The new rule establishes certain situations that would find an auditor not to be independent if any covered persons participated in these situations. The rule specifically outlines that an auditor is not independent if a covered person has a direct investment in an audit client or affiliate, has a direct investment of more than five percent in an audit client, has an indirect investment in an audit client of more than five percent, and if they own more than five percent of an entity of which the audit client owns an interest. .

             There are certain other financial relationships with an audit client that can restrict an auditor from being independent. These relationships include having loans to or from an audit client, certain savings, checking, brokerage accounts and holding certain individual insurance policies. The rule also put restrictions on certain audit clients investing in audit firms. .

             Employment Relationships.

             Under the new rules an audit firm must be cautious of whom they hire and whom the client's firm hires in order to remain independent. The new rule outlines specific instances in which the auditor would be declared as not being independent. "An accountant will not be independent if a close family member of a covered person is employed by an audit client in an accounting or financial reporting role, if a partner is employed by an audit client in an accounting or financial reporting role, and if a former employee of an audit client becomes a partner of a the accounting firm." .

             Scope of Services Provided by the Audit Firms to Their Audit Clients.

             This is the area of the new rule that caused the most controversy when it was first introduced. The new rule greatly reduces the number of non-audit services that an auditor can perform for audit clients. The new rule identifies certain non-audit services that cannot be provided without damaging an auditor's independence. These non-audit services are consistent with the four principles that the rule was based on.