A majority of its 

executive officers or directors are citizens or 

residents of the United States; (ii) more than 50% 

of its assets are located in the United States; or (iii) 

its business is principally administered in the 

United States. See 17 CFR 240.3b–4(c). 40See 2020 Adopting Release at 101. 41See 2020 Adopting Release at 81. 

3520 through 3526, which are part of 

the Board’s permanent independence 

rules. The Board retains the authority to 

amend these definitions in the future, 

should the Board determine that such 

amendments are necessary or 

appropriate in the public interest or for 

the protection of investors. 

‘‘Audit and Professional Engagement 

Period’’ Definition 

Prior to its amendment by the SEC in 

2020, the term ‘‘audit and professional 

engagement period’’ had been defined 

differently in Rule 2–01(f)(5) for 

domestic issuers and for foreign private 

issuers (‘‘FPIs’’) with respect to 

situations where a company first files, 

or is required to file, a registration 

statement or report with the 

Commission.39 Specifically, Rule 2– 

01(f)(5)(i) and (ii) had defined the ‘‘audit 

and professional engagement period’’ to 

include both the ‘‘period covered by the 

financial statements being audited or 

reviewed’’ and the ‘‘period of the 

engagement to audit or review the 

financial statements or to prepare a 

report filed with the Commission.’’ For 

audits of the financial statements of 

FPIs, however, Rule 2–01(f)(5)(iii) 

narrowed the ‘‘audit and professional 

engagement period’’ to exclude periods 

prior to ‘‘the first day of the last fiscal 

year before the [FPI] first filed, or was 

required to file, a registration statement 

or report with the Commission, 

provided there has been full compliance 

with home country independence 

standards in all prior periods covered by 

any registration statement or report filed 

with the Commission.’’ 

Under the SEC’s amendments to the 

definition of ‘‘audit and professional 

engagement period’’ in Rule 2– 

01(f)(5)(iii), the one-year ‘‘look back’’ 

provision for issuers filing or required to 

file a registration statement or report 

with the Commission for the first time 

(‘‘first-time filers’’) will apply to all such 

filers. As a result, an auditor for a firsttime filer that is either a domestic issuer 

or an FPI would apply Rule 2–01 for the 

most recently completed fiscal year 

included in its first filing, provided 

there has been full compliance with 

applicable independence standards in 

all prior periods covered by any 

registration statement or report filed 

with the Commission. In amending Rule 

2–01(f)(5)(iii), the SEC stated that the 

prior definition of ‘‘audit and 

professional engagement period’’ may 

have resulted in certain inefficiencies in 

the initial public offering (‘‘IPO’’) 

process for domestic filers, and that the 

narrower definition applicable to FPIs 

had created a disparate application of 

the independence requirements between 

domestic issuers and FPIs.40

The Commission’s amendment to 

Rule 2–01(f)(5)(iii) created a difference 

between that definition and the 

definition of ‘‘audit and professional 

engagement period’’ in Rule 3501(a)(iii), 

specifically under paragraph (3) of this 

definition. Maintaining different 

definitions of this term under the 

independence rules of the SEC and 

PCAOB could lead to potential 

confusion among auditors, since the 

term ‘‘audit and professional 

engagement period’’ appears in 

numerous provisions of Rule 2–01, 

while Rules 3520 through 3523 also set 

forth certain circumstances that are 

deemed to impair an audit firm’s 

independence if they occur during 

either the ‘‘audit and professional 

engagement period’’ or the ‘‘professional 

engagement period.’’ 

To avoid this potential confusion 

when applying the independence rules 

of the SEC and PCAOB, the Board 

amended the definition of ‘‘audit and 

professional engagement period’’ in 

Rule 3501(a)(iii)(3) to be consistent with 

the SEC’s amendment to Rule 

2–01(f)(5)(iii). As discussed above with 

respect to the amendments to the 

definitions of ‘‘affiliate of the audit 

client’’ and ‘‘investment company 

complex,’’ without an amendment to 

this definition, it would no longer be 

consistent with the SEC’s definition in 

Rule 2–01(f)(5)(iii), as has been the case 

since the Board adopted its definition in 

2005. Instead, the one-year look back 

period would apply to both domestic 

issuers and FPIs that were first-time 

filers under Rule 2–01, but only to FPIs 

that were first-time filers under Rule 

3501(a)(iii)(3). 

The Board did not replace the current 

definition of ‘‘audit and professional 

engagement period,’’ however, with a 

cross-reference to Rule 2–01(f)(5). 

Specifically, the Board continued to use 

the term ‘‘registered public accounting 

firm’’ in the definition of ‘‘audit and 

professional engagement period,’’ rather 

than the term ‘‘accountant,’’ which is 

used in Rule 2–01(f)(5). The term 

‘‘accountant’’ has a different meaning 

under Rule 1001(a)(ii) than under Rule 

2–01(f)(1), whereas the use of the term 

‘‘registered public accounting firm’’ is 

consistent with the Act and other rules 

of the Board. As with the SEC’s 

amendment to Rule 2–01(f)(5)(iii) in 

2020, under Rule 3501(a)(iii)(3), as 

amended, the one-year look back period 

will apply to both domestic issuers and 

FPIs that are first-time filers. 

