AICPA’s PEEC Institutes Revisions to Non-attest Service Rules

AICPA’s PEEC Institutes Revisions to Non-attest Service Rules

By Simon Eskow

Continued from the Home Page

The committee issued the interpretation in September 2003, focusing on four primary areas, including clarification of existing guidance on bookkeeping and internal audit services; reinforcement of the position that an attest client must designate an employee to oversee non-attest services; and imposing more restrictions on appraisal, actuarial information systems design and development services under certain conditions.

The interpretation also calls for very clear documentation to the client of the services the firm is to provide.

The rules became effective for new engagements on Dec. 31, 2003, although the document requirement was deferred until Dec. 31, 2004.

The New York State Society of CPAs’ Professional Ethics Committee (PEC) discussed the revised interpretation at its Sept. 15 meeting. Members expressed some reservations about the AICPA’s clarification of the oversight issue, though the committee has not recommended a formal stance for the Society to take and it has not submitted a comment letter to the AICPA.

“In order to preserve independence, when independence is required, the client must have a competent employee oversee the non-attest services being provided by the CPA,” NYSSCPA Professional Ethics Committee Chairman Francis T. Nusspickel said. “In addition, the revised Interpretation 101-3 requires that the CPA document his understanding with the client of the services to be performed. These two points are sometimes overlooked.”

The revised interpretation “reinforces the ethics committee’s longstanding position that an attest client must designate a competent employee to oversee the non-attest services provided by the member, including making all management decisions related to the services,” according to an article released by the AICPA.

The article stated that despite concerns that this rule would force the client to provide an overseer with the same level of knowledge and expertise as the CPA or firm, it only requires the overseer to be “capable of understanding the nature and scope of the non-attest services sufficiently to oversee the performance of the service by the member so that he or she can make any necessary management decisions, is satisfied that the resulting work product meets the agreed upon specifications, and is in a position to accept responsibility for the resulting work product.”

“Oversight in this context is not meant as supervisory,” the article explained, “but rather that the client’s designee agrees with the nature and timing of the services, provides general direction, monitors its progress, understands the key issues involved, and makes all management decisions related to the service.”

The AICPA plans to clarify the revision further with guidance to be posted on its website at www.aicpa.org.

On the other issues, the revisions clarify existing guidance with respect to bookkeeping and internal audit services. Specifically, an auditor’s independence would be impaired if the same firm records journal entries while performing monthly bookkeeping services without obtaining client approval, according to the AICPA. But independence would not be impaired if during the course of providing monthly bookkeeping services, for example, “the CPA discusses with the client the need to record recurring journal entries each month in the general ledger, as long as the client understands the general nature of the journal entries and the impact they have on its financial statements.”

According to the article, the rules prohibit appraisal and actuarial services when the results of the service are both material to the financial statements, and the appraisal, valuation or actuarial service involves a significant degree of subjectivity. The same applies to information systems design and development services by prohibiting a member from designing or developing an attest client’s financial information system.

Finally, the rules require that members document their understanding with the client regarding services to be performed.
In response to other member inquiries, the AICPA has developed additional resources to help members understand their professional responsibilities under Interpretation 101-3. These resources can be found online.

Frequently asked questions and answers can be accessed at www.aicpa.org/download/ethics/nonattest_q_a.pdf and www.aicpa.org/download/ethics/QA_IT.pdf.

Background on why changes were made to Interpretation 101-3, including how member feedback helped clarify positions, is available at www.aicpa.org/members/div/ethics/index/bfc1.htm.