PEEC releases new ethics guidance related to public interest entities

The AICPA Professional Ethics Executive Committee (PEEC) has released new authoritative guidance related to public interest entities.

The new definition of publicly traded entity and the revised definition of public interest entity fulfill the AICPA’s responsibility as a member body of the International Federation of Accountants (IFAC) to converge with recent changes in international ethics for accountants.

For most AICPA members, practice will not change; members will continue to follow the guidance of applicable U.S. regulators related to public interest entities. Members in firms that have voluntarily joined the Forum of Firms have committed to comply with the forum’s constitution and should consider the changes to international ethics standards.

PEEC released an exposure draft of proposed changes in June and accepted comments from AICPA members and other stakeholders until September. After analyzing comments and revising the ED accordingly, PEEC finalized the guidance at its November meeting.

Publicly traded entity

The new definition is in paragraph .45 of ET sec. 0.400:

An entity that issues financial instruments that are transferable and traded through a publicly accessible market mechanism, including through listing on a stock exchange. When an entity is required to file a registration statement with the SEC, the entity will be considered a publicly traded entity when the registration statement becomes effective.

Public interest entity

The revised definition is in paragraph .43 of ET sec. 0.400:

An entity is a public interest entity when it falls within any one of the following categories:

1. A publicly traded entity whose auditor is subject to provisions of Regulation S-X, SEC Rule 2-01, “Qualifications of Accountants” that are applicable to auditors of issuers.
2. An entity one of whose main functions is to take deposits from the public 
   1. that meets the annual audit requirement imposed by Part 363 of the FDIC’s regulations (12 CFR 363, Annual Independent Audits and Reporting Requirements) and
   2. that has consolidated total assets of $1 billion or more as of the beginning of the fiscal year.
3. An entity one of whose main functions is to provide insurance to the public
   1. that is subject to the National Association of Insurance Commissioners Annual Financial Reporting Model Regulation (Model Audit Rule) and
   2. that has $500 million or more in annual direct written and assumed premiums.
4. An investment company, other than an insurance company product, that is registered with the SEC pursuant to the Investment Company Act of 1940 and the Securities Act of 1933.

When a member performs a financial statement audit subject to the regulatory requirements described in (a)–(d), a member should comply with the applicable independence requirements as required by the “Governmental Bodies, Commissions, or Other Regulatory Agencies” interpretation [1.400.050] of the “Acts Discreditable Rule” [1.400.001]

Effective dates

The changes to the AICPA Code of Professional Conduct will have a two-tiered effective date to facilitate transition:

• The effective date for the new definition of publicly traded entity and for an entity no longer considered to be a public interest entity under the revised definition is Dec. 15, 2023.

• The effective date for the revised definition for public interest entity is for periods beginning on or after Dec. 15, 2024, with early implementation allowed.

— The author is a manager for the AICPA Professional Ethics Division. To comment on this article or to suggest an idea for another article, contact Neil Amato at Neil.Amato@aicpa-cima.com.