Administrative Considerations 

The Board took action to make 

targeted amendments to its interim 

independence standards and Rule 3501 

in light of the SEC’s recent amendments 

to Rule 2–01. Removing the provisions 

relating to lending arrangements from 

the Board’s interim independence 

standards avoids differences and 

duplicative PCAOB and Commission 

requirements that would otherwise exist 

after the effective date of the SEC’s 

amendments to the independence 

requirements in Rule 2–01(c)(1)(ii) on 

lending arrangements. The Board also 

amended the definitions of certain terms 

used in Rule 3501 to align these 

definitions with the SEC’s amended 

definitions of the same terms in Rule 

2–01(f) to ensure they have the same 

meaning under the independence rules 

of the Board and the SEC. The Board 

believed the regulatory process 

employed by the Commission to update 

its independence rules under Rule 2–01 

was at least as robust as the Board’s 

process would have been had the 

PCAOB considered amendments to the 

Board’s independence requirements 

without the benefits of the SEC’s 

analysis. Therefore, the Board believed 

that public notice and comment in 

advance of adopting these targeted 

amendments to the Board’s 

independence requirements was not 

necessary. 

Effective Date 

The Board determined that the 

targeted amendments to its interim 

independence analysis and Rule 3501 

take effect, subject to approval by the 

SEC, 180 days after the date of the 

publication of the SEC’s October 16, 

2020 amendments to Rule 2–01 in the 

Federal Register. The effective date is 

aligned with the effective date of the 

Commission’s amendments to Rule 

2–01.41 Auditors may elect to comply 

before the effective date at any point 

after SEC approval of the Board’s 

amendments, provided that the final 

amendments are applied in their 

entirety. 

(b) Statutory Basis 

The statutory basis for the proposed 

rules is Title I of the Act. 


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42See QC § 20.09, System of Quality Control for 

a CPA Firm’s Accounting and Auditing Practice. 

43See 2019 Adopting Release at 84 FR 32054; 

2020 Adopting Release at 86. 

44See id. 

45See 2020 Adopting Release at 87. 

46See id. 

47See 2019 Adopting Release at 84 FR 32054–55. 

B. Board’s Statement on Burden on 

Competition 

Not applicable. The Board’s 

consideration of the economic impacts 

of the proposed rules is discussed in 

section D below. 

C. Board’s Statement on Comments on 

the Proposed Rules Received From 

Members, Participants or Others 

The Board did not solicit written 

comments on the proposed rules. 

Therefore, there are no comments on the 

proposed rules received from 

stakeholders. 

D. Economic Considerations and 

Application to Audits of Emerging 

Growth Companies 

The Board is mindful of the economic 

impacts of its rulemaking. This section 

discusses economic considerations 

related to the amendments, including 

the need for the rulemaking; description 

of the baseline; consideration of 

benefits, costs, and unintended 

consequences; and alternatives 

considered. It also discusses 

considerations related to audits of EGCs. 

Need for Rulemaking 

The Board needed to amend its 

interim independence standards and 

independence rules to (1) eliminate 

differences and duplicative 

requirements between Rule 2–01 and 

the Board’s independence requirements; 

and (2) avoid the confusion that might 

arise if certain terms were used in the 

independence rules of the PCAOB and 

the Commission, but defined differently. 

The Board also did not perceive any 

reason or compelling basis in the SEC’s 

rulemaking record to impede the 

benefits that the Commission sought to 

achieve through its revisions to Rule 2– 

01 in 2019 and 2020 by maintaining 

differences between the independence 

requirements of the Board and the SEC 

relating to lending arrangements or by 

not addressing the differences in the 

definitions of certain terms that appear 

in the independence rules of both the 

Commission and the Board. 

Specifically, because the PCAOB and 

the SEC both have jurisdiction with 

respect to auditor independence, it is 

important for the PCAOB to consider 

how its independence standards and 

rules relate to the SEC’s requirements. 

The PCAOB’s interim independence 

standards, as adopted from the AICPA 

in 2003, cover many of the same topics 

as Rule 2–01 and the SEC’s regulations 

and the PCAOB’s interim independence 

standards and independence rules have 

worked together to establish the 

independence obligations for auditors 

subject to the Board’s jurisdiction. 

Amendments to Rule 2–01 adopted by 

the SEC, however, included 

amendments to the scope of Rule 2– 

01(c)(1)(ii) to exclude certain lending 

arrangements that the SEC did not 

believe posed a threat to an auditor’s 

objectivity or impartiality. The 

Commission also adopted targeted 

amendments to the definitions of the 

terms ‘‘affiliate of the audit client,’’ 

‘‘audit and professional engagement 

period,’’ and ‘‘investment company 

complex,’’ as used in Rule 2–01(f). 

