Under the current ICC definition, an investment company seeking an auditor to audit its financial statements is precluded from considering any accountant with services or relationships prohibited by Rule 2–01(c) with sister investment advisers, sponsors, or any of the investment companies they advise or sponsor. As such, an investment company's choices among qualified auditors may be limited. The inclusion of a materiality qualifier in proposed paragraph (f)(14)(i)(D)( audit committee and underwriters) in place at first time filers, and auditors are subject to heightened litigation risk around IPOs. [ 90] c. Proposed Amendments to Loans or Debtor-Creditor Relationships The proposed amendments would not impose any reporting, recordkeeping, or disclosure requirements. The proposed amendments would impose new compliance requirements with respect to Rule 2–01. Add certain student loans and de minimis consumer loans to the categorical exclusions from independence-impairing lending relationships; To demonstrate the application of the current definition of ICC, consider the following example: An investment company, Investment Company A, is the entity under audit. Investment Company A is advised by Investment Adviser B. Investment Adviser B is under common control with Investment Adviser C and Investment Adviser D. Under current Rule 2–01(f)(14)(i)(B)(

Does the proposed amendment sufficiently focus the common control prong of the ICC definition on those relationships and services that are most likely to threaten auditor objectivity and impartiality? Should the analysis focus on the materiality of sister entities to the controlling entity, as proposed? The establishment of differing compliance or reporting requirements or timetables that take into account the resources available to small entities; Specifically, where an audit client is looking to potentially change auditors, an audit client would be able to select from a broader group of auditors to perform audit services related to the audit client's IPO even if the auditor had provided prohibited services or had prohibited relationships in the second or third year prior to filing the IPO. However, the audit industry is already highly concentrated, especially with respect to IPOs, [ 88] Compliance with the proposed amendments would require the use of professional skills, including accounting and legal skills. The proposed amendments are discussed in detail in Section II above. We discuss the economic impact, including the estimated costs, of the proposed amendments in Section III (Economic Analysis) above. E. Duplicative, Overlapping, or Conflicting Federal RulesPFC – Power factor correction technology ensures efficiency of the machine to offer a 30% energy saving At no additional expense, the service provides a secure, modifiable URL that you can use to engage with audio and video content, along with other work files, on your Internet-enabled device. We believe that the proposed amendments would not duplicate, overlap or conflict with other Federal rules. F. Significant Alternatives We are proposing the amendments pursuant to Schedule A and Sections 7, 8, 10, and 19 of the Securities Act, Sections 3, 10A, 12, 13, 14, 17, and 23 of the Exchange Act, Sections 8, 30, 31, and 38 of the Investment Company Act, and Sections 203 and 211 of the Investment Advisers Act. C. Small Entities Subject to the Proposed Rules For example, audit clients in certain industries might have more complicated or very specialized businesses, requiring auditors of those clients to possess certain expertise or experience. If the pool of potential independent auditors is restricted due to prohibitions under current Rule 2–01 that are the subject of the proposed amendments, an audit client might have to choose what it regards as a “suboptimal” audit firm, which may not provide the highest quality audit services. Since audit quality is correlated with financial reporting quality, [ 73]

we do not expect a significant learning curve in applying the test or significant incremental compliance costs for auditors. We propose a technical amendment to convert the current Preliminary Note to Rule 2–01 into introductory text to Rule 2–01, as this is consistent with current With respect to IPOs, we preliminarily believe the proposed amendments discussed in Section II.A.2 could significantly mitigate the challenges associated with these transactions because only one year of previous compliance with Rule 2–01 would be required. In an IPO, the auditor generally has an existing auditor-client relationship with the audit client and the IPO is generally contemplated well in advance of its consummation. As a result, focusing the independence analysis on the most recent preceding fiscal year should significantly mitigate the challenges associated with consummating an IPO under our rules. We believe that the root cause of auditor independence issues arising from mergers and acquisitions, however, generally differs from that arising from IPOs. In situations involving mergers and acquisitions, a pre-existing auditor-client relationship between the auditor and the merged company or the company being acquired is less likely, as compared to an IPO, and the timing of the transaction is generally shorter and more uncertain. As such, these transactions can give rise to auditor independence violations that are inadvertent and often difficult to contemplate in advance. [ 51]

The proposed amendment also would help avoid the costs that audit clients could incur to switch auditors. Additionally, the proposed amendment could reduce instances of lost revenues from non-audit services ( the ICC definition) of Rule 2–01 to include materiality qualifiers in the respective common control provisions and to distinguish how the definition applies when an accountant is auditing a portfolio company, an investment company, or an investment adviser or sponsor. the Commission must advise the Office of Management and Budget as to whether a proposed regulation constitutes a “major” rule. Under SBREFA, a rule is considered “major” when, if adopted, it results or is likely to result in: The reasons for, and objectives of, the proposed rules are discussed in more detail in Sections I and II above. B. Legal Basis We are proposing to amend Rule 2–01(f)(4)(i) to include a materiality requirement with respect to operating companies under common control. [ 18]