LEASES TASK FORCE
The PEEC discussed various questions the task force posed regarding:
· Materiality of the lease to the client and/or the individual or firm, and the different threats posed depending on whether the lease was material to one or both, or involved the firm or an individual in the firm or associated with the engagement team, and
· The inclusion of certain covered member’s immediate family (e.g. spouse or dependents) to an exemption in the proposed rule.
OUTCOME: The task force agreed to consider the PEEC’s feedback regarding these issues in formulating a revised proposal to be presented at the July 2017 meeting.
IFAC CONVERGENCE - PART C
The PEEC discussed comments received on the proposed new and revised interpretations to Part 2 of the Code regarding knowing misrepresentations and pressure to breach the rules, which were patterned after similar interpretations in the International Ethics Standards Board for Accountants (IESBA) Code (Part C).
OUTCOME: The PEEC voted unanimously to adopt the new and revised interpretations, as amended.
· The IESBA Strategy Survey seeking comments about projects the IESBA will undertake in 2018 and on
· The recently released ED on Professional Skepticism and Professional Judgment, and that IESBA will continue the project by considering whether professional skepticism should apply outside of audit and other assurance services contexts
· Fees Working Group, which is examining whether the level of audit fees from a particular attest client as a proportion of partner and office revenue or compared to nonaudit fees, impacts independence. It was noted that while academic research has been inconclusive in connecting the two (other than the appearance factor), the IESBA is receiving pressure from the International Organization of Securities Commissions (IOSCO) and the Public Interest Oversight Board (PIOB) to consider these issues. (The PIOB is the global independent overseer of the International Federation of Accountants’ standard-setting bodies.) IESBA is conducting outreach to national standard-setters and regulators to get their views and may ultimately hold roundtable discussions on the issue.
· Safeguards and Structure of the Code proposals (both of which PEEC has or will comment on), which will be effective at the end of 2018, and may prompt the PEEC to re-examine its Code.
STATE AND LOCAL GOVERNMENT AFFILIATE RULE
The PEEC discussed the proposed interpretation, which would replace 1.224.020, Entities Included in State and Local Government Financial Statements.
OUTCOME: The PEEC voted unanimously to expose the revised interpretation.
CLOUD AND IT SERVICES TASK FORCE
The PEEC discussed the revised Hosting Services interpretation, which the task force revised to include elements that the task force previously proposed for inclusion in Frequently Asked Questions. It was noted during the discussion that the task force made no substantive changes since the Exposure Draft (ED) was issued, however, it was clarified in response to comments raised during the exposure period and at previous PEEC meetings.
The PEEC amended the definition of hosting in par. 1 to specifically address when a member hosts software (e.g. a software "system") for the client as opposed to data or records. (This was previously addressed in the proposed interpretation as an example.) PEEC agreed that both would be considered management responsibilities. The PEEC also agreed to remove the notion of “off the shelf” software from another example in the revised version of the interpretation so that the task force may more appropriately address the issue in the information systems services interpretation.
Due to concern that six (6) months may not be enough time for members to transition out of hosting services agreements, the PEEC agreed to give members one (1) year from the effective date of the new rule (i.e. upon publication in the Journal of Accountancy).
The PEEC also discussed the revised information systems services interpretation and provided input to the task force on whether various elements / degrees of network maintenance and modifying source code threaten independence.
OUTCOME: The PEEC voted unanimously to adopt the new hosting services interpretation, as amended. The task force will continue its work on the information systems services interpretation for PEEC review at the July meeting.
LONG ASSOCIATION WITH AN ATTEST CLIENT
The PEEC discussed the following issues related to this IESBA convergence project:
· Application of the rule to persons other than senior personnel i.e., key audit partner or equivalent
· Whether having regular contact with client management (in and of itself) is too broad a concept to qualify an individual as “senior personnel” subject to rotation considerations
· Scope of rule to all attest engagements (same as IESBA)
· Impact on smaller firms and which safeguards may be available to them, e.g. concurring partner review
· Fact that today the AICPA Conceptual Framework identifies long association with an attest client as a familiarity threat
· Whether the self-interest or other threats to independence also apply
· Proposed interpretation does not specify a time frame for rotation of senior personnel, which would be subject to the member's analysis of relevant threats and safeguards
OUTCOME: The PEEC voted unanimously to issue the proposed interpretation on long association with a 60-day comment period. To be consistent with IESBA the interpretation would apply in periods on or after 12/15/18.
The PEEC's Agenda is available here. The next meeting will be held in Denver, CO on July 25-26, 2017.