External auditor independence is crucial for investor confidence. For this reason, the US Securities Exchange Commission (SEC) recently adopted new rules concerning auditor independence.
These amendments explicitely define the relationships between the auditor and the client, which may compromise auditor independence, be it of a financial, commercial or employment nature. The SEC has also identified nine non-audit services which impair the external auditor's independence.
To increase transparency, the SEC requires that from now on in their annual proxy statement, companies communicate to shareholders, a breakdown between audit fees and non-audit fees. In accordance with the guidelines of corporate governance codes of best practice, external auditors are no longer considered independent when the fees billed for non-audit services go beyond those billed for the external audit itself. By checking for three consecutive years the fees received, a tendency can be clearly established. Should an exceptional, well-justified, situation arise where non-audit fees are higher than those for the audit, it would not penalize the external auditors.
For more detailed information please consult the SEC website http://www.sec.gov/news/extra/faqaud.htm
