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AICPA releases revised interpretation on state and local government client affiliates

The AICPA issued an Official Release, State and Local Government Client Affiliates (formerly “Entities Included in State and Local Government Financial Statements,” (ET sec. 1.224.020) under the “Independence Rule” (ET sec. 1.200.001)).

The interpretation helps members identify the entities related to a state or local government (SLG) (such as component units or funds) that are "affiliates" of the SLG for independence purposes. Affiliates of SLG financial statement attest clients are subject to independence provisions in the AICPA Code of Professional Conduct (Code) except for nonattest services the member (or member's firm) provides to the affiliate if the services do not create a self-review threat. Independence applies even if the member (or member's firm) does not provide attest services to the affiliate.

Given the unique structure and relationship of SLGs and the entities associated with them,1.224.020 takes a very different approach than 1.224.010, Client Affiliates, which applies more broadly to entities such as corporations, partnerships, employee benefit plans and trusts.

The revised interpretation is effective for years beginning after December 15, 2020 and will be added to the Code with the June 2019 update.