Committee Responds to AICPA Ethics Proposal

By Ann E. Spaulding

The NYSSCPA Professional Ethics Committee, chaired by Allen L. Fetterman (Mid Hudson), recently responded to the AICPA exposure draft that provides guidance on commissions and contingent fees in relation to attest clients and proposes changes to a number of other ethics interpretations and rulings. (See related article in the December issue of The Trusted Professional.)

The committee disagreed with or questioned the following proposals in the exposure draft:

* Contingent fees, commissions, and referral fees for owners and employees of attest clients--The AICPA proposal would allow commission and contingent fee arrangements with owners, employees, and the employee benefit plan of an attest client. The Society's committee had no problem with employees or the employee benefit plan but objected to such fee arrangements with owners if they own more than 50 percent of the client entity. For example, the committee felt that a sole owner of a client entity should be regarded as the client, and having such fee arrangements personally with the owner would impair independence.

* Accounting services for attest clients--The committee disagreed with the AICPA's view that independence is not impaired in making electronic payroll tax payments in accordance with Treasury Department guidelines provided the client has made arrangements for its financial institution to limit such payments to a named payee. The committee felt this would impair independence as it is analogous to signing a check on behalf of management.

* Failure to file tax returns or pay tax liability--The committee felt that the AICPA should add county and municipality tax requirements to the interpretation that states that a member who fails to timely file his or her federal or state personal tax returns or tax returns of the member's firm, including the firm's payroll tax returns and the remittance of related taxes, would be in violation of Rule 501. The committee also questioned whether the proposal referred to all taxes or just income taxes, and suggested that the interpretation include the word "income" if this is its intention.

The Professional Ethics Committee agreed with the AICPA's proposal to allow members to provide investment advisory services for an attest client for a fee based on a percentage of the client's investment portfolio provided certain conditions are met. The committee also supported the other proposals--association with entities that have loans to attest clients, knowingly misrepresenting facts, negligence in the preparation of financial statements or records, and deletion of investment in accounting organization under Rule 505.