SEC Critiques Proposed AICPA Ethics Changes

By Ann E. Spaulding

The AICPA's proposed changes to the Code of Professional Conduct, which would make the code more applicable to the new firm structures in which some CPAs now practice, were recently criticized by the Securities and Exchange Commission.

According to Herb Finkston, director of the AICPA's professional ethics division, the SEC submitted comments on the AICPA's exposure draft stating that the proposals conflict with interpretations issued by the commission and its staff and therefore, would not apply to determinations of auditor independence for audits of SEC registrants.

The AICPA proposes revisions to several ethics rules to accommodate the alternative firm structure where a publicly held corporation offers nonattest services and a separate CPA-owned subsidiary provides attest services; leases employees, office space, and administrative services from the public company; and pays the company a percentage of revenues or profits for these services.

The change to ethics interpretation 505-2 proposes that if the member controls the separate business, the business, its other owners, and its employees must comply with the Code of Conduct. If the member does not control the separate business, the code would not apply to the business, its other owners, etc. but it would still apply to the member.

Another revision deals with CPAs' responsibility for others in their firms. Previously, AICPA members were responsible for work of those who were either under their supervision or were partners or shareholders in their practice. Under the new proposal, members are responsible for all persons associated with them in the practice of public accounting who the member has the authority or capacity to control. It would seem that members will no longer be responsible for the work of their equal or superior partners.

The exposure draft also includes a revision to independence rules for former owners of firms, rulings on staff who remove client files or proprietary information upon termination of employment, and a modified definition of "client" considers government CPAs as part of public practice and helps them more easily obtain their experience requirement.