Ethics proposals address unpaid fees, standards implementation services

By Ken Tysiac

The AICPA Professional Ethics Executive Committee (PEEC) published two exposure drafts Monday on the issues of unpaid fees and accounting standards implementation services for attest clients.

Comments on both proposals are sought by Dec. 20 and can be made at Ethics-ExposureDraft@aicpa.org.

PEEC is seeking to change the "Unpaid Fees" interpretation (ET §1.230.010) in the AICPA Code of Professional Conduct to develop a principles-based framework for members to determine when unpaid fees impair independence. PEEC is considering whether the current one-year approach remains appropriate, especially considering the disruption clients and firms have faced as a result of the coronavirus pandemic.

PEEC also is seeking to converge its standards with those of the SEC and the International Ethics Standards Board for Accountants. PEEC's proposed revisions would:

  • Remove the reference to an advocacy threat because it is not applicable to unpaid fees.
  • Provide a principles-based framework to evaluate when unpaid fees may impair independence.
  • Provide factors to consider when evaluating whether threats to independence are at an acceptable level under the principles-based framework.
  • Provide examples of safeguards that would eliminate the threat to independence or reduce it to an acceptable level. If safeguards can't be applied to reduce threats to an acceptable level, the member would be required to discontinue the engagement until the threats can be reduced to that level.

The proposed factors to be used to determine the level of threats would be:

  • The significance of the fees to the covered member;
  • How long the fees have been outstanding;
  • The likelihood that the fees will be paid; and
  • The potential effects the situation would have on the auditor's objectivity and appearance of the auditor's ability to maintain independence.

Under the proposal, threats would be considered at an acceptable level when the unpaid fees are clearly insignificant and relate to services provided less than one year prior to the date of the current attest report.

If one of those criteria is not met, threats may not be at an acceptable level and the member may need to implement safeguards to continue with the engagement. When neither of these criteria is met, threats are considered significant, and the member will need to apply safeguards that reduce threats to an acceptable level to continue with the engagement.

The proposed interpretation provides examples of possible safeguards that may be used.

Accounting standards implementation services

The Accounting Standards Implementation Services proposal was issued as clients face a number of challenging projects to implement new standards issued by FASB.

Clients who lack the expertise to implement a new standard on their own often turn to their CPAs for help, but independence requirements limit the work CPAs can perform on such implementation for attest clients.

Specific guidance already exists for practitioners in this area, but PEEC concluded that a new interpretation that combines key elements from existing nonattest services guidance would increase understanding and compliance with independence requirements.

The proposed interpretation would state that the key elements for practitioners to keep in mind with respect to this issue are:

  • Do not perform any management responsibilities; and
  • Ensure that the individual at the attest client who is overseeing your service is able to oversee the service and capable of making all significant judgments and decisions.

This individual would need to be able to evaluate and accept responsibility for the results of the practitioner's service.

For more information on ethics, including new proposals, interpretations, and standards, visit the AICPA's Ethically Speaking podcast, which is debuting a new series on exposure drafts titled EDs on the Go.

Also visit the JofA podcast episode dedicated to the two new EDs.

Ken Tysiac (Kenneth.Tysiac@aicpa-cima.com) is the JofA's editorial director.

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