Ethics guidance for CPAs changed significantly last week as the AICPA Professional Ethics Executive Committee (PEEC) issued new interpretations and revised interpretations.
The guidance covers a wide range of topics:
- Noncompliance with laws and regulations (NOCLAR) for both members in business and in public practice;
- The effects of various loans on independence, including student loans;
- An acquisition or other transaction that creates a new affiliate that requires independence;
- Threats to independence posed by unpaid client fees; and
- Self-review and management participation threats posed when members assist clients with the implementation of accounting standards.
Taken as a whole, the new guidance describes CPAs' responsibilities, enables consistency with SEC requirements, and facilitates convergence with guidance from the International Ethics Standards Board for Accountants (IESBA).
The NOCLAR interpretation is an international convergence project that:
- Defines NOCLAR as acts of omission or commission, intentional or unintentional, that are contrary to prevailing laws or regulations and are committed by a client or by those charged with governance, by management, or by other individuals working for or under the directions of a client.
- Provides separate guidance for members in business; members providing financial statement audit or review services; and members providing services other than a financial statement audit or review service.
- Specific guidance also is provided regarding communication with respect to group audit engagement; determining whether withdrawal from an engagement is necessary; and documentation.
The interpretation takes effect June 30, 2023, and may be implemented early.
Loans
The Loans, Acquisitions, and Other Transactions revisions are the result of an effort to address amended independence rules issued by the SEC in October 2020. PEEC's changes included:
- Clarifying the definition of "beneficially owned" (ET §0.400.06). The definition clarifies that a record owner is included and should be applied when the phrase "beneficial ownership interest" is used.
- Adding certain student loans as permitted under its "Loans and Leases With Lending Institutions" interpretation (ET §1.260.020).
- Altering language referring to the types of individuals with whom a covered member's loan arrangement may result in a threat to compliance with the "Independence Rule." This affects the "Conceptual Framework for Independence" (ET §1.210.010) and the "Client Affiliates" (ET §1.224.010), "Loans" (ET §1.260.010), and "Loans and Leases With Lending Institutions" (ET § 1.260.020) interpretations.
- Clarifying that when evaluating materiality to a covered member under its "Immediate Family Members" interpretation (ET §1.270.010), members should also consider the loans of immediate family members. Previously, the AICPA Code of Professional Conduct called for members to consider only the materiality of financial interests.
The revisions take effect Dec. 31, 2022, and may be implemented early.
Unpaid fees
The revised "Unpaid Fees" interpretation (ET §1.230.010) helps converge PEEC's standards more closely with those of the SEC and the IESBA. Unpaid fees revisions include:
- Providing a principles-based approach for evaluating when unpaid fees may impair independence.
- Providing factors to consider when evaluating whether threats to independence are at an acceptable level under the principles-based approach.
- Providing examples of actions or safeguards that might help eliminate threats to independence or reduce threats to an acceptable level. If safeguards can't be applied to reduce threats to an acceptable level, the member is required to discontinue the engagement until the threats can be reduced to an acceptable level.
The interpretation takes effect Dec. 31, 2022, and may be implemented early.
Accounting standards implementation
The accounting standards implementation services interpretation provides practitioners with guidance for avoiding self-review and management participation threats to compliance with the "Independence Rule" (ET §1.200.001) when they perform services to help attest clients implement new accounting standards.
The interpretation provides examples for members for how they can avoid performing management responsibilities in the delivery of such services.
The interpretation takes effect on Dec. 31, 2022, and may be implemented early.
— To comment on this article or to suggest an idea for another article, contact Ken Tysiac at Kenneth.Tysiac@aicpa-cima.com.
