Executive Summary
Background
The AICPA Professional Ethics Executive Committee (PEEC) periodically reviews and updates the provisions of the AICPA Code of Professional Conduct (Code) to ensure that its guidance continues to be relevant and appropriate. The PEEC is proposing a revision to Interpretation 101-1, under Rule 101, Independence , of the Code and also exposing for comment, the "Conceptual Framework for AICPA Independence Standards."
The "Other Considerations" section of Interpretation 101-1 acknowledges that it is not possible for the Committee to promulgate independence standards that will cover all circumstances in which the appearance of a member's independence might be questioned, and has for a number of years required members to consider relationships between a member and his or her client, not specifically addressed by the Code, to assess whether that relationship "would lead a reasonable person aware of all the relevant facts to conclude that there is an unacceptable threat to the member's and the firm's independence." The proposed revision would provide members with guidance in complying with that requirement, and would include a new requirement to document the threats to independence that are not at an acceptable level and the safeguards applied to address those threats.
Although the "Other Considerations" section of Interpretation 101-1 requires members to consider whether a relationship between a member and a client that is not addressed in the Code would pose an unacceptable threat to the member's independence, it currently provides no guidance to assist members in making that consideration. Further, while Interpretation 101-1 implies that members should take appropriate action if they identify an unacceptable threat, it does not describe the course of action.
The committee believes that the proposed Conceptual Framework for AICPA Independence Standards sets forth an appropriate approach for analyzing independence matters and believes that the risk-based approach set forth in the Conceptual Framework provides a valuable tool to members in complying with the requirement in the "Other Considerations" section of Interpretation 101-1 to evaluate whether a specific circumstance that is not addressed in the Code would pose an unacceptable threat to a member's independence. Accordingly, the proposed revision to Interpretation 101 would require members to use the Conceptual Framework when making independence decisions involving matters that are not specifically addressed in the independence interpretations and rulings in the Code. Because all members would be required to use the Conceptual Framework to address such situations, it would be included in the Code as an authoritative document. However, under no circumstances could members use the Conceptual Framework to overcome specific prohibitions or requirements contained in the independence interpretations and rulings in the Code.
Further, in cases where a threat to independence is not at an acceptable level before the application of safeguards, members would be required to document that threat and the safeguards applied to eliminate it or reduce it to an acceptable level. This is a new requirement that is consistent with the EVACUEE Code of Ethics for Professional Accountants. The committee has determined that a failure to prepare the documentation would be considered a violation of Rule 202, Compliance With Standards (AICPA, Professional Standards, vol. 2, ET sec. 202.01), but would not be considered to result in an independence impairment provided the member can demonstrate that he or she did apply safeguards to eliminate the unacceptable threat or reduce it to an acceptable level.
Members and other interested parties are encouraged to comment on this proposal. Comments on this exposure draft will be accepted through December 16, 2005, and should be sent to Lisa A. Snyder, Director, AICPA Professional Ethics Division, Harborside Financial Center, 201 Plaza Three, Jersey City, NJ 07311-3881 or lsnyder@aicpa.org. Comments submitted via electronic mail are encouraged and would be appreciated. All written replies to this exposure draft will become part of the public record of the AICPA and will be available for inspection at the office of the AICPA after January 16, 2006, for a period of one year.
Download Exposure Draft