Academic journal article Journal of Accountancy

The Engagement Team Approach to Independence

Academic journal article Journal of Accountancy

The Engagement Team Approach to Independence

Article excerpt

An updating of the rules offers greater flexibility for practitioners and their firms.

Dramatic transformations in society and business are driving changes to the accounting profession's independence rules. A key development, which will affect all professionals affiliated with firms that provide attest services, is the profession's movement from "firm-based" rules toward an "engagement team" approach. Independence standard-setters and regulators have embraced this approach because it permits much-needed modernization of the rules. For instance, the approach is included in the SEC's recently adopted rule 2-01 revisions. (The revisions are effective February 5, 2001, with a three-month transition period (to May 7) granted to anyone who needs to change or dispose of various interests or relationships to comply.) An exposure draft from the International Federation of Accountants that also addresses this concept is pending, and the Independence Standards Board and the AICPA professional ethics executive committee have related proposals in development. (For more information, see the sidebar on page 60.)

This article discusses the profession's shift toward the engagement team approach and the environment that led to reassessment of the rules. It explains the concepts and rationale underlying the approach and addresses the impact the new rules will have on professionals and their firms.


The existing rules rely on a "firmwide" approach to interpreting independence, meaning that they apply to specific professionals throughout the firm. Those at the top level--firm owners--and those who participate in an engagement are held to the highest standard and those in lower positions to a less restrictive standard. Rule 101 of the AICPA Code of Professional Conduct defines the members of a firm who are subject to restrictions under the independence rules (for example, they cannot own stock in an attest client) to protect the firm's independence. These include

* All owners of the firm.

* All managers in an office that provides significant attest services to a client or who participate in the attest engagement.

* All professional staff who participate in the attest engagement.

* The firm (entity)--in a legal sense--providing attest services.

* All entities controlled by any of the above people or entities.

Basic Concept Behind the Engagement Team Approach. The modernized engagement team approach to independence significantly narrows the pool of people who must follow the rules. They include

* Anyone who participates in the attest engagement.

* Anyone who can influence the attest engagement or the attest engagement team.

* The firm (entity) providing attest services.

* All entities that are controlled by any of the above people or entities.

The concept underlying the engagement team approach is that the actions and judgments of those closest to the attest engagement, namely those who actually perform the services, pose the greatest risk to independence. Recognizing that the engagement team does not exist in a vacuum and is influenced by others within the firm, the rules also extend to those who could influence the attest engagement or the attest engagement team--for example, those firm members who set compensation for the attest engagement partners or who oversee the team's activities. The focus in the engagement team approach places the spotlight on the engagement team rather than on the entire firm.


Independence rules based on the firmwide approach made sense when firms were smaller and less diversified, but now standard setters and regulators acknowledge that a fresh look at them is warranted because of recent changes in the business environment and in society:

* Dual income families now have become the norm.

* Incidences of spouses employed in high-level management positions with clients, which were once rare, have increased significantly. …

Search by... Author
Show... All Results Primary Sources Peer-reviewed


An unknown error has occurred. Please click the button below to reload the page. If the problem persists, please try again in a little while.