To avoid differences and duplicative 

requirements, the Board adopted 

targeted amendments to its interim 

independence standards applicable to 

lending arrangements between auditors 

and audit clients. These amendments 

deleted the independence criteria that 

relate to lending arrangements under ET 

§§ 101.02 and 101.07, as well as under 

ET §§ 191.150–.151, ET §§ 191.182– 

.183, ET §§ 191.196–.197 and ET 

§§ 191.220–.221, and thereby eliminated 

inconsistent requirements under the 

Board’s interim independence standards 

and the SEC’s independence rules and 

guidance. In addition, the Board 

adopted targeted amendments to its 

independence rules to align the 

definitions of ‘‘affiliate of the audit 

client,’’ ‘‘audit and professional 

engagement period,’’ and ‘‘investment 

company complex’’ with the SEC’s 

amendments to the definitions of the 

same terms in Rule 2–01(f). These 

amendments avoid the potential 

confusion that might arise if these terms 

were used in both the SEC’s and the 

PCAOB’s independence rules, but 

defined differently in Rule 2–01(f) and 

Rule 3501. 

Baseline 

The Board evaluated potential 

benefits, costs, and unintended 

consequences of the Board’s 

amendments relative to a baseline that 

includes the amendments to Rule 2–01 

adopted by the SEC in 2019 and 2020. 

In other words, the baseline assumes 

that the amendments that the SEC 

adopted in 2020 to Rule 2–01 have 

become effective. 

In identifying the baseline, the Board 

gave consideration to the existing 

framework of independence 

requirements as well as the parties that 

would be affected by the Board’s 

amendments. The existing framework of 

independence requirements applicable 

to engagements performed by registered 

public accounting firms and their 

associated persons is described in 

section A and includes the Board’s 

interim independence standards, the 

Board’s permanent independence rules 

(including Rules 3501 and 3502 and 

Rules 3520 through 3526), and the SEC’s 

independence rules and guidance. In 

addition, the Board’s quality control 

standards require firms to establish 

policies and procedures to provide 

reasonable assurance that firm 

personnel maintain independence, both 

in fact and appearance, in all required 

circumstances.42 This framework, 

including the amendments to Rule 2–01 

adopted by the SEC in 2019 and 2020, 

provides the baseline against which the 

impacts of the Board’s amendments can 

be considered. 

With respect to the affected parties, 

the Board took note of the SEC’s 

analysis of the parties that would be 

affected by the SEC’s amendments to 

Rule 2–01 in the 2019 Adopting Release 

and the 2020 Adopting Release. The 

SEC observed that the amendments will 

affect auditors, audit clients, institutions 

engaging in financing transactions with 

audit firms and their partners and 

employees, current or potential affiliates 

of audit clients, and ‘‘covered persons’’ 

of accounting firms and their immediate 

family members, and will affect 

investors indirectly.43 The Board’s 

amendments are expected to affect the 

same parties. 

Due to limitations on the data 

available, the SEC was unable to 

estimate precisely the number of audit 

engagements, the number of lenders, or 

the number of covered persons and their 

immediate family members that would 

be immediately affected by the SEC’s 

amendments.44 Instead, the SEC 

estimated the potential universe of 

auditors that might be impacted by the 

amendments, and reported that 1,729 

audit firms were registered with the 

PCAOB as of August 3, 2020.45 The SEC 

also estimated that approximately 6,792 

issuers filing on domestic forms and 849 

FPIs filing on foreign forms would be 

affected by the SEC’s amendments.46 In 

addition: 

• For the SEC’s amendments to the 

Loan Provision, the Commission 

focused mainly on the investment 

management industry and provided 

statistics on audited fund series and 

their investment company auditors.47

• For the SEC’s amendment related to 

the ‘‘look-back’’ period for assessing 

independence compliance with respect 

to first-time filers, the Commission 

examined historical data for domestic 

IPOs and reported that there were 


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48See 2020 Adopting Release at 88. 

49See id. at 88–89. 

50See id. at 86. 

51See generally 2019 Adopting Release at 84 FR 

32055–56; 2020 Adopting Release at 89–92. 

52See 2020 Adopting Release at 89. 

53See 2019 Adopting Release at 84 FR 32055; 

2020 Adopting Release at 95–96. 

54See 2020 Adopting Release at 91. 

55See id. at 103–04. 

56See id. at 101. 

approximately 543 domestic IPOs 

between January 1, 2017 and December 

31, 2019.48

• For the SEC’s amendments to the 

‘‘investment company complex’’ 

definition, the Commission focused on 

registered investment companies and 

unregistered funds. The SEC reported 

that, as of September 2020, there were 

2,763 registered investment companies 

that filed annual reports on Form N– 

CEN. It also reported the numbers and 

total net assets of mutual funds, 

exchange traded funds, closed-end 

funds, variable annuity separate 

accounts, money market funds, and 

business development companies as of 

July 2020.49

The above estimates and statistics 

regarding the parties immediately 

affected by the SEC’s amendments are 

also relevant to the Board’s related 

amendments. Specifically, the Board’s 

amendments are intended to align the 

Board’s interim independence standards 

relating to lending arrangements with 

the independence criteria presented in 

Rule 2–01 and to align the meaning of 

the definitions of certain terms used in 

the independence rules of the SEC and 

the PCAOB. 

