February 10, 2016 RECENT DEVELOPMENTS
The AICPA’s Professional Ethics Executive Committee (PEEC) held an open meeting on Feb 4, 2016, discussing (among other topics) the definition of client, cloud computing services, and compliance with standards. Highlights of the discussions appear below.
Definition of client:
A task force charged with re-assessing the current definition of “client” and its use in the Code presented a draft definition to the PEEC. The proposed definition removes the entity to which the member’s services relate from the current definition, and would include only the party engaging the member, i.e. any person or entity, other than the member’s employer, that engages a member or a member’s firm to perform professional services. A newly proposed term, “attest entity,” would replace “attest client” and include the entity to which attest services relate but exclude the engaging entity, if they were separate entities (e.g., Company A hires the member to perform an audit of Company B, thus Company B is the attest entity).
The task force also reviewed all instances in the Code in which the terms “client” and “attest entity” (as proposed) would be used, making over 260 recommendations. The PEEC discussed use of the terms in the commission and contingent fee rules (which are separate from the independence rule), asking the task force to reconsider the application to the contingent fee rule and agreeing by straw poll to keep the commission rule as simple as possible. The task force agreed to reconsider PEEC’s feedback and asked members to provide any additional comments on the remaining recommendations within ten (10) days.
Information technology and cloud services:
A task force charged with proposing changes to the AICPA’s nonattest services interpretation for IT “cloud” services provided an update and draft language for the PEEC’s consideration and feedback. The task force reported its belief that when an attest client engages a member to have custody and/or control of its data or records that the client uses to conduct its business, the member is providing hosting services to the client. The task force believes hosting services impair independence because the member is assuming a management responsibility. PEEC members agreed that either custody or control would suffice in establishing a hosting service (i.e. would not necessarily be both). PEEC discussed a scenario in which a member has custody of information that it disseminates to third parties on behalf of a client (e.g. limited partnership), which the task force agreed to consider. The task force will report back to PEEC at the May 2016 meeting with a proposal for possible exposure.
Compliance with Standards:
The PEEC discussed the question of whether a member may perform professional services that are not addressed in professional standards endorsed by the AICPA’s Council (Appendix A of the Code) as directed in the Compliance with Standards Rule. Examples include comfort letters for tax services and SSAE 16-type services performed under international standards. PEEC members generally believed that it would be unfair to not allow members to perform services provided the member otherwise complied with the General Standards Rule (e.g., was competent, exercised due care, etc.) Three PEEC members agreed to draft guidance to that effect.
AICPA Staff briefed the PEEC on recent developments of the International Ethics Standards Board for Accountants (IESBA), including projects on long association, restructuring the IESBA Code, and an accountant’s professional responsibilities when he/she discovers noncompliance with laws or regulations. One other project — proposed changes to the types and manner in which safeguards may reduce or eliminate threats to independence — would have a significant impact on the IESBA’s conceptual framework, and thus the AICPA Code. Staff asked the PEEC to provide feedback on the Board’s proposed Code restructuring and will assemble a group to draft a comment letter to the IESBA on the Board’s safeguards project proposal.
The next PEEC meeting will be held in Durham, NC on May 5-6, 2016.
A link to the PEEC’s meeting information and full agenda for this and other meetings appears here.