AICPAEthics Codification Project
As of January 24, 2014
Project ObjectiveCreate user friendly, intuitively arranged CodeRevise 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
Project Objective cont. Incorporate references to division’s nonauthoritative guidancePhysically different – Separate parts
- Part 1: Members in public practice- Part 2: Members in business- Part 3: All Other Members
On-line Codification with enhanced functionalityProject 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
Substantive ChangesAICPA Ethics Codification
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 circumstanceViolation of applicable Rule • If the member cannot demonstrate that safeguards were applied
that eliminated or reduced significant threats to an acceptable level
Other Substantive Changes
Ethical ConflictsDefinition of Attest ClientLoans and Lending InstitutionsBlind 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
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
Steps of the Conceptual Framework
Step 1Identify Threats
Step 2Evaluate Threats
Step 3Identify
Safeguards
No Threats Proceed
Threats not Significant Proceed
Existing New
Step 4 EvaluateSafeguards
ThreatsNot Acceptable
Level…Stop
Threats at Acceptable
Proceed
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?
Polling Question: Conceptual FrameworkWhen using the conceptual framework, if a threat is significant you should:A. Not perform the attest engagementB. Discuss the threat with those charged with
governanceC. Apply safeguards that eliminate or reduce the
threat to an acceptable levelD. Adopt policies and procedures that are
designed to monitor the quality control of the attest engagement
Polling Question: Safeguards
If Evan implemented the same safeguards, could he perform an annual review for Auto’s used-car dealership?
A. YesB. No
Nonauthoritative GuidanceAICPA Ethics Codification
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]
Nonauthoritative answers to FAQs regarding appraisal, valuation, and actuarial services are available at www.aicpa.org/InterestAreas/ProfessionalEthics/Resources/Tools/DownloadableDocuments/NonattestServicesFAQs.pdf
Visual ExampleAICPA Ethics Codification
Four PartsPreface
0.100.000 Overview of the Code of Professional Conduct0.200.000 Structure and Application of the AICPA Code0.300.000 Principles of Professional Conduct0.400.000 Definitions 0.500.000 Nonauthoritative Guidance 0.600.000 New, Revised, and Pending Interpretations and Other
Guidance0.700.000 Deleted Interpretations and Other Guidance
Part 1Part 2Part 3
Part 1 Members In Public Practice - Topics
1.000 INTRODUCTION 1.100 INTEGRITY AND OBJECTIVITY1.200 INDEPENDENCE1.300 GENERAL STANDARDS 1.310 COMPLIANCE WITH STANDARDS1.320 ACCOUNTING PRINCIPLES 1.400 ACTS DISCREDITABLE1.500 FEES AND OTHER TYPES OF REMUNERATION 1.510 CONTINGENT FEES1.520 COMMISSIONS AND REFERRAL FEES1.600 ADVERTISING AND OTHER FORMS OF SOLICITATION 1.700 CONFIDENTIAL INFORMATION1.800 FORM OF ORGANIZATION AND NAME
1.210 Conceptual Framework Approach
1.220 Accounