Compliance
Your Auditor Usually Can't Do Your 409A: The Independence Rule That Picks Your Provider
If a firm audits your financials, it generally cannot produce your 409A. The SEC and AICPA independence rules that decide who is eligible to do the work.
By 409.AI Team - 2026-09-14
# Your Auditor Usually Can't Do Your 409A: The Independence Rule That Picks Your Provider
Founders shopping for a 409A tend to sort the market by two things: price and logo. A cap-table platform quotes a few hundred dollars. A national accounting firm quotes several thousand. The comparison looks like a value judgment about depth versus cost.
There's a third filter that runs before either of those, and it removes vendors from your list whether or not you know it exists. If a firm audits your financial statements, that firm generally cannot also produce the 409A valuation those statements rely on. Not because it lacks the skill. Because independence rules say the same firm cannot both make a subjective estimate and audit it.
This is the part of the provider decision that founders almost never see priced, and it's the part that can cost real money later.
The rule that governs audited public companies
For companies whose financials get filed with the SEC, the operative text is Regulation S-X Rule 2-01. Paragraph (c)(4) lists non-audit services an accountant cannot provide to an audit client, and item (iii) is squarely on point:
> "Any appraisal service, valuation service, or any service involving a fairness opinion or contribution-in-kind report for an audit client, unless it is reasonable to conclude that the results of these services will not be subject to audit procedures during an audit of the audit client's financial statements."
Sitting above that list is the general standard in Rule 2-01(b), which asks whether the accountant is "capable of exercising objective and impartial judgment on all issues encompassed within the accountant's engagement." The specific prohibitions exist because certain arrangements fail that test predictably ([17 CFR 210.2-01](https://www.law.cornell.edu/cfr/text/17/210.2-01)). For audits performed under PCAOB standards, the firm has to satisfy [PCAOB independence rules](https://pcaobus.org/oversight/standards/ethics-independence-rules) as well as the SEC's.
Most startups read that and stop, because they aren't SEC registrants. Two reasons not to.
First, the timing definition. Rule 2-01(f)(5) defines the audit and professional engagement period to include "the period covered by any financial statements being audited or reviewed." Independence isn't tested only on the day you sign an engagement letter. It's tested across the years the financial statements cover. A company that files an S-1 in 2028 will include audited statements reaching back several fiscal years, and the auditor has to have been independent for all of them. A 409A that firm produced in 2026, before anyone was thinking about a registration statement, is inside that window. The conflict runs backwards in time, which is exactly why it catches people.
Second, there's a parallel rule for everyone else.
The rule that governs private-company audits and reviews
If a CPA firm performs an audit, a review, or another attest engagement for you, the AICPA Code of Professional Conduct governs the non-attest work it can do alongside. The AICPA's own [nonattest services toolkit](https://assets.ctfassets.net/rb9cdnjh59cm/499MR00lM1LUKEtcLAC4pB/92f0d5361ec77c4ebd481125d6af9651/nonattest-services-toolkit.pdf) states the position plainly:
> "independence would be impaired if you were to perform an appraisal, a valuation, or an actuarial service for an attest client when (a) the services involve a significant degree of subjectivity and (b) the results of the service, individually or when combined with other valuation, appraisal, or actuarial services, are material to the attest client's financial statements (ET sec. 1.295.110)"
Run a 409A through that two-part test.
Subjectivity is not a close call. A private-company valuation picks an enterprise value from methods that disagree with each other, allocates it across a preference stack using an option pricing model or a probability-weighted expected return model, and then applies a discount for lack of marketability. Every one of those steps is a judgment. That is what our walkthrough of [OPM versus PWERM allocation](https://409.ai/articles/409a-allocation-methods-opm-pwerm-backsolve) is about, and it's why two competent appraisers can land on different numbers from identical inputs without either being wrong.
Materiality is a judgment your auditor makes, not one you make, but the arithmetic is easy to sketch. Say you grant 1,200,000 options during the year at a $1.10 common strike. Under typical private-company inputs, a Black-Scholes value in the range of half the underlying price is unremarkable, so call the grant-date fair value $0.55 per option. That's roughly $660,000 of compensation cost to recognize over the vesting period. For a company running $4M of annual operating expense, nobody is calling that immaterial. How that number gets built is the subject of our guide to [ASC 718 for startups](https://409.ai/articles/asc-718-stock-based-compensation-startup-guide).
Both prongs are satisfied. That's the answer for most audited or reviewed startups, and it is the same answer Rule 2-01 gives for registrants, reached by a different route.
