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Omnibus proposal of Professional Ethics Division interpretations and rulings ;Proposed revision of interpretation 101-9 under Rule 101: The Meaning of Certain Independence Terminology and the Effect of Family Relationships on Independence;Meaning of Certain Independence Terminology and the Effect of Family Relationships on Independence;Proposed revision of ethics ruling no. 14 under Rule 101: Member on Board of Directors of United Fund;Member on Board of Directors of United Fund;Proposed revision of ethics ruling no. 41 under Rule 101; Member as Auditor of Mutual Insurance Company;Member as Auditor of Mutual Insurance Company;Proposed deletion of ethics ruling no. 45; Past Due Billings: Client in Bankruptcy;Past Due Billings: Client in Bankruptcy;Proposed revision of ethics ruling no. 52 under Rule 101: Past Due Fees Past Due Fees;Proposed revision of ethics ruling no. 54 under Rule 101; Member Providing Actuarial Services;Member Providing Actuarial Services;Proposed deletion of interpretation 201-4 under Rule 201: Definition of the Term Engagement as Used in Rule 201;Definition of the Term Engagement as Used in Rule 201The Professional Ethics Executive Committee has reconsidered interpretation 101-9 and concluded that revisions are necessary. The following significant revisions are proposed: (1) a revised definition of a member or a member's firm, which includes contractors and entities controlled by persons included in the definition of a member or a member's firm; (2) deletion of reference to "key assistants" to certain financial executives as positions with a client indicating significant influence; (3) a new section defining the phrase "office participating in a significant portion of the engagement"; (4) inclusion of specific time periods during which relationships of the auditor's nondependent close relatives cause independence impairments; and (5) reference to cohabitants as having a relationship that may cause an independence impairment. The Professional Ethics Executive Committee proposes to revise Ethics Ruling No. 14 (ET section 191.027-.028) to recognize that a member's service on the board of a federated fund-raising organization could impair the member's independence with respect to recipients of the funds distributed by that organization. Specifically, independence would be impaired if the fund-raising organization can affect the management decisions of the recipient organizations. The Professional Ethics Executive Committee proposes a revision of Ethics Ruling No. 41 (ET section 191.081-.082) to provide that a member's independence would not be considered to be impaired with respect to an insurance company that receives, holds in a pooled separate account, and invests contributions with respect to the member's retirement plan. The current ruling addresses independence in terms of the materiality of the member's retirement plan funds in relation to the net worth of the insurance company. The Professional Ethics Executive Committee proposes to delete Ethics Ruling No. 45 (ET section 191.089-.090) because the proposed revision of the current ruling on unpaid fees included elsewhere in this exposure draft discusses unpaid fees in relation to bankruptcy. The Professional Ethics Executive Committee proposes a revision of Ethics Ruling No. 52 (ET section 191.103-. 104) to clarify the intent and language of the ruling. The ruling deals with the issue of the effect on an auditor's independence of unpaid fees. The proposed revision clarifies the nature of unpaid fees, specifies the time when fees may impair an auditor's independence, and provides a rationale for such impairment. The Professional Ethics Executive Committee proposes to revise Ethics Ruling No. 54 (ET section 191.107-. 108) to include a member's performance of appraisal and valuation services within the professional services covered by the ruling. Ethics interpretation 101-1-B1 provides that independence would be considered to be impaired if the member was connected with the client in a capacity equivalent to that of a member of management. The proposed addition of appraisal and valuation services does not alter the requirement in the ruling consistent with interpretation 101-1-B1 that all significant matters of judgment relating to these additional services must be determined or approved by the client and the client must be in a position to have an informed judgment on the results of these services. The purpose of this interpretation was to cause attestation and certain other standards that were not covered under rules 202 and 204 of the pre-January 12, 1988 Code of Professional Ethics, to be enforceable under rule 201. As rule 202 of the new Code of Professional Conduct requires members performing professional services to comply with standards promulgated by bodies designated by Council, interpretation 201-4 is no longer necessary. The Professional Ethics Executive Committee therefore recommends the deletion of this interpretation from the Code.
