AICPA PEEC Adopts New and Revised Ethics Interpretations

JUNE 12, 2017  RECENT DEVELOPMENTS

The AICPA Professional Ethics Executive Committee adopted 2 new interpretations and one revised interpretation in the AICPA's Code of Professional Conduct.   

First, a new interpretation called "Hosting Services" will appear under the Independence Rule (1.200) of the Code and apply only to members in public practice who provide attest services to a client.  Hosting services are considered to impair independence because they occur when a member takes responsibility for maintaining internal control over an attest client's data or records.  This is the case when the member acts as the sole host of a client's data leaving the client's data incomplete and accessible only through the member or the member provides electronic data / records security or back-up services to the client.  

The interpretation provides examples of situations that do and do not create hosting services.  For example, a member whose attest client engages the member to maintain its financial or nonfinancial information would impair its independence if the member takes responsibility for hosting that information on the client's behalf.  Having custody of the client's information means the member is performing a management responsibility, i.e. internal control function, for the attest client.  However, not all custody results in hosting services.  If the client engages the member to perform tax compliance services and in doing so, the member has custody of certain of the client's records to perform the service, this would not qualify as hosting services provided the member returns the records timely. The member could also provide bookkeeping services using Quickbooks or another accounting software if the member and client each have the software on their respective servers. Or, the client can contract with a third party cloud-based software provider and give the member permission to access the client's books via the software to perform the services.  The new interpretation is effective 9/1/18. 

The two (2) other interpretations apply to members in business - a revision of "Knowing Misrepresentations in the Preparation of Financial Statements or Records" and a new interpretation called "Pressure to Breach the Rules".   Both rules were adopted following review of similar provisions in the International Ethics Standards Board for Accountants (IESBA) ethics code. 

The revised interpretation expands the current rule to include information beyond the financial statements and addresses information that is not subject to a reporting framework.  The new title is "Knowing Misrepresentations in the Preparation and Presentation of Information" and the guidance (as before) appears under the Integrity and Objectivity Rule of the Code (2.100). The rule provides safeguards the member should apply to resolve a matter when he/she may become associated with misleading information. 

The new interpretation "Pressure to Breach the Rules" also will appear as part of the Integrity and Objectivity Rule (2.100) and provides guidance to members who come under pressure (whether explicit or implicit) from various parties in connection with performing professional services.  The interpretation provides several examples, factors to consider, and safeguards. Members are also prohibited from pressuring others when the members knows, or should know, that the pressure would cause the recipient to breach the Code.

Both interpretations applicable to members in business become effective 8/31/17.