Consideration of Benefits, Costs, and 

Unintended Consequences 

This section discusses the potential 

benefits, costs, and unintended 

consequences of the Board’s 

amendments. The analysis is largely 

qualitative in nature because the Board 

is unable to quantify the economic 

effects due to a lack of information 

necessary to provide reasonable 

estimates. Similar to the SEC, the Board 

is not able to reasonably estimate the 

number of current audit engagements 

that will be immediately affected by the 

amendments as we lack relevant data 

about such engagements. The Board also 

similarly does not have precise data on 

audit clients’ ownership and control 

structures.50

Benefits 

The Board’s amendments avoid 

differences between the independence 

requirements of the PCAOB and the SEC 

by deleting the portions of the interim 

independence standards relating to 

lending arrangements and aligning the 

meaning of certain definitions used in 

the independence rules of the SEC and 

the PCAOB. The amendments should 

thus clarify the professional obligations 

of auditors and avoid regulatory 

uncertainty regarding the treatment of 

lending arrangements and the meaning 

of certain terms used in the 

independence requirements of both the 

SEC and the PCAOB, leading to a 

potential reduction in overall 

compliance costs. In amending the 

Board’s independence requirements, the 

Board also took note of certain of the 

potential benefits identified by the 

Commission when amending Rule 2–01 

in 2019 and 2020.51

• For example, the SEC stated in the 

2019 Adopting Release and the 2020 

Adopting Release that its amendments 

to Rule 2–01 may reduce compliance 

costs for audit firms and audit clients by 

updating existing requirements that may 

be unduly burdensome. The SEC also 

observed that, under the amended rules, 

auditors and their clients will be able to 

focus their attention and resources on 

monitoring those relationships and 

services that pose the greatest risk to 

auditor independence, thus reducing 

overall compliance burdens without 

significantly diminishing investor 

protections.52

• The SEC observed that the 

amendments to Rule 2–01 may lead to 

a potentially larger pool of auditors 

eligible to perform audit engagements, 

which in turn could reduce the costs 

associated with searching for an 

independent auditor and reduce the 

costs resulting from switching from one 

audit firm to another. In this regard, the 

Commission further stated that an 

expanded pool of eligible auditors also 

might improve matching between 

auditor expertise and necessary audit 

procedures and considerations for a 

particular audit client, which could lead 

to improvements in audit quality and 

financial reporting quality, as well as 

improvements in the efficiency of 

auditing processes. If the amendments 

lead to improvements in financial 

reporting quality, investors might be 

positioned to make more efficient 

investment decisions.53

• The SEC stated that auditors also 

could benefit from potentially having a 

broader spectrum of audit clients and 

clients for non-audit services as a result 

of the SEC’s amendments to Rule 2–01. 

For example, the Commission observed 

that if the amendments reduce certain 

burdensome constraints on auditors in 

complying with the independence 

requirements, auditors likely will incur 

fewer compliance costs. Another 

example was the Commission’s 

observation that the amendments 

potentially could reduce auditor 

turnover due to changes in audit clients’ 

organizational structure arising from 

certain merger and acquisition 

activities.54

• The Commission’s 2019 Adopting 

Release and the 2020 Adopting Release 

also discuss the expected benefits of 

each of the specific amendments to Rule 

2–01 adopted by the Commission. For 

example, the SEC stated that its 

amendments to Rule 2–01(c)(1)(ii) to 

permit some covered persons to be 

considered independent 

notwithstanding the existence of certain 

lending relationships, such as student 

and consumer loans satisfying the 

criteria set forth in Rule 2–01, might 

lead to improved matching between 

partner and staff experience and audit 

engagements and, therefore, to increases 

in audit efficiency and audit quality.55

Another example was the Commission’s 

observation that the amendment to the 

definition of ‘‘audit and professional 

engagement period’’ in Rule 2–01(f)(5), 

such that the one-year look back 

provision applies to all first-time filers, 

domestic and foreign, might avoid the 

need for a domestic first-time filer to 

delay an IPO or switch to a different 

auditor to comply with independence 

requirements.56

To the extent they eliminate potential 

conflicts with Rule 2–01, as amended, 

the Board’s amendments to its interim 

independence standards regarding 

lending arrangements increase the 

likelihood that the benefits anticipated 

by the SEC will be realized. In addition, 

the Board’s amendments to align the 

definitions of ‘‘affiliate of the audit 

client,’’ ‘‘audit and professional 

engagement period,’’ and ‘‘investment 

company complex’’ with the SEC’s 

amendments avoid the potential 

compliance costs of having to apply 

different definitions of the same terms 

when complying with the independence 

rules of the SEC and the PCAOB. 

Costs and Unintended Consequences 

The Board also considered the 

potential costs and unintended 

consequences of the amendments to its 

interim independence standards and 

independence rules. Overall, the Board 

does not anticipate that the amendments 

are likely to impose significant 

incremental compliance costs on audit 

firms and audit clients, or give rise to 

unintended consequences, since the 

amendments are limited in nature and 

audit firms are expected to revise their 

independence policies and procedures 


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57See id. at 92. 

