November 7, 2016 RECENT DEVELOPMENTS
The PEEC held an open meeting on November 3-4, 2016 in Austin, Texas. A summary is below – please see the Agenda for further details.
DEFINITIONS OF CLIENT AND ATTEST CLIENT
The task force chair proposed that revised definitions of the terms, "client" and "attest client" and related interpretations be exposed for comment, making various revisions based on PEEC feedback during the discussion.
Next Steps: The PEEC agreed to expose the revisions with a May 15, 2017 comment deadline.
INFORMATION TECHNOLOGY (IT) AND CLOUD SERVICES TASK FORCE
The task force chair presented the group’s amended hosting services proposal for the PEEC’s consideration. PEEC and a local practitioner with interest in the proposal provided feedback on the definition of hosting services and the related examples of situations that would / would not impair independence. The task force chair also presented an Information Systems Services “straw man” for discussion.
Next Steps: The task force will reconsider the hosting services definition and interpretation in light of PEEC and other comments and also continue to work on revisions to the Information Systems Services interpretation.
CYBER-SECURITY SERVICES TASK FORCE
The task force chair reported that the task force, having considered various cyber-security offerings of small and large firm, determined that the conceptual framework provides adequate guidance on the application of the independence rules for these services. The task force does recommend, however, that a few frequently-asked-questions (FAQs) be added to the nonattest services nonauthoritative guidance.
Next Steps: The PEEC agreed that the task force and staff should create / revise FAQs to be added to the nonattest services FAQ document.
IESBA (INTERNATIONAL CONVERGENCE) “PART C” TASK FORCE
The task force chair presented two interpretations that would converge the AICPA Code with the IESBA (International Ethics Standards Board for Accountants) Code for the PEEC’s consideration. The PEEC discussed one revised interpretation, Knowing Misrepresentations in the Preparation and Presentation of Information, and another new interpretation, Pressure to Breach the Integrity and Objectivity Rule, agreeing to delete the examples from paragraph .04 of the former.
Next Steps: The PEEC agreed to expose both interpretations for comment with a comment deadline of February 28, 2017.
LEASES TASK FORCE
The PEEC considered draft language the task force developed, focusing on issues such as use of a safeguard requiring a lease transaction be in the normal course of the client’s business and materiality of a lease to a covered member (including the firm).
Next Steps: The task force will continue its deliberations, taking PEEC feedback into consideration.
ENTITIES INCLUDED IN STATE AND LOCAL GOVERNMENT FINANCIAL STATEMENTS TASK FORCE
The task force chair described the proposed revisions to an interpretation, Entities Included in State and Local Government Financial Statements. The revisions, which seek to align with the manner in which members consider whether commercial entities are affiliates of attest client under the Code, would significantly impact firms with state and local government audit practices.
Next Steps: The task force will begin drafting the revised interpretation for review by PEEC at a future meeting.
TRANSFER OF FILES AND RETURN OF CLIENT RECORDS IN SALE, TRANSFER, DISCONTINUANCE OR ACQUSITION OF PRACTICE
A State CPA Society raised the question of whether the requirements of the above interpretation would need to be complied with when one firm (Firm B) acquires another firm (Firm A) and only some of the partners from Firm A become partners of Firm B. The PEEC did not reach a consensus on a draft FAQ presented by staff (which indicated that the requirements would NOT apply). Staff will follow-up with the state CPA society and the chair and division director before proceeding with the FAQ.
COMPILATION OF PRO FORMA FINANCIAL INFORMATION AND SPECIFIED PROCEDURES ENGAGEMENTS
The AICPA Audit and Attest Standards Team, the Accounting and Review Services Committee (ARSC) and the Auditing Standards Board (ASB) asked the PEEC consider certain independence issues related to current and proposed attest engagements.
NEXT STEPS: Based on its discussion, the PEEC decided to form a new task force to review the guidance in 1.297, Independence Standards for Engagements Performed in Accordance With Statements on Standards for Attestation Engagements (SSAEs), to evaluate whether it is still appropriate given that SSAEs are not always restricted in use.
IESBA (INTERNATIONAL CONVERGENCE) “NOCLAR” (NONCOMPLIANCE WITH LAWS AND REGULATIONS) TASK FORCE
The task force chair presented the group’s positions on convergence with the IESBA standard when a member discovers, is made aware of, or suspects noncompliance with laws or regulations by the client or persons under the client’s control. To date, the group agrees that a member who becomes aware of NOCLAR should raise the matter internally at the client and within the firm, and if not rectified, should consider resigning from the engagement. Due to strict state accountancy board and other regulations prohibiting disclosure of confidential client information to an outside body unless the law requires it or the member’s client consents, the group does not propose the Code require members to disclose NOCLAR outside of the client organization and firm.
NEXT STEPS: The task force will continue to develop its proposal.
NEXT OPEN MEETING
The PEEC’s next open meeting is scheduled for February 9-10, 2017 in San Juan, Puerto Rico.