Council Resolution Concerning Rule 505—Form of Organization and Name
[As adopted May 23, 1994; revised May 7, 1997, May 15, 2000, and May 22, 2006.]
- RESOLVED: That with respect to a member engaged in the practice accounting in a firm or organization which performs (1) any audit or other engagement performed in accordance with the Statements on Auditing Standards, (2) any review of a financial statement performed in accordance with the Statements on Standards for Accounting and Review Services, or (3) any examination of prospective financial information performed in accordance with the Statements on Standards for Attestation Engagements, or which holds itself out as a firm of certified public accountants or uses the term "certified public accountant(s)" or the designation "CPA" in connection with its name, the characteristics of such a firm or organization under rule 505 [ ET section 505.01] are as set forth below.
- A majority of the ownership of the firm in terms of financial interests and voting rights must belong to CPAs. Any non-CPA owner would have to be actively engaged as a member of the firm or its affiliates. Ownership by investors or commercial enterprises not actively engaged as members of the firm or its affiliates is against the public interest and continues to be prohibited.
- There must be a CPA who has ultimate responsibility for all the services described in A above, compilation services and other engagements governed by Statements on Auditing Standards or Statements on Standards for Accounting and Review Services and non-CPA owners could not assume ultimate responsibility for any such services or engagements.
- Non-CPA owners would be permitted to use the title "principal," "owner," "officer," "member" or "shareholder," or any other title permitted by state law, but not hold themselves out to be CPAs.
- A member shall not knowingly permit a person, whom the member has the authority or capacity to control, to carry out on his or her behalf, either with or without compensation, acts which, if carried out by the member, would place the member in violation of the rules. Further, a member may be held responsible for the acts of all persons associated with him or her in the practice of public accounting whom the member has the authority or capacity to control.
- Owners shall at all times own their equity in their own right and shall be the beneficial owners of the equity capital ascribed to them. Provision would have to be made for the ownership to be transferred, within a reasonable period of time, to the firm or to other qualified owners if the owner ceases to be actively engaged in the firm or its affiliates.
- Non-CPA owners would not be eligible for regular membership in the AICPA unless they meet the requirements in BL section 2.2.1.
- RESOLVED: The characteristics of all other firms or organizations are deemed to be whatever is legally permissible under applicable law or regulation except as otherwise provided in paragraph C below.
- RESOLVED: That with respect to a member engaged in the practice of public accounting in a firm or organization which is not within the description of a firm or organization set forth in paragraph A above, but who performs compilations of financial statements performed in accordance with the Statements on Standards for Accounting and Review Services, the characteristics of such a firm or organization under rule 505 [ ET section 505.01] are as set forth below.
- There must be a CPA who has ultimate responsibility for any financial statement compilation services provided by the firm and by each business unit performing such compilation services and non-CPA owners could not assume ultimate responsibility for any such services.
- Any compilation report must be signed individually by a CPA, and may not be signed in the name of the firm or organization.
The change to this subsection is an administrative change to conform to section 2.2.1 of the bylaws.