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Proposed Professional Ethics Division rulings and interpretations ;Proposed ethics ruling under Rule 101;Meaning of the Period of a Professional Engagement;Audits, Reviews, or Compilations and a Lack of Independence;Member Joining Client Credit Union;Proposed Interpretation under Rule 301: Confidential Information and the Purchase, Sale, or Merger of a Practice;Confidential Information and the Purchase, Sale, or Merger of a Practice;Proposed interpretation under Rule 101: Confidential Information and the Purchase, Sale, or Merger of a Practice;Confidential Information and the Purchase, Sale, or Merger of a PracticeRule 101 and interpretation 101-1 specify transactions, interests, or relationships that impair independence, if they exist during various time periods. One of the time periods referred to in interpretation 101-1 is: "The period of a professional engagement." The committee proposes to define the period of a professional engagement as commencing when the member is engaged to perform the professional service and continuing until the relationship is terminated by the member or the client. The Professional Ethics Executive Committee receives many inquiries from members who are uncertain as to whether they may issue compilations or review reports when the members' independence is impaired with respect to the clients. The committee believes that explicit guidance is needed in the Code and recommends the adoption of the proposed ruling. The Professional Ethics Executive Committee is receiving an increasing number of inquiries from members who have the opportunity to join credit unions for which the members provide professional services requiring independence. Interpretation 101-1-A4 provides that independence is considered to be impaired if a member has any loan to or from the client. However, an exception is made if the member has a loan from a client which is a financial institution. Such a loan must meet criteria included in the interpretation and must be made under normal lending procedures, terms, and requirements. After considering the matter, the committee concluded that if a credit union meets the definition of a financial institution as provided in interpretation 101-5, and the loan is consistent with interpretation 101-1-A4, membership in the credit union would not impair the member's and the member's firm's independence. If the credit union does not meet the definition of a financial institution, or the loans or deposits are not in accordance with the interpretations and rulings of the Code, membership in the client credit union would cause the independence of the member and the member's firm to be impaired. Rule 301 provides, in part, that "a member in public practice shall not disclose any confidential client information without the specific consent of the client." In connection with a prospective sale or merger of a member's practice, it is often necessary to disclose confidential client information without obtaining the client's specific consent to do so. However, the committee believes that this should be permitted under rule 301, provided that the member take appropriate action to protect confidential client information. The Professional Ethics Executive Committee believes that an interpretation addressing this issue should be adopted. The proposed interpretation provides guidance regarding a member's independence with respect to both the subject of the assertion and the asserter for those attest engagements that are not covered by Statements on Auditing Standards, Statements on Standards for Accounting and Review Services, and Statements on Standards for Accountants' Services on Prospective Financial Information. The Professional Ethics Executive Committee believes that different independence standards should apply to the attest engagements to which the proposed interpretation applies and to attest engagements not covered by the proposal because of important differences that may exist between those two types of attest engagements. For example, the attest engagements covered by the proposal usually are completed in a brief period and often do not involve a continuing relationship with the client. The committee believes this proposal provides sufficient safeguards regarding the appearance of objectivity and integrity with respect to the member's performance of the covered attest engagements.
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Proposal of Professional Ethics Division : Proposed revision to "Other Considerations" in interpretation 101-1, Interpretation of Rule 101, under rule 101 and proposed Conceptual Framework for AICPA Independence Standards;Proposed revision to "Other Considerations" in interpretation 101-1, Interpretation of Rule 101, under rule 101 and proposed Conceptual Framework for AICPA Independence StandardsThe AICPA Professional Ethics Executive Committee (the PEEC, or committee) is exposing for comment a proposed revision to interpretation 101-1, Interpretation of Rule 101, under Rule 101, Independence [ET sec. 101.02], of the AICPA’s Code of Professional Conduct (the Code), and is also exposing for comment the Conceptual Framework for AICPA Independence Standards (Conceptual Framework), which is related to that revision.