The Professional Ethics Executive Committee (PEEC) held virtual open meetings on February 16 and 17, 2022. Highlights of the meetings follow:
Noncompliance with laws and regulations (NOCLAR) – New and revised interpretations of the Integrity & Objectivity Rule of the AICPA Code of Professional Conduct (Code)
Upon review of the latest draft proposal, the PEEC agreed to:
- remove item f in paragraph .06 of the new interpretations (1.170.010 and 2.170.010 of the Integrity & Objectivity Rule), which provided an exemption from complying with the interpretations when internal audit services are performed under International Standards for the Professional Practice of Internal Auditing.
- narrow application of the proposed interpretation in 1.170.010 pars. .13 - .30 to members providing financial statement audits and reviews (rather than financial statement attest services, which included financial statement compilations that do not disclose a lack of independence).
The PEEC unanimously approved the two (2) new interpretations noted above and conforming revisions to the Ethical Conflicts interpretations of the Integrity & Objectivity Rule in 1.000.020 and 2.000.020.
The changes will take effect one (1) year after publication in the Journal of Accountancy (expected in April 2022) with early implementation permitted. The task force and staff plan to make nonauthoritative guidance available to the membership prior to the effective date.
Assisting attest clients with implementing accounting standards – New independence interpretation
Upon review of the latest draft proposal, the PEEC agreed to make certain clarifying edits to the new interpretation of the Independence Rule, Assisting attest clients with implementing accounting standards (1.295.113).
The PEEC unanimously approved the new interpretation, which will be effective six (6) months after publication in the Journal of Accountancy and will allow early implementation.
SEC convergence – Revised independence interpretations and related definition
Upon review of the latest draft proposal, the PEEC agreed to replace the term, “short period of time” with “reasonable period of time” in par. .10(b) of the proposed Client Affiliates interpretation (1.224.010). PEEC also agree that the task force should develop nonauthoritative guidance on what a “reasonable period of time” means in that context.
The PEEC unanimously approved the following revised interpretations of the Independence Rule and a related definition: (i) Client Affiliates (1.224.010), (ii) Loans (1.260.010), (iii) Loans and Leases with Lending Institutions (1.260.020), (iv) Immediate Family Members (1.270.010), and (v) definition of beneficially owned (0.400, par. 06).
The revisions will be effective six (6) months after publication in the Journal of Accountancy and will allow early implementation.
Unpaid fees – Revised independence interpretation
PEEC discussed the latest draft proposal of a revised interpretation of the Independence Rule, Unpaid Fees (1.230.010), including that some commenters disagreed with the move to a principles-based approach because it is more complex than the extant rule, may present challenges to regulators, and could be rejected by state boards that adopt the Code. After discussing these concerns, the PEEC approved the revised interpretation of the Independence Rule by a vote of 15:5. The revisions will be effective six (6) months after publication in the Journal of Accountancy and will allow early implementation.
Updates
PEEC heard updates on the latest International Ethics Standards Board for Accountants (IESBA) activities, AICPA Ethics Division initiatives, and the following PEEC task forces:
- Compliance Audit
- IFAC Convergence and Monitoring (PEEC agreed to form three (3) new task forces: Nonattest Services, Legal Services, and Tax Services)
- IESBA Engagement Quality Reviewer (a convergence project)
- IESBA Fees (a convergence project)
- Simultaneous employment or association with an attest client
- Information System Services
An AICPA Staff person gave a presentation on ESG – Environment, Social and Governance reporting and assurance.
Next meeting
The PEEC’s next meeting, which will be held virtually, is scheduled for May 17, 2022.
For more information, click here.