Why the "not subject to audit procedures" escape hatch rarely fits
Look again at the exception in Rule 2-01(c)(4)(iii). Valuation work is permitted where it's reasonable to conclude the results will not be subject to audit procedures. Founders sometimes assume a 409A qualifies, on the theory that it's a tax document about strike prices and has nothing to do with the financial statements.
The number doesn't stay in the tax lane. The fair market value your appraiser concludes is the input to the grant-date fair value you expense under ASC 718, and stock compensation expense is audited like any other estimate. Once the auditor is testing the method, the significant assumptions, and the underlying data, the results of the valuation are subject to audit procedures by definition. That's the terrain covered in our piece on [what your first audit actually tests about your 409A](https://409.ai/articles/first-audit-409a-valuation-au-c-540-assumptions).
So a national firm's valuation practice isn't prohibited from selling 409As. It sells them to companies the firm doesn't audit. When you compare a platform report against a large accounting firm's report, the axis that matters isn't the brand on the cover. It's whether the provider is independent of the auditor you have, or the one you'll hire in two years.
The other independence test, the one in the tax rules
There's a second use of the word "independent" in this area, and conflating the two causes trouble.
The 409A safe harbor at [Treas. Reg. 1.409A-1(b)(5)(iv)(B)](https://www.law.cornell.edu/cfr/text/26/1.409A-1) presumes a valuation is reasonable when it's "determined by an independent appraisal that meets the requirements of section 401(a)(28)(C)" as of a date no more than 12 months before the transaction, provided no material event has since made it stale. [Section 401(a)(28)(C)](https://www.law.cornell.edu/uscode/text/26/401) in turn requires "an independent appraiser," defined as one "meeting requirements similar to the requirements of the regulations prescribed under section 170(a)(1)," the qualified-appraiser standard borrowed from charitable contribution rules.
That test asks whether the appraiser is qualified and independent of you. It says nothing about your auditor. A firm can satisfy the tax-side independence requirement completely and still be barred from the engagement by the accounting-side rule, or the reverse. Both have to hold. We wrote separately about what the safe harbor [actually checks and what it doesn't](https://409.ai/articles/409a-safe-harbor-price-vs-qualified-appraiser), and about why a tool alone [cannot be the appraiser](https://409.ai/articles/ao-41-uspap-ai-valuation-tools-409a-appraiser) under professional appraisal standards.
What to do with this before you sign
Three questions, asked in this order, settle the provider decision faster than any price comparison.
Who audits you, or is likely to? If you have an auditor, they're off the 409A list, and so is anyone whose independence your auditor will need to evaluate. If you don't have one yet but expect to within a couple of years, name the two or three firms you'd realistically hire and keep your valuation work away from all of them. Choosing a valuation provider affiliated with a firm you later want as auditor is a decision you can't unwind, because the audit period reaches back over the years the 409A covered.
How deep is the file? Your auditor will treat the appraiser as management's specialist. [AU-C Section 500](https://us.aicpa.org/content/dam/aicpa/research/standards/auditattest/downloadabledocuments/au-c-00500.pdf) requires the auditor to evaluate that specialist's competence, capabilities, and objectivity, then evaluate whether the work supports the assertion. A report that names its method, shows its inputs, and reconciles to the cap table survives that. A report that produces a number without a defensible trail generates audit adjustments and questions, which cost more than the report saved. The IRS applies a similar documentation logic in [equity compensation examinations](https://409.ai/articles/irs-audit-409a-valuation-document-request).
Is the provider tracking where the standards are going? The AICPA's cheap stock guidance, the reference practitioners use for exactly these valuations, is [in the middle of its first full rewrite since 2013](https://409.ai/articles/aicpa-cheap-stock-guide-2026-update-409a-valuation). If you're on an IPO track, add the SEC's hindsight review of pre-IPO grants to the list of reasons the file matters more than the fee, which we cover in our piece on [cheap stock charges](https://409.ai/articles/cheap-stock-pre-ipo-409a-sec-option-grants).
None of this is legal, tax, or accounting advice, and materiality and independence conclusions belong to your auditor and counsel on your specific facts.
The useful reframe is this: you aren't buying a number, you're buying a number your auditor can rely on without disqualifying themselves. That rules out one specific firm, the one signing your audit opinion, and it turns the rest of the market into a question about documentation depth rather than brand. The cheapest report on the market and the most expensive one can both fail that test. The price tag won't tell you which did.