AICPA Proposes Revisions to Independence Interpretation on Leasing Interests

The AICPA's Professional Ethics Executive Committee (PEEC) released proposed revisions to its independence interpretation on leasing interests today.  The current interpretation (Leases - 1.260.040) syncs with the soon-to-be changed FASB capital / operating lease classification and requires permissible operating leases to result from "arms length" transactions and be kept current in accordance with the lease provisions.  Upon review, the PEEC agreed to retain those two (2) conditions for holding a permissible lease as minimum safeguards, but to abandon the lease classification approach. Rather, the PEEC focused on threats to independence (such as familiarity or self-interest threats) that may arise in connection with leasing arrangements, and whether safeguards can mitigate those threats. 

Leases that Impair Independence

On one end of the spectrum, the PEEC proposed that the following leases between a covered member and an attest client would impair the appearance of independence (due to an absence of safeguards that would mitigate threats to independence): 

  • A lease that is material to the firm that is a party to the lease, or
  • A lease that is material to a(n) member of the attest team or individual in a position to influence the attest engagement who is a party to the lease, or
  •  A lease that is material to the attest client

Leases that May Impair Independence

If a covered member does not have an independence-impairing lease by virtue of one of the situations described above, he/she should still consider the following factors in determining whether threats exist that warrant the application of additional safeguards: 

  • Role of the covered member on the attest engagement and with the firm
  • Materiality of the lease to the covered member (other than those addressed in the bullet list above)
  • Whether there are multiple leases with the attest client and the aggregate materiality of leases to the covered member and the attest client 
  • The extent to which the lease will be subject to attest procedures or financial statement disclosures

Grandfathered Leases and Primary Residences

The proposed revisions would apply similar conditions to grandfathered leases as certain pre-existing, grandfathered loans with an attest client in the Code, but would not consider materiality to be a "bright line" test. Likewise, due to concerns that a strict rule would create hardship situations, the proposed revision provides a carve-out for primary residences, regardless of materiality (although covered members would not be able to enter into new lease arrangements during the period of the professional engagement unless they met the criteria in pars. 1 and 2 of the proposed interpretation). 


Auto leases, which are specifically permitted under the Loans and Leases with Lending Institutions interpretation (1.260.020), are not included in the scope of this proposed interpretation.  The proposal also points out that the proposed provisions would apply to a covered member's immediate family and to leases held with an affiliate of a financial statement attest client. 

Effective Date

The proposed effective date for the revised interpretation is for leases entered into after December 15, 2019. 

Comment Deadline

Comments on the proposal are due January 15, 2017.  (Note: the original document indicates an earlier deadline, but the PEEC issued an updated document.)