ET Section 92 - Definitions 


    As adopted, January 12, 1988, unless otherwise indicated

    [Pursuant to its authority under the bylaws (BL § 3.6.2.2) to interpret the Code of Professional Conduct, the Professional Ethics Executive Committee has issued the following definitions of terms appearing in the code effective November 30, 1989.]

    .01 Attest engagement. An attest engagement is an engagement that requires independence as defined in AICPA Professional Standards.

    [Revised November 2001.]

    .02 Attest engagement team. The attest engagement team consists of individuals participating in the attest engagement, including those who perform concurring and second partner reviews. The attest engagement team includes all employees and contractors retained by the firm who participate in the attest engagement, irrespective of their functional classification (for example, audit, tax, or management consulting services). The attest engagement team excludes specialists as discussed in AU-C section 620, Using the Work of a Specialist, and individuals who perform only routine clerical functions, such as word processing and photocopying.

    [Revised November 2001. Revised May 2011. Revised May 2013, revisions effective June 30, 2013.]

    .03 Client. A client is any person or entity, other than the member’s employer, that engages a member or member’s firm to perform professional services or a person or entity with respect to which professional services are performed. For purposes of this paragraph, the term employer does not include—

    1. Entities engaged in public practice.
    2. Federal, state, and local governments or component units thereof provided the member performing professional services with respect to those entities is
      1. directly elected by voters of the government or component unit thereof with respect to which professional services are performed; or
      2. an individual who is (1) appointed by a legislative body and (2) subject to removal by a legislative body; or
      3. appointed by someone other than the legislative body, so long as the appointment is confirmed by the legislative body and removal is subject to oversight or approval by the legislative body.

    [Revised December 1998. Revised March 2013, revisions effective May 31, 2013.]

    .04 Close relative. A close relative is a parent, sibling, or nondependent child.

    [Revised November 2001.]

    .05 Confidential client information. Confidential client information is any information obtained from the client that is not available to the public. Information that is available to the public includes, but is not limited to, information

    • in a book, periodical, newspaper, or similar publication;
    • in a client document that has been released by the client to the public or that has otherwise become a matter of public knowledge;
    • on publicly accessible websites, databases, online discussion forums, or other electronic media by which members of the public can access the information; 
    • released or disclosed by the client or other third parties in media interviews, speeches, testimony in a public forum, presentations made at seminars or trade association meetings, panel discussions, earnings press release calls, investor calls, analyst sessions, investor conference presentations, or a similar public forum;
    • maintained by, or filed with, regulatory or governmental bodies that is available to the public; or
    • obtained from other public sources.

    Unless the particular client information is available to the public, such information should be considered confidential client information.

    Members are advised that federal, state, or local statutes, rules, or regulations concerning confidentiality of client information may be more restrictive than the requirements contained in the Code of Professional Conduct.

    [Added August 2011, Effective November 30, 2011]

    .06 Council. The Council of the American Institute of Certified Public Accountants.

    [Paragraph renumbered August 2011.]
     
    .07 Covered member. A covered member is

    1. an individual on the attest engagement team;
    2. an individual in a position to influence the attest engagement;
    3. a partner, partner equivalent or manager who provides nonattest services to the attest client beginning once he or she provides ten hours of nonattest services to the client within any fiscal year and ending on the later of the date (i) the firm signs the report on the financial statements for the fiscal year during which those services were provided or (ii) he or she no longer expects to provide ten or more hours of nonattest services to the attest client on a recurring basis;
    4. a partner or partner equivalent in the office in which the lead attest engagement partner or partner equivalent primarily practices in connection with the attest engagement;
    5. the firm, including the firm’s employee benefit plans; or
    6. an entity whose operating, financial, or accounting policies can be controlled (as defined in Financial Standards Accounting Board [FASB] Accounting Standards Codification [ASC] 810, Consolidation) by any of the individuals or entities described in (a) through (e) or by two or more such individuals or entities if they act together.

    [Revised November 2001. Revised March 2011, by the Professional Ethics Executive Committee, effective May 31, 2011. Paragraph renumbered September 2011. Revised March 2013, revision effective for engagements covering periods beginning on or after December 15, 2014.]

    [.08] Enterprise. [Revised November 2001. Paragraph renumbered August 2011.]

    .09 Financial institution. A financial institution is considered to be an entity that, as part of its normal business operations, makes loans or extends credit to the general public. In addition, for automobile leases addressed under interpretation 101-5, Loans From Financial Institution Clients [ET section 101.07], an entity would be considered a financial institution if it leases automobiles to the general public.

    [Revised November 2002 and September 2003. Paragraph renumbered August 2011.]

    .10 Financial statements. A presentation of financial data, including accompanying notes, if any, intended to communicate an entity’s economic resources and/or obligations at a point in time or the changes therein for a period of time, in accordance with generally accepted accounting principles or a comprehensive basis of accounting other than generally accepted accounting principles.

    Incidental financial data to support recommendations to a client or in documents for which the reporting is governed by Statements on Standards for Attestation Engagements and tax returns and supporting schedules do not, for this purpose, constitute financial statements. The statement, affidavit, or signature of preparers required on tax returns neither constitutes an opinion on financial statements nor requires a disclaimer of such opinion.

    [Paragraph renumbered August 2011.]

    .11 Firm. A firm is a form of organization permitted by law or regulation whose characteristics conform to resolutions of the council of the AICPA and that is engaged in public practice. Firm includes the individual partners thereof except for purposes of applying Rule 101: Independence [ET section 101.01]. For purposes of applying Rule 101, firm includes a network firm when the engagement is either a financial statement audit or review engagement, and the audit or review report is not restricted, as defined by professional standards.

    [Revised November 2001. Revised May 2010, effective for engagements covering periods beginning on or after July 1, 2011. Paragraph renumbered August 2011. Revised March 2013, revisions effective May 31, 2013]

    [.12] Holding out. [Paragraph renumbered September 2011. Deleted March 2013, effective May 31, 2013.]

    .13 Immediate family. Immediate family is a spouse, spousal equivalent, or dependent (whether or not related). [Revised November 2001. Paragraph renumbered August 2011.]

    .14 Individual in a position to influence the attest engagement. An individual in a position to influence the attest engagement is one who—

    1. Evaluates the performance or recommends the compensation of the attest engagement partner;
    2. Directly supervises or manages the attest engagement partner, including all successively senior levels above that individual through the firm’s chief executive;
    3. Consults with the attest engagement team regarding technical or industry-related issues specific to the attest engagement; or
    4. Participates in or oversees, at all successively senior levels, quality control activities, including internal monitoring, with respect to the specific attest engagement.

    [Revised November 2001. Paragraph renumbered August 2011.]

    .15 Institute. The American Institute of Certified Public Accountants. [Paragraph renumbered August 2011.]

    .16 Interpretations of rules of conduct. Pronouncements issued by the division of professional ethics to provide guidelines concerning the scope and application of the rules of conduct.

    [Paragraph renumbered August 2011.]

    .17 Joint closely held investment. A joint closely held investment is an investment in an entity or property by the member and the client (or the client's officers or directors, or any owner who has the ability to exercise significant influence over the client) that enables them to control (as defined in FASB ASC 810 Consolidation)  the entity or property.

    [Revised November 2001. Revised May 2011. Paragraph renumbered August 2011.]

    .18 Key position. A key position is a position in which an individual:

    1. Has primary responsibility for significant accounting functions that support material components of the financial statements;
    2. Has primary responsibility for the preparation of the financial statements; or
    3. Has the ability to exercise influence over the contents of the financial statements, including when the individual is a member of the board of directors or similar governing body, chief executive officer, president, chief financial officer, chief operating officer, general counsel, chief accounting officer, controller, director of internal audit, director of financial reporting, treasurer, or any equivalent position.

    For purposes of attest engagements not involving a client’s financial statements, a key position is one in which an individual is primarily responsible for, or able to influence, the subject matter of the attest engagement, as described above.

    [Revised November 2001. Paragraph renumbered August 2011.]

    .19 Loan. A loan is a financial transaction, the characteristics of which generally include, but are not limited to, an agreement that provides for repayment terms and a rate of interest. A loan includes, but is not limited to, a guarantee of a loan, a letter of credit, a line of credit, or a loan commitment.

    [Revised November 2001. Paragraph renumbered August 2011.]

    .20 Manager. A manager is a professional employee of the firm who has responsibility for the planning and supervision of engagements for specified clients.  

    [Revised November 2001. Paragraph renumbered August 2011. Revised March 2013, effective May 31, 2013]

    .21 Member. A member, associate member, or international associate of the American Institute of Certified Public Accountants. [Paragraph renumbered August 2011.]

    .22 Member in business. A member employed or engaged on a contractual or volunteer basis in an executive, a staff, a governance, an advisory, or an administrative capacity in such areas as industry, the public sector, education, the not-for-profit sector, or regulatory or professional bodies. This does not include a member while engaged in the practice of public accounting [Paragraph added August 2011, Effective November 30, 2011] 

    .23 Network.
    For purposes of Interpretation No. 101-17, “Networks and Network Firms,” [ET section 101.19] a network is an association of entities that includes one or more firms that (a) cooperate for the purpose of enhancing the firms’ capabilities to provide professional services and (b) share one or more of the following characteristics:

    1. The use of a common brand name (including common initials) as part of the firm name
    2. Common control (as defined in FASB ASC 810) among the firms through ownership, management, or other means
    3. Profits or costs, excluding the following:
      1. costs of operating the association
      2. costs of developing audit methodologies, manuals, and training courses
      3. other costs that are immaterial to the firm
      4. Common business strategy that involves ongoing collaboration amongst the firms whereby the firms are responsible for implementing the association's strategy and are held accountable for performance pursuant to that strategy
      5. Significant part of professional resources
      6. Common quality control policies and procedures that firms are required to implement and that are monitored by the association

      A network may comprise a subset of entities within an association if only that subset of entities cooperates and shares one or more of the characteristics set forth in the preceding list.

      [Paragraph added May 2010, effective for engagements covering periods beginning on or after July 1, 2011. Revised May 2011. Paragraph renumbered August 2011.]

      .24 Network Firm. A network firm is a firm or other entity that belongs to a network, as defined in ET section 92 paragraph .23. This includes any entity (including another firm) that the network firm, by itself or through one or more of its owners, controls (as defined in FASB ASC 810), is controlled by, or is under common control with.

      [Revised May 2011. Paragraph added May 2010, effective for engagements covering periods beginning on or after July 1, 2011. Revised May 2011. Paragraph renumbered August 2011.]

      .25 Normal Lending Procedures, Terms, and Requirements. "Normal lending procedures, terms, and requirements" relating to a covered member's loan from a financial institution are defined as lending procedures, terms, and requirements that are reasonably comparable with those relating to loans of a similar character committed to other borrowers during the period in which the loan to the covered member is committed. Accordingly, in making such comparison and in evaluating whether a loan was made under "normal lending procedures, terms, and requirements," the covered member should consider all the circumstances under which the loan was granted, including

      1. The amount of the loan in relation to the value of the collateral pledged as security and the credit standing of the covered member.
      2. Repayment terms.
      3. Interest rate, including "points."
      4. Closing costs.
      5. General availability of such loans to the public.

      Related prohibitions that may be more restrictive are prescribed by certain state and federal agencies having regulatory authority over such financial institutions. Broker-dealers, for example, are subject to regulation by the Securities and Exchange Commission.

      [Revised November 2002. Paragraph renumbered May 2010. Paragraph renumbered August 2011.]

      .26 Office. An office is a reasonably distinct subgroup within a firm, whether constituted by formal organization or informal practice, where personnel who make up the subgroup generally serve the same group of clients or work on the same categories of matters. Substance should govern the office classification. For example, the expected regular personnel interactions and assigned reporting channels of an individual may well be more important than an individual’s physical location.

      [Revised November 2001.Paragraph renumbered May 2010. Paragraph renumbered August 2011.]

      .27 Partner. A partner is a proprietor, shareholder, equity or non-equity partner or any individual who assumes the risks and benefits of firm ownership or who is otherwise held out by the firm to be the equivalent of any of the aforementioned.

      [Revised November 2001.Paragraph renumbered May 2010. Paragraph renumbered August 2011.]

      .28 Partner equivalent.  A partner equivalent is a professional employee who is not a partner of the firm as defined in paragraph .27, but who

      1. has the authority to bind the firm to conduct an attest engagement without partner approval (for example, the professional employee has the authority to sign or affix the firm’s name to an attest engagement letter or contract to conduct an attest engagement without partner approval); or
      2. has the ultimate responsibility for the conduct of an attest engagement, including the authority to sign or affix the firm’s name to an attest report or issue, or authorize others to issue, an attest report on behalf of the firm without partner approval.

      Firms may use different titles to refer to professional employees with this authority, although a title is not determinative of a partner equivalent. For purposes of this definition, partner approval does not include any partner approvals that are part of the firm’s normal approval and quality control review procedures applicable to a partner.

       

      This definition is solely for the purpose of applying Rule 101 and its interpretations and rulings and should not be used or relied upon in any other context, including the determination of whether the partner equivalent is an owner of the firm.

       

      [Paragraph added March 2013, effective for engagements covering periods beginning on or after December 15, 2014.]

      .29  Period of the professional engagement. The period of the professional engagement begins when a member either signs an initial engagement letter or other agreement to perform attest services or begins to perform an attest engagement for a client, whichever is earlier. The period lasts for the entire duration of the professional relationship (which could cover many periods) and ends with the formal or informal notification, either by the member or the client, of the termination of the professional relationship or by the issuance of a report, whichever is later. Accordingly, the period does not end with the issuance of a report and recommence with the beginning of the following year's attest engagement.

      [Revised November 2001.Paragraph renumbered May 2010. Paragraph renumbered September 2011. Paragraph renumbered March 2013.]

      .30 Public practice. Public practice consists of the performance of professional services for a client by a member or a member’s firm.

      [Revised June 2009.Paragraph renumbered May 2010. Paragraph renumbered September 2011. Revised and renumbered March 2013, effective May 31, 2013]

      .31 Professional services. Professional services include all services performed by a member for a client, an employer, or on a volunteer basis, requiring accountancy or related skills, including but not limited to, accounting, audit and other attest services, tax, bookkeeping, management consulting, financial management, corporate governance, personal financial planning, business valuation, litigation support, educational, and those services for which standards are promulgated by bodies designated by council.

      [Paragraph renumbered May 2010. Paragraph renumbered September 2011. Revised and renumbered March 2013, effective May 31, 2013]

      .32 Significant influence. The term significant influence is as defined in FASB ASC 323–10–15 .

      [Revised November 2001 and June 2009. Paragraph renumbered May 2010. Paragraph renumbered September 2011. Paragraph renumbered March 2013.]




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