The SEC has endorsed the concept of requiring audit firms to maintain an appropriate number of auditors in the capital market to enhance their overall strength and ensure sufficient staff to provide high-quality audit services to listed companies in compliance with professional standards. Following a public hearing on the proposed principles and draft regulations, most respondents agreed with the proposal. The SEC has therefore issued the relevant regulations, with the essential points as follows:
(1) Requiring the auditors in the capital market to be affiliated with audit firms in the capital market that have a minimum of four auditors in the capital market. The requirement would take effect immediately for auditors affiliated with audit firms outside the capital market* who submit the application from 1 July 2024 onwards.
For auditors in the capital market who are currently affiliated with audit firms in the capital market, the requirement would take effect on 1 March 2026. This is to ensure that audit firms in the capital market would have sufficient time to make necessary preparations and mitigate unintended consequences for clients, specifically businesses in the capital market.
(2) Giving the unqualified auditors** a one-year period to rectify the minimum-partners qualifications and during the rectification period the auditors are allowed to provide only audit services that have already been legally appointed.
(3) Exempting the application fee for the auditor applicants who resubmit the application within one year from the submission date of the first application, on the condition that such applicants whose performance met the quality criteria but who had been declined due to affiliation with audit firms failing to meet the requirement of four auditors at a minimum.
The notifications concerning the amendments will become effective from 1 July 2024 onwards.
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Remarks:
* Referring to audit firms that have no capital market auditors on their staff.
** Referring to auditors in the capital market not affiliated with audit firms that meet the requirement of four auditors at a minimum, as prescribed by the SEC.