58See id. 

59See 2019 Adopting Release at 84 FR 32056–57. 

60See id. at 84 FR 32056. 

61See 2020 Adopting Release at 97, 99–100. 

62See 2019 Adopting Release at 84 FR 32057. 

63See 2020 Adopting Release at 108–09. 

64See id. at 109. 

to take into account the SEC’s 

amendments to Rule 2–01 in 2019 and 

2020. 

In evaluating the potential costs and 

unintended consequences of the Board’s 

amendments, the Board also took note 

of the SEC’s analysis of the potential 

costs and other consequences associated 

with its amendments to Rule 2–01 in the 

2019 Adopting Release and the 2020 

Adopting Release. For example, in 

adopting amendments to Rule 2–01 in 

2020, the SEC stated that, if the 

amendments to Rule 2–01 result in an 

increased risk to auditor objectivity and 

impartiality due to newly permissible 

relationships and services, then 

investors might have less confidence in 

the quality of financial reporting, which 

could lead to less efficient investment 

allocations and increased cost of 

capital.57 The Commission also 

observed, however, that it did not 

anticipate significant costs to investors 

or other market participants associated 

with the amendments because they 

address relationships and services that 

are less likely to threaten auditors’ 

objectivity and impartiality.58

The Commission further observed in 

the 2019 Adopting Release and the 2020 

Adopting Release that its updates to 

Rule 2–01 might require more efforts 

from auditors and audit clients to 

familiarize themselves with the SEC’s 

amended requirements. For example, 

the Commission observed in the 2019 

Adopting Release that its revisions to 

the Loan Provision might require the 

exercise of more judgment in 

independence determinations, thus 

potentially contributing to increases in 

compliance costs in the short term.59

However, the Commission also stated 

that it did not anticipate that its 

amendments to the Loan Provision in 

2019 would impose significant 

compliance costs on auditors.60 The 

Commission similarly observed in the 

2020 Adopting Release that certain of its 

amendments to Rule 2–01 earlier this 

year, such as the inclusion of a dual 

materiality threshold in the ‘‘affiliate of 

the audit client’’ and ‘‘investment 

company complex’’ definitions in Rules 

2–01(f)(4) and 2–01(f)(14), might require 

more efforts from audit firms and audit 

clients to familiarize themselves with 

and apply the amended requirements, 

but that it did not anticipate significant 

incremental compliance costs.61

The Board also took note of the 

Commission’s observation in the 2019 

Adopting Release and the 2020 

Adopting Release that the SEC’s updates 

to Rule 2–01 could result in some 

crowding-out effect in the audit 

industry. For example, the SEC stated in 

the 2019 Adopting Release that the 

potentially increased ability of larger 

firms to compete for audit clients under 

the amendments to Rule 2–01 adopted 

by the SEC in 2019 could potentially 

crowd out smaller audit firms, but also 

estimated that four audit firms already 

performed 86% of audits in the 

investment management industry.62 In 

addition, the Commission observed in 

the 2020 Adopting Release that the 

larger accounting firms may be more 

likely to be positively affected by the 

amendments to Rule 2–01 as these firms 

may be able to compete for or retain a 

larger pool of audit clients, which could 

potentially crowd out the audit business 

of smaller audit firms.63 The SEC 

estimated that the four largest 

accounting firms already performed 

49.2% of audits for all registrants and 

more than 80% of audits in the 

registered investment company space 

and, as a result, it did not expect any 

potential change in the competitive 

dynamics among accounting firms to be 

significant.64

Alternatives Considered 

The Board considered three 

alternatives to the amendments to its 

interim independence standards and 

independence rules described herein: 

(1) Making amendments to its interim 

independence standards and 

independence rules to track the 

language of the SEC’s amendments to 

Rule 2–01 as closely as possible; (2) 

issuing guidance relating to compliance 

with the independence requirements of 

the PCAOB and the SEC following the 

Commission’s amendments to Rule 2–01 

in 2020; or (3) taking no action. 

First, the Board considered making 

specific amendments to its interim 

independence standards to track the 

language of the SEC’s amendments to 

Rule 2–01 as closely as possible. This 

alternative would have maintained 

duplicative and overlapping 

requirements relating to lending 

arrangements under ET § 101.02 and ET 

§ 101.07, as well as under ET 

§§ 191.150–.151, ET §§ 191.182–.183, 

ET §§ 191.196–.197, and ET §§ 191.220– 

.221, in the Board’s interim 

independence standards established by 

the AICPA. This approach also would 

have been more challenging from a 

drafting perspective, especially with 

respect to potential amendments to the 

provisions of the Board’s interim 

independence standards relating to 

grandfathered and permitted loans, 

since the Board’s interim independence 

standards use different terminology and 

have a different organizational structure 

than Rule 2–01. As a result, this 

alternative would have provided less 

clarification to auditors on their 

professional obligations with respect to 

lending arrangements than the approach 

adopted by the Board, which eliminates 

duplicative and overlapping 

requirements relating to lending 

arrangements under the Board’s interim 

independence standards. 

