The AICPA Professional Ethics Executive Committee (PEEC) held an open meeting on 7/12. Highlights of the meeting follow:
Actions taken by the PEEC:
- Unanimously agreed to adopt a proposal that requires members to disclose permissible commission or referral fee arrangements to clients in writing with a delayed effective date of January 31, 2017.
- Unanimously agreed to adopt, with revisions, proposals related to the transfer of files and return of client records when members sell, transfer, discontinue, acquire or merge an accounting practice.
The PEEC also:
- Provided feedback to the task force examining the “client” and “attest client” definitions in the Code.
- Agreed to form a task force to study whether to amend the code’s independence provisions for nonattest services to address cybersecurity-related advisory services.
- Directed the leases task force to proceed with option #2 described in the agenda, that is:
- Revise the independence interpretation to conform to new language in the FASB lease standard, i.e., change “capital lease” to “finance lease” and continue to treat these transactions as loans.
- Add short term leases to the provision for operating leases and require these transaction be in the normal course of business, under usual terms and conditions, and immaterial to the firm and the lessor.
- Provided feedback to a convergence task force examining Part C of the International Ethics Standards Board for Accountants (IESBA) Code revamp of certain provisions for accountants in business.
- Provided feedback and generally agreed with the direction being proposed by another convergence task force regarding a new IESBA standard termed “NOCLAR” – which stands for noncompliance with laws and regulations.
- The PEEC’s cloud computing task force is in the process of defining various IT related terms (e.g. off-the-shelf software and configuration) and considering revisions to the PEEC’s FAQs on IT services. The task force will present comments received on the exposure draft on hosting services and its proposals at the next PEEC open meeting.
- IESBA activities, including an IESBA task force’s response to comments on the re-exposure of the “long association” provision (i.e., partner rotation).
- A draft nonattest services independence tool kit for the PEEC’s consideration.
The Open Meeting Agenda is available here. The next PEEC meeting is scheduled for November 3-4, 2016 in Austin, Texas.
If an auditor’s client agrees to indemnify the firm in the event the firm must respond to an investigation on behalf of the client impair independence? The SEC has argued for many years that the client’s agreement to indemnify the auditor removes the auditor’s incentive to perform a quality audit. Some (myself included) have questioned whether this is truly a threat to the auditor’s independence — versus an audit quality issue unrelated to independence. The debate continues in light of a 2014 enforcement case concluded earlier this year… Click here to read an article on the topic.
On June 20, 2016 the SEC Division of Investment Management issued a “no action” letter (NAL) to Fidelity Management & Research Co et al. (Fidelity) on an independence issue that has recently received some press. The NAL was in response to Fidelity’s request that the SEC not take enforcement action against the company and certain of its affiliates for its auditor’s noncompliance with an SEC independence rule that prohibits the auditor from having a loan with a greater than ten percent shareholder of a Fidelity entity (subject to certain conditions that Fidelity and the auditor have satisfied). The SEC Staff agreed to not pursue action against the company, subject to the conditions noted in the letter, for a period of eighteen (18) months after which the assurance may or may not be renewed. The NAL noted that the Division of Investment Management consulted with the SEC’s Office of the Chief Accountant and Division of Corporate Finance in developing its analysis.
An AICPA Exposure Draft proposing a new independence interpretation on hosting services was released in May 2016. Interested parties have until July 18, 2016 to comment. The proposal would deem situations where a member is engaged to have custody or control of an attest client’s data or records used in its business operations to create a management responsibility that impairs independence. Examples of situations that create / do not create insurmountable threats to independence are provided.
What types of activities with attest clients trigger business relationships that impair independence – either in fact or in appearance? This issue of Audit Conduct News addresses that question from both the AICPA’s and the SEC’s perspectives. Happy reading ! Audit Conduct News Summer 2016
The AICPA’s Professional Ethics Executive Committee (PEEC) held an open meeting in Durham, NC on May 5th. Topics on the agenda included: cyber-security, how to define client, and cloud hosting services. Highlights are available here.
On April 12, 2016, the PCAOB released proposed amendments to the auditing standards on an audit firm’s use of other audit firms and proposed a new standard, Dividing Responsibility for the Audit with Another Accounting Firm. The proposals seek to enhance the transparency of firms’ use of other audit firms, especially by firms domiciled outside the US (e.g. extent to which the other firm contributed to the audit), and also prescribes responsibilities to the lead auditor regarding, for example, planning, supervision, evaluation, communication and workpaper access. Comments on the proposals are due July 29, 2016.
In his speech, “Issues for the Academic Community to Consider,” PCAOB member Steven Harris relays concerns he has heard re: auditor independence as chair of the Board’s Investor Advisory Group. Investors also wondering what happened to recommendations of the U.S. Treasury’s Advisory Committee on the Auditing Profession (ACAP) 2008 report ….
KPMG released an update today on the status of EU member states’ adoption of “individualized” versions of the new EU audit rules in its “Defining Issues” publication. Rules include those on mandatory firm rotation and nonaudit services restrictions. Many more countries have not yet adopted the rules, which allow significant tailoring and go into effect June 17, 2016. The seven (7) nations that have have adopted the rules have unfortunately moved in different directions. According to a KPMG survey cited in the publication, a third of the largest 125 EU companies have put their audits out to bid and 75 percent of those have resulted in an auditor change. In addition, other countries, e.g. India and Brazil, either have or are considering similar audit reforms as the EU according to the article.
A PCAOB report released 4/5/16 examined firms’ implementation of new PCAOB audit committee communication standard AS1301 – indicates firms have implemented and most (but not all) audit teams have properly applied. The PCAOB also observed noncompliance / lack of understanding by some auditors with existing independence rule 3526 to communicate with the audit committee about independence.