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AICPA Ethics Codification Project

AICPA Ethics Codification Project. As of January 24, 2014. Project Objective. Create user friendly, intuitively arranged Code Revise without making significant changes to existing requirements and restrictions Clarity through better drafting conventions

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AICPA Ethics Codification Project

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  1. AICPAEthics Codification Project As of January 24, 2014

  2. Project Objective • Create user friendly, intuitively arranged Code • Revise without making significant changes to existing requirements and restrictions • Clarity through better drafting conventions • Substantive changes will follow due process • Incorporate conceptual framework approach • Incorporate threats and safeguards • Conceptual framework only applies when no guidance in Code exists • Cannot be used to override existing requirements

  3. Project Objective cont. • Incorporate references to division’s nonauthoritative guidance • Physically different – Separate parts • Part 1: Members in public practice • Part 2: Members in business • Part 3: All Other Members • On-line Codification with enhanced functionality • Project Page on aicpa.org. Contains information such as: • Mapping Documents • Informational Video and articles • Project Timeline • Drafting Guidelines www.aicpa.org/InterestAreas/ProfessionalEthics/Community/Pages/aicpa-ethics-codification-project.aspx

  4. AICPA Ethics Codification Substantive Changes

  5. Incorporate Conceptual Frameworks • Two New Frameworks • Conceptual Framework for Members in the Practice of Public Accounting • Conceptual Framework for Members in Business • Applied when no guidance on a particular relationship or circumstance • Violation of applicable Rule • If the member cannot demonstrate that safeguards were applied that eliminated or reduced significant threats to an acceptable level

  6. Other Substantive Changes • Ethical Conflicts • Definition of Attest Client • Loans and Lending Institutions • Blind Trusts • Expanded Application • Self-Review Treat • Director Positions • False, Misleading or Deceptive Acts • Billing for a Subcontractor's Services • Attest Engagement Performed with Former Partner • Use of AICPA Awarded Designation

  7. What is a Conceptual Framework • Nothing on Point in the Code • Old Thinking • Relationship or circumstance must be permitted • Revised Thinking • Apply the conceptual framework • Requires professional judgment • Reasonable Third Party • For example, if the situation involves a staff person often an effective safeguard is: • The staff's removal from the engagement • Additional review of the staff’s work

  8. Steps of the Conceptual Framework Step 1 Identify Threats Step 2 Evaluate Threats Step 3 Identify Safeguards No Threats Proceed Threats not Significant Proceed Existing New Threats Not Acceptable Level…Stop Step 4 Evaluate Safeguards Threats at Acceptable Proceed

  9. Conceptual Framework - Case Study • Characters • Anthony “Auto” – Owner of Used Car Dealership • Evan – Owner of a CPA Firm (and Thomas’ brother) • Robert – Owner of Auto Supply Store and über mechanic (childhood friend of Auto and Evan) • Situation • Can Evan perform reviews for Robert’s store?

  10. Polling Question: Conceptual Framework When using the conceptual framework, if a threat is significant you should: • Not perform the attest engagement • Discuss the threat with those charged with governance • Apply safeguards that eliminate or reduce the threat to an acceptable level • Adopt policies and procedures that are designed to monitor the quality control of the attest engagement

  11. Polling Question: Safeguards If Evan implemented the same safeguards, could he perform an annual review for Auto’s used-car dealership? • Yes • No

  12. AICPA Ethics Codification Nonauthoritative Guidance

  13. Nonauthoritative Guidance References Appears in boxed text at the end of the applicable topic, sub-topic or section. For example: Appraisal, Valuations, and Actuarial Services for Nonfinancial Statement Purposes .06 Threats would be at an acceptable level, if a member provided appraisal, valuation, or actuarial services solely for nonfinancial statement purposes, such as appraisal, valuation, and actuarial services performed for tax planning or tax compliance, estate and gift taxation, and divorce proceedings. Accordingly, independence would not be impaired. [Prior reference: paragraph .05 of ET section 101]

  14. AICPA Ethics Codification Visual Example

  15. Four Parts Preface 0.100.000 Overview of the Code of Professional Conduct 0.200.000 Structure and Application of the AICPA Code 0.300.000 Principles of Professional Conduct 0.400.000 Definitions 0.500.000 Nonauthoritative Guidance 0.600.000 New, Revised, and Pending Interpretations and Other Guidance 0.700.000 Deleted Interpretations and Other Guidance Part 1 Part 2 Part 3

  16. Part 1 Members In Public Practice - Topics 1.000 INTRODUCTION 1.100 INTEGRITY AND OBJECTIVITY 1.200 INDEPENDENCE 1.300 GENERAL STANDARDS 1.310 COMPLIANCE WITH STANDARDS 1.320 ACCOUNTING PRINCIPLES 1.400 ACTS DISCREDITABLE 1.500 FEES AND OTHER TYPES OF REMUNERATION 1.510 CONTINGENT FEES 1.520 COMMISSIONS AND REFERRAL FEES 1.600 ADVERTISING AND OTHER FORMS OF SOLICITATION 1.700 CONFIDENTIAL INFORMATION 1.800 FORM OF ORGANIZATION AND NAME

  17. Independence Sub-Topics 1.265Business Relationships 1.270Family Relationships with Attest Clients 1.275 Current Employment or Association with an Attest Client 1.277 Former Employment or Association with Attest Client 1.279 Considering or Subsequent Employment or Association with Attest Client 1.280 Memberships 1.285Gifts and Entertainment 1.290Actual or Threatened Litigation 1.295Nonattest Services 1.297Independence Standards for Engagements Performed in Accordance with SSAEs 1.210Conceptual Framework Approach 1.220Accounting Firms 1.224Affiliates, including Governmental Units 1.226Reissued Reports 1.228Engagement Contractual Terms 1.230Fees 1.240 Financial Interests 1.245 Trusts and Estates 1.250Participation in Employee Benefit Plans 1.255Depository, Brokerage and Other Accounts 1.257 Insurance Products 1.260 Loans, Leases, and Guarantees

  18. Financial Interest 1.240.010 – Overview of Financial Interests 1.240.020 – Unsolicited Financial Interests 1.240.030 – Mutual Funds 1.240.040 – Retirement, Savings, Compensation, or Similar Plans 1.240.050 – Partnerships 1.240.060 – Limited Liability Companies 1.240.070 - Section 529 Plans

  19. Loans, Leases and Guarantees 1.260.010 - Loans 1.260.020 – Loans and Leases with Lending Institutions 1.260.030 – Servicing of a Loan 1.260.040 – Leases 1.260.050 – Association With an Entity That Has a Loan to or From an Attest Client

  20. AICPA Ethics Codification Mapping Content and Citations

  21. Mapping Document…excerpt http://www.aicpa.org/InterestAreas/ProfessionalEthics/Community/DownloadableDocuments/Mapping.xlsx

  22. Prior Citations in Exposure Draft 1.400.210 Removing Client Files or Proprietary Information From a Firm .01 A member whose employment relationship is terminated would be considered in violation of the Acts Discreditable rule if the member takes or retains (a) originals or copies (in any format) from the firm’sclient files or (b) proprietary information without the firm’s permission, unless the member has a contractual arrangement with the firm allowing such action. [Prior reference: paragraphs .381–.382 of ET section 591]

  23. Framework Document…excerpt Part 1: Members in Public Practice 000 INTRODUCTION (New Content) • 000.010 Conceptual Framework for Members in Public Practice (New Content) • 000.020 Ethical Conflicts (New Content) 100 INTEGRITY AND OBJECTIVITY 100.001 “Rule 102” Integrity and Objectivity (ET§102.01) • 100.005 Application of the Conceptual Framework for Members in Public Practice and the Ethical Conflicts Interpretation (New Content) 110 Conflicts of Interest • 110.010 Conflicts of Interest (ET§102.03, ER93, ET§191.186-.187, ER 99, ET§191.198-.199, ER110, ET§191.220-.221) • 110.020 Director Positions (ER 85, ET§191.170-.171, Substantive Change Made) http://www.aicpa.org/InterestAreas/ProfessionalEthics/Community/DownloadableDocuments/Preliminary%20Framework%20for%20Codification.pdf

  24. Questions Slide 24

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