Under the first alternative, the Board 

also considered amending the 

definitions of ‘‘affiliate of the audit 

client’’ and ‘‘investment company 

complex’’ in Rules 3501(a)(ii) and (i)(ii), 

respectively, to track the language of the 

SEC’s amendments to the definitions of 

the same terms in Rule 2–01 as closely 

as possible. The Board decided to 

amend the definitions of ‘‘affiliate of the 

audit client’’ and ‘‘investment company 

complex’’ by incorporating by reference 

the definition of these terms used in 

Rule 2–01. Amending the definitions to 

clarify that these terms have the same 

meaning as defined in Rule 2–01(f) 

avoids having to repeat the same 

definitions in the Board’s rules. As 

discussed, however, the Board amended 

the definition of ‘‘audit and professional 

engagement period’’ in Rule 3501(a)(iii) 

to conform to the SEC’s amendments to 

the definition of ‘‘audit and professional 

engagement period’’ in Rule 2–01(f)(5) 

by adapting the Commission’s definition 

and using specific terms used in the Act 

and other rules of the Board 

(specifically, by replacing the term 

‘‘accountant’’ with the term ‘‘registered 

public accounting firm’’). 

Second, as an alternative to 

rulemaking, the Board considered the 

issuance of guidance to inform auditors 

that, after the effective date of the SEC’s 

2020 amendments to Rule 2–01, the 

Board would not object if auditors 

looked to the requirements of Rule 2–01, 

as amended, when complying with the 

independence requirements relating to 

lending arrangements under the Board’s 

interim independence standards and 

applying the definitions set forth in 

Rule 3501(a)(ii), (a)(iii) and (i)(ii). This 

alternative could be accomplished 

relatively quickly and would avoid the 

need for the Board to amend the Board’s 

interim independence standards or Rule 

3501. This approach would leave in 

place, however, provisions of the 

Board’s interim independence standards 

relating to lending arrangements and 

definitions of certain terms in Rule 3501 


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65See supra note 15 (discussing the Note to Rule 

3500T). 

66See Public Law 112–106 (Apr. 5, 2012). See 

Section 103(a)(3)(C) of the Act, as added by Section 

104 of the JOBS Act. Section 104 of the JOBS Act 

also provides that any rules of the Board requiring 

(1) mandatory audit firm rotation or (2) a 

supplement to the auditor’s report in which the 

auditor would be required to provide additional 

information about the audit and the financial 

statements of the issuer (auditor discussion and 

analysis) shall not apply to an audit of an EGC. The 

Board’s amendments do not fall within either of 

these two categories. 

67See PCAOB white paper, Characteristics of 

Emerging Growth Companies and Their Audit 

Firms as of November 15, 2019 (Nov. 9, 2020), 

available on the Board’s website. 

68See 2019 Adopting Release at 84 FR 32057; 

2020 Adopting Release at 107. 

that include differences with Rule 2–01, 

as amended, or otherwise overlap with 

the SEC’s independence requirements 

relating to lending arrangements. This 

approach might also create regulatory 

uncertainty and additional costs by 

leaving auditors and audit clients, 

especially those who were not aware of 

the Board’s guidance, uncertain as to 

their professional obligations. 

Third, the Board considered taking no 

action at this time to amend its interim 

independence standards or 

independence rules. This alternative 

would require auditors to comply with 

two different sets of independence 

requirements relating to lending 

arrangements under Rule 2–01 and the 

Board’s interim independence 

standards 65 and to look to two different 

definitions of ‘‘affiliate of the audit 

client,’’ ‘‘audit and professional 

engagement period,’’ and ‘‘investment 

company complex’’ when complying 

with the independence rules of the SEC 

and the PCAOB. While this approach 

might underscore the Board’s authority 

to establish independence standards for 

registered public accounting firms, it 

would leave unaddressed certain 

differences between the independence 

requirements of the Board and the SEC 

that had not existed when the PCAOB 

adopted its interim independence 

standards in 2003 or began to adopt its 

permanent independence rules in 2005, 

including with respect to both lending 

arrangements and the scope of the 

entities considered part of the ‘‘audit 

client’’ for purposes of the Board’s 

independence rules. This approach 

might also impede some of the benefits 

that the Commission sought to achieve 

through its revisions to Rule 2–01 and 

result in additional compliance costs 

when applying two different definitions 

of the same terms in Rule 2–01 and the 

Board’s rules. 

In comparison to these alternatives, 

the Board’s decision to remove the 

provisions relating to lending 

arrangements from the Board’s interim 

independence standards avoids 

duplicative requirements in the 

independence requirements of the 

Board and the SEC on lending 

arrangements and helps facilitate 

compliance with Rule 2–01, as 

amended, by clarifying the professional 

obligations of audit firms. The 

amendments should also facilitate 

cooperation and coordination between 

the Board and the SEC when monitoring 

compliance with the SEC’s revised 

provisions in Rule 2–01(c)(1)(ii) relating 

to lending arrangements. 

