On January 11, the AICPA Professional Ethics Executive Committee (PEEC) revised its proposal, State and Local Government Client Affiliates, the independence interpretation that dictates which entities associated with a state or local government (SLG) -- in addition to the SLG -- an audit firm must be independent of. An initial exposure draft dated July 7, 2017 elicited many comments and requests for clarity. The PEEC clarified the proposal and refined the terms used in the interpretation but also made three (3) changes of substance, and is requesting comments primarily on those three (3) changes, summarized below:
1) No longer require application of the conceptual framework for independence in all instances involving "upstream" affiliates of a financial statement attest client ("client"); instead, provide several examples of situations (involving upstream entities and other entities referred to as nonaffiliates) where the member may consult the conceptual framework.
2) To be consistent with the "Client Affiliates" interpretation, the proposed interpretation would require the member to expend "best efforts" to obtain information needed to identify investments held by the client and this would apply to all affiliates.
3) Narrow the requirement that a member presume that the client has more than minimal influence over an entity that is a possible affiliate only when the entity is a fund or blended component unit.
The proposal also poses four (4) questions to the commenter.
Responses are due March 11, 2019.
If adopted, the interpretation would be effective one year post-adoption, with early implementation permitted.
