DOL Releases Interpretive Bulletin on Auditor Independence

The Department of Labor (DOL) has released Interpretive Bulletin 2022-01 (IB) relating to independence requirements for accountants who audit employee benefit plans. Under ERISA, plan administrators of benefit plans requiring an audit are required to retain an “independent qualified public accountant” to conduct an examination of the plan’s financial statements and render an opinion as to whether the financial statements and required schedules are presented fairly in accordance with generally accepted accounting principles (GAAP). DOL notes that this IB revises an IB issued in 1975 on accountant independence to update outdated and unnecessarily restrictive provisions, while continuing to foster proper auditor independence and access to highly qualified auditor firms.

The IB provides a new audit engagement exception that revises independence guidelines to provide that an accountant or firm is not disqualified from accepting a new audit engagement merely due to holding publicly traded securities of a plan sponsor during the period covered by the financial statements so long as

  • The accountant did not audit the client’s financial statements for the immediately preceding fiscal year,
  • The accountant, firm, partner, or employee and any immediate family disposed of any holding of publicly traded securities of the plan sponsor before the earlier of
    • Signing an initial engagement letter to provide audit, review, or attest services to the audit client, or
    • Commencing any audit, review, or attest procedures (including planning the audit of the client’s financial statements)

The exception is limited to publicly traded securities as defined in the IB, and the DOL views that protections are necessary for private and closely held organizations to ensure that auditors avoid conflicts resulting from financial interests for the period covered by the financial statements being audited.

Additionally, the IB continues provisions in the current guidelines under which an accountant will not be treated as failing the independence requirement solely by reason of rendering professional or actuarial services during the period of audit engagement. However, the rule specifies that in order to retain recognition of this independence, existing prohibitions in the rule or applicable exemptions must not be violated. The DOL further cautions that rendering of multiple services by a firm may give rise to circumstances indicating a lack of independence with respect to the employee benefit plan, and that the DOL will consider all relevant circumstances, including evidence bearing on all relationships between the accountant or accounting firm and that of the plan sponsor.

Finally, the IB updates certain definitions, including the term “office” as it relates to member firms, to identify a subgroup of personnel who generally serve the same group of clients or matters, recognizing the substance of personnel interactions and reporting channels above physical locations.  

This guidance is effective upon publication in the Federal Register.