Application to Audits of Emerging 

Growth Companies 

Pursuant to Section 104 of the 

Jumpstart Our Business Startups Act 

(‘‘JOBS Act’’), rules adopted by the 

Board subsequent to April 5, 2012 

generally do not apply to the audits of 

EGCs, as defined in Section 3(a)(8) of 

the Securities Exchange Act of 1934, 

unless the SEC ‘‘determines that the 

application of such additional 

requirements is necessary or appropriate 

in the public interest, after considering 

the protection of investors, and whether 

the action will promote efficiency, 

competition, and capital formation.’’ 66

As a result of the JOBS Act, the rules 

and related amendments to PCAOB 

standards the Board adopts are generally 

subject to a separate determination by 

the SEC regarding their applicability to 

audits of EGCs. 

To inform consideration of the 

application of the Board’s rules and 

standards to audits of EGCs, the Board’s 

staff publishes a white paper that 

provides general information about 

characteristics of EGCs.67 As of the 

November 15, 2019 measurement date, 

the PCAOB staff identified 1,761 

companies that had identified 

themselves as EGCs and had filed 

audited financial statements with the 

SEC, including an audit report signed by 

a registered public accounting firm in 

the 18 months preceding the 

measurement date. 

In amending Rule 2–01 in 2019 and 

2020, the Commission conducted an 

economic analysis, which included an 

analysis of the effect of the amendments 

to Rule 2–01 on efficiency, competition, 

and capital formation. The SEC 

concluded that the amendments to Rule 

2–01 likely would improve the practical 

application of Rule 2–01 and reduce 

compliance burdens, and might increase 

competition among auditors and lead to 

a potential reduction in audit costs. In 

addition, the Commission determined 

that the amendments to Rule 2–01 may 

also facilitate capital formation.68

Additionally, the SEC’s economic 

analysis regarding the amendments to 

the definition of ‘‘audit and professional 

engagement period’’ in Rule 2–01(f)(5) 

concluded that a shorter look-back 

period may facilitate additional IPOs 

and thereby promote efficiency and 

capital formation. 

The economic considerations 

discussed above are generally applicable 

to audits of EGCs. Moreover, if the 

Board’s amendments were determined 

not to apply to the audits of EGCs, 

auditors would be required to address 

the differing independence 

requirements in their independence 

policies and procedures and in their 

quality control systems, which would 

create the potential for confusion. 

Accordingly, and for the reasons 

explained above, the Board requests that 

the Commission determine that it is 

necessary or appropriate in the public 

interest, after considering the protection 

of investors and whether the action will 

promote efficiency, competition, and 

capital formation, to apply the Board’s 

targeted amendments to its interim 

independence standards and 

independence rules to audits of EGCs. 

The Board stands ready to assist the 

Commission in considering any 

comments the SEC receives on these 

matter during the Commission’s public 

comment process. 

III. Date of Effectiveness of the 

Proposed Rules and Timing for 

Commission Action 

Within 45 days of the date of 

publication of this notice in the Federal 

Register or within such longer period 

not more than an additional 45 days (i) 

if the Commission determines that such 

longer period is appropriate and 

publishes the reasons for such 

determination or (ii) as to which the 

Board consents, the Commission will: 

(A) By order approve or disapprove 

such proposed rules; or 

(B) institute proceedings to determine 

whether the proposed rules should be 

disapproved. 

IV. Solicitation of Comments 

Interested persons are invited to 

submit written data, views and 

arguments concerning the foregoing, 

including whether the proposed rules 

are consistent with the requirements of 

Title I of the Act. Comments may be 

submitted by any of the following 

methods: 

Electronic Comments 

• Use the Commission’s internet 

comment form (http://www.sec.gov/ 

rules/pcaob.shtml); or 


jbell on DSKJLSW7X2PROD with NOTICES
76142 Federal Register / Vol. 85, No. 229 / Friday, November 27, 2020 / Notices 

69 17 CFR 200.30–11(b)(1) and (3). 

• Send an email to rule-comments@

sec.gov. Please include File Number 

PCAOB–2020–01 on the subject line. 

Paper Comments 

• Send paper comments in triplicate 

to Secretary, Securities and Exchange 

Commission, 100 F Street NE, 

Washington, DC 20549–1090. 

All submissions should refer to File 

Number PCAOB–2020–01. This file 

number should be included on the 

subject line if email is used. To help the 

Commission process and review your 

comments more efficiently, please use 

only one method. The Commission will 

post all comments on the Commission’s 

internet website (http://www.sec.gov/ 

rules/pcaob.shtml). Copies of the 

submission, all subsequent 

amendments, all written statements 

with respect to the proposed rules that 

are filed with the Commission, and all 

written communications relating to the 

proposed rules between the Commission 

and any person, other than those that 

may be withheld from the public in 

accordance with the provisions of 5 

U.S.C. 552, will be available for website 

viewing and printing in the 

Commission’s Public Reference Room, 

100 F Street NE, Washington, DC 20549 

on official business days between the 

hours of 10:00 a.m. and 3:00 p.m. 

