September 1999

AICPA Issues Broad Ethics Exposure Draft

By Ann E. Spaulding

The AICPA recently issued an ethics exposure draft containing five proposals that address independence, record retention, asset management services, and employee benefits plans of attest clients. Comments are due October 1.

The first proposal revises the definition of member or member's firm in Independence Interpretation 101-9. The proposed revision provides guidance and recommends six actions that individuals should take to maintain the individual's and the firm's independence when disassociating from a client to become a member of the firm.

The second proposal updates guidance under Interpretation 501-1--Retention of Client Records--to reflect today's electronic environment. The AICPA believes that a member should provide a current or former client with required information in the requested format (for example, electronic or hard copy), provided it exists in that form. If it is not currently available in that form, the rule will not prohibit a member from charging a client for the time and cost incurred to convert the information to the requested format.

The third proposal will broaden Independence Ruling 41--Member as Auditor of Insurance Company--to apply to all types of financial services companies that provide asset management services for the member or member's firm. The AICPA believes that the member's independence would not be impaired with respect to the financial services company provided that the member's assets are not part of the company's general assets; all services are provided under the company's normal terms, procedures, and requirements; and the member receives no special consideration as a result of his or her professional services relationship with the company.

To be consistent with the Ruling 41, the fourth proposal revises Ruling 109--Members' Investment in Financial Service Products That Invest in Clients. The proposed revision would permit a financial services company client to invest or manage a member's assets, provided the arrangement is entered into under the same terms as those offered to others.

Lastly, the fifth proposal is a new ruling that offers guidance to members who provide professional services, such as asset management or investment services, to employee benefit plans sponsored by attest clients. The AICPA believes that such services generally would impair a member's independence with respect to the benefit plan. Regarding the client sponsor, however, such services would only impair independence in certain circumstances. The AICPA also believes it is appropriate to differentiate between defined benefit and contribution plans, as defined benefit plans may have a material impact on the sponsor's financial statement.

See the www.nysscpa.org for the exposure draft's complete text. The NYSSCPA Professional Ethics Committee, chaired by Allen L. Fetterman, is reviewing the proposals and will submit comments on behalf of the Society.