Magazine article The CPA Journal

New Ethics Guidance for CPAs in Public Practice and Business

Magazine article The CPA Journal

New Ethics Guidance for CPAs in Public Practice and Business

Article excerpt

An Examination of Changes to the Code ofProfessional Conduct

The AICPA' s Professional Ethics Executive Committee (PEEC) recently amended parts of the Code of Professional Conduct, which went into effect on November 30, 2011. It also issued an exposure draft on September 23, 2011, that focused on departures from established accounting principles and requests for records by clients and will become effective on April 30, 2012. The new or revised ethics interpretations and rulings (EIR) will affect accountants in both public and private practice. In the Exhibit, the first column denotes the new sections of the code, the second and third columns compare the previous requirements to the new guidance, and the fourth column reveals the effects on CPAs.

The following are the major new goals of the EIRs:

* Further refine a comprehensive, conceptual framework for independence standards

* Clarify the applicability of the code

* Define members in business

* Limit members from disclosing client information to outsiders

* Limit disclosure of confidential information learned from former employers

* Require members in business to recognize and respond to financial interest "threats and safeguards" to their integrity and objectivity

* Extend the ban on false, misleading, or deceptive acts to members in business

* Reinterpret how to apply independence requirements to entities affiliated with attest clients

* Permit auditors of educational institutions to work as part-time faculty for these clients

* Bring Interpretation 101-3, Performance of Nonattest Services, under Rule 101, Independence

* Permit non-GAAP financial reporting frameworks to fall within the context of Rule 203

* Clarify such terms as client-prepared records and member-prepared records, and when a member can withhold records for unpaid client fees.

Revised ET Section 100-1: Conceptual Framework

To help clarify which type of entity should be considered a public interest entity (PIE) when determining the nature and extent of applicable independence safeguard standards, the PEEC has revised ET section 100-1, Conceptual Framework for AICPA Independence Standards. This framework considers the following entities as PIEs: "all listed entities and any entity for which an audit is required by regulation or legislation to be conducted in compliance with the same independence requirements that apply to an audit of listed entities (for example, the Securities and Exchange Commission, the Public Company Accounting Oversight Board, and other similar regulators or standard setters)." This revision uses a less comprehensive definition of entities to be considered PIEs, and thus does not include such entities as governmental retirement plans or entities subject to the requirements of the Single Audit Act.

The PEEC is also moving to codify the AICPA' s ethics standards to help members apply the rules and reach the right conclusions more easily. The PEEC still must restructure the code into topical areas and edit the code using consistent drafting and style conventions. For example, ET section 100-1 recognizes that safeguards include controls that now reduce threats impairing independence to an acceptable level, based upon the auditor's experience and judgment.

Similar to FASB's current work developing a conceptual framework to help coordinate U.S. GAAP and International Financial Reporting Standards, the PEECs improved conceptual framework should help members comply with certain ethics requirements by defining concepts and terms - such as independence, threat, safeguard, acceptable level - and providing examples of different types of threats and safeguards. Once a threat to their compliance with the independence standard is identified, members may use the framework to evaluate the threat and determine whether applicable safeguards can eliminate threats or reduce them to acceptable levels.

Revising or recasting independence provisions to reflect the conceptual framework approach should enhance the understanding of the Code of Professional Conduct and provide additional context for the rules and guidance used in applying the framework. …

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