Copies of such filing will also be 

available for inspection and copying at 

the principal office of the PCAOB. All 

comments received will be posted 

without charge. Persons submitting 

comments are cautioned that we do not 

redact or edit personal identifying 

information from comment submissions. 

You should submit only information 

that you wish to make available 

publicly. All submissions should refer 

to File Number PCAOB–2020–01 and 

should be submitted on or before 

December 18, 2020. 

For the Commission by the Office of the 

Chief Accountant, by delegated authority.69

J. Matthew DeLesDernier, 

Assistant Secretary. 

[FR Doc. 2020–26145 Filed 11–25–20; 8:45 am] 

BILLING CODE 8011–01–P 

SECURITIES AND EXCHANGE 

COMMISSION 

Sunshine Act Meetings 

TIME AND DATE: 2:00 p.m. on Wednesday, 

December 2, 2020. 

PLACE: The meeting will be held via 

remote means and/or at the 

Commission’s headquarters, 100 F 

Street NE, Washington, DC 20549. 

STATUS: This meeting will be closed to 

the public. 

MATTERS TO BE CONSIDERED: 

Commissioners, Counsel to the 

Commissioners, the Secretary to the 

Commission, and recording secretaries 

will attend the closed meeting. Certain 

staff members who have an interest in 

the matters also may be present. 

In the event that the time, date, or 

location of this meeting changes, an 

announcement of the change, along with 

the new time, date, and/or place of the 

meeting will be posted on the 

Commission’s website at https://

www.sec.gov. 

The General Counsel of the 

Commission, or his designee, has 

certified that, in his opinion, one or 

more of the exemptions set forth in 5 

U.S.C. 552b(c)(3), (5), (6), (7), (8), 9(B) 

and (10) and 17 CFR 200.402(a)(3), 

(a)(5), (a)(6), (a)(7), (a)(8), (a)(9)(ii) and 

(a)(10), permit consideration of the 

scheduled matters at the closed meeting. 

The subject matter of the closed 

meeting will consist of the following 

topic: 

Institution and settlement of 

injunctive actions; 

Institution and settlement of 

administrative proceedings; 

Resolution of litigation claims; and 

Other matters relating to enforcement 

proceedings. 

At times, changes in Commission 

priorities require alterations in the 

scheduling of meeting agenda items that 

may consist of adjudicatory, 

examination, litigation, or regulatory 

matters. 

CONTACT PERSON FOR MORE INFORMATION: 

For further information; please contact 

Vanessa A. Countryman from the Office 

of the Secretary at (202) 551–5400. 

Dated: November 24, 2020. 

Vanessa A. Countryman, 

Secretary. 

[FR Doc. 2020–26316 Filed 11–24–20; 11:15 am] 

BILLING CODE 8011–01–P 

SOCIAL SECURITY ADMINISTRATION 

[Docket No. SSA–2020–0058] 

Agency Information Collection 

Activities: Proposed Request 

The Social Security Administration 

(SSA) publishes a list of information 

collection packages requiring clearance 

by the Office of Management and 

Budget (OMB) in compliance with 

Public Law 104–13, the Paperwork 

Reduction Act of 1995, effective October 

1, 1995. This notice includes revisions 

of OMB-approved information 

collections. 

SSA is soliciting comments on the 

accuracy of the agency’s burden 

estimate; the need for the information; 

its practical utility; ways to enhance its 

quality, utility, and clarity; and ways to 

minimize burden on respondents, 

including the use of automated 

collection techniques or other forms of 

information technology. Mail, email, or 

fax your comments and 

recommendations on the information 

collection(s) to the OMB Desk Officer 

and SSA Reports Clearance Officer at 

the following addresses or fax numbers. 

(OMB) Office of Management and 

Budget, Attn: Desk Officer for SSA, Fax: 

202–395–6974, Email address: OIRA_

Submission@omb.eop.gov. 

(SSA) Social Security Administration, 

OLCA, Attn: Reports Clearance Director, 

3100 West High Rise, 6401 Security 

Blvd., Baltimore, MD 21235, Fax: 410– 

966–2830, Email address: 

OR.Reports.Clearance@ssa.gov. 

Or you may submit your comments 

online through www.regulations.gov, 

referencing Docket ID Number [SSA– 

2020–0058]. 

The information collections below are 

pending at SSA. SSA will submit them 

to OMB within 60 days from the date of 

this notice. To be sure we consider your 

comments, we must receive them no 

later than January 26, 2021. Individuals 

can obtain copies of the collection 

instruments by writing to the above 

email address. 

1. Partnership Questionnaire—20 CFR 

404.1080–404.1082—0960–0025. SSA 

considers partnership income in 

determining entitlement to Social 

Security benefits. SSA uses information 

from Form SSA–7104 to determine 

several aspects of eligibility for benefits, 

including the accuracy of reported 

partnership earnings; the veracity of a 

retirement; and lag earnings where SSA 

needs this information to determine the 

status of the insured. The respondents 

are applicants for, and recipients of, 

Title II Social Security benefits who are 

reporting partnership earnings. 

Type of Request: Revision of an OMBapproved information collection. 


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