Two new Frequently Asked Questions (FAQs) issued by the AICPA Professional Ethics Division provide nonauthoritative guidance for the effects on independence when senior personnel have been on an attest engagement team for a long period.
For the purposes of these FAQs, senior personnel are defined as partners, partner equivalents, and any other individuals on the attest engagement team who have responsibility for decision-making on significant auditing, accounting, and reporting matters that affect the results of the attest engagement and who maintain regular contact with attest client management or those charged with governance.
According to the first new FAQ, the familiarity threat to independence may increase when senior personnel serve on an attest engagement team for a long period.
Factors relating to senior personnel on the attest engagement as well as factors relating to the attest client should be considered when determining the significance of these threats to independence. The factors relate to the length and nature of relationships.
According to the second FAQ, a firm can still perform an attest engagement if it has been determined that there is a significant familiarity threat to independence because one or more senior personnel have served on the attest engagement team for a long period — if safeguards can be applied to eliminate the threat or reduce it to an acceptable level.
The FAQ provides examples of safeguards but cautions that the list is not all-inclusive. Examples of safeguards that can be applied include:
- Changing the role of the senior personnel on the attest engagement team or the nature and extent of the tasks the senior personnel perform.
- Having a professional accountant who was not included on the attest engagement team review the work of the senior personnel.
- Performing an independent internal or an external quality review of the engagement.
- Rotating the senior personnel off the engagement team for an appropriate period based on the significance of the threats.
When safeguards are applied, the member should document the threats and the safeguards applied, according to the FAQ. If safeguards cannot be applied to eliminate the independence threat or reduce it to an acceptable level, then independence will be impaired.