July 2001

Maintaining Independence While Providing Bookkeeping Services

Q. Can I provide bookkeeping services for my audit client and maintain my independence?

A. Interpretation 101-3 of the Code of Professional Conduct deals with the impact on independence when performing other services. With regard to bookkeeping, the interpretation states that independence would not be impaired by the following actions:

• Record transactions for which management has determined or approved the appropriate account classification, or post coded transactions to a client’s general ledger.
• Prepare financial statements based on information in the trial balance.
• Post client-approved entries to a client’s trial balance.
• Propose standard, adjusting, or correcting journal entries or other changes affecting the financial statements to the client.
• Provide data-processing services.

Doing the following would impair independence:

• Determine or change journal entries, account codings, or classification for transactions, or other accounting records without obtaining client approval.
• Authorize or approve transactions.
• Prepare source documents or originate data.
• Make changes to source documents without client approval.

Be aware that the SEC’s rules do not agree with this interpretation and state that bookkeeping services impair independence. Always consult the other regulatory authorities that may govern your services.

Inactive License

Q. I am no longer in practice and have notified the State Education Department to put my CPA license in inactive status. What are my CPE requirements? Can I maintain my membership in the NYSSCPA? What will I need to do if I want to go back into practice and reactivate my license?

A. Since you are no longer in practice and your CPA license is inactive, you have no CPE requirement with the state. The NYSSCPA does not have a CPE requirement for members; however, the AICPA does. You can be a member of the NYSSCPA with an inactive license. Notify the membership department so you will be in the appropriate dues category. If you decide to go back into practice, notify the State Education Department that you wish to reactivate your license. You will be required to take 24 hours of CPE within a 12-month period before your license will be reactivated.

Use of Confidential Information on Management Consulting Service Engagements

Q. In the course of performing a feasibility study, a nonclient outside source has provided pertinent information to the member’s firm with the understanding that the source and the details of the information will not be disclosed. The information, which the firm believes is pertinent, directly affects its conclusions and recommendations. How may this information be utilized in connection with the feasibility study engagement and related conclusions and recommendations?

A. Rule of conduct 301 regarding confidential client information is not directly applicable to the circumstances described; however, Rule of conduct 501, Acts Discreditable, is applicable to situations involving confidential relationships with nonclients. For an engagement in which it appears likely that the development of pertinent information will have to come from outside nonclient sources, and such information must remain confidential, the terms of the engagement with the client should specify that the confidences of outside nonclient sources will not be divulged by the member’s firm, even when they might affect the outcome of the engagement. If the use of confidential outside sources is necessary and the terms of the engagement are silent regarding disclosure of sources and details, the member should promptly seek the approval of the client to present his or her recommendations without making disclosures that include confidential information. If the client does not agree to this, the member should withdraw from the engagement rather than breach a confidence or improperly limit the inclusion of information in thefinal recommendation.