Academic journal article Journal of Accountancy

Maintaining Independence with Nonattest Services: Safeguards Can Help Prevent Impairments to Independence

Academic journal article Journal of Accountancy

Maintaining Independence with Nonattest Services: Safeguards Can Help Prevent Impairments to Independence

Article excerpt

Independence is a critical concern for CPAs and is the very foundation of attest services. Independence is a state of mind that permits CPAs to perform without being affected by influences that compromise professional judgment, allowing them to act with integrity and exercise objectivity and professional skepticism.

The trust the public places in CPAs makes it important for them to avoid circumstances that could create a conclusion that their objectivity or professional skepticism has been compromised in the work they perform. This essential virtue of independence is preserved for CPAs by requirements that differ, depending on the type of client and engagement. The AICPA Code of Professional Conduct (AICPA Code) includes rules on independence and ethics for "members" (CPAs and firms). The Nonattest Services subtopic (ET [section] 1.295) of the Independence topic addresses the provision of nonattest services to attest clients. Attest engagements include any engagement that requires independence, such as audits and reviews (see the sidebar, "Examples of Nonattest Services").


When a member provides nonattest services for an attest client, threats to independence may exist. Whether the services can be provided depends on the nature of the services and whether the client is willing and able to meet certain responsibilities. In many cases, safeguards may be put in place so that threats are at an acceptable level and independence would not be impaired.

The "General Requirements for Performing Nonattest Standards" interpretation (ET [section] 1.295.040) requires the attest client to agree to all of the following safeguards:

* Assuming all management responsibilities.

* Overseeing the service performed by designating an individual with suitable skills, knowledge, and/or experience (SKE).

* Evaluating the adequacy and results of the services performed.

* Accepting responsibility for results of the services. The CPA cannot assume management's responsibilities and must be satisfied that the attest client and its management will meet their responsibilities in this area.

Another threat to independence is the self-review threat. The AICPA Code defines this as, "the threat that a member will not appropriately evaluate the results of a previous judgment made, or service performed or supervised by the member or an individual in the member's firm and that the member will rely on that service in forming a judgment as part of an attest engagement" (paragraph .17 of ET [section] 1.210.010). The AICPA Code provides examples of various safeguards that can be implemented by member firms, such as the use of different partners and engagement teams that have separate reporting lines in the delivery of permitted nonattest services to an attest client.

Before performing nonattest services, the member is required to establish and document in writing his or her understanding with the client regarding:

* The objectives of the engagement.

* The services to be performed.

* The attest client's acceptance of its responsibilities.

* The member's responsibilities.

* Any limitations of the engagement.

The member may determine the form that this documentation takes. The Code does not stipulate where to document but indicates that the form is not as important as the content and the timing. For example, this understanding with the client may be documented in engagement letters or in the engagement workpapers.


The approach to monitoring independence will likely be different based on the size of the accounting firm. But common to all is having processes to evaluate services before they are provided, to discuss independence within their firms, and to document the results of their evaluations. Here are some examples of how firms deal with independence issues:

Johnson, Feigley, Newton & Brand LLP

This local firm with fewer than 10 professionals uses tools such as practice aids and peer review checklists as a guide and for documentation requirements, which it has integrated into its system of quality control and updates on an ongoing basis. …

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