Auditor Independence With Respect to Certain Loans or Debtor-Creditor Relationships

The Securities and Exchange Commission (``Commission'') is proposing to amend its auditor independence rules 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 an audit or professional engagement period. The proposed amendments would focus the analysis solely on beneficial ownership rather than on both record and beneficial ownership; replace the existing 10 percent bright-line shareholder ownership test with a ``significant influence'' test; add a ``known through reasonable inquiry'' standard with respect to identifying beneficial owners of the audit client's equity securities; and amend the definition of ``audit client'' for a fund under audit to exclude funds that otherwise would be considered affiliates of the audit client. The Commission is also requesting comment on certain other potential amendments to its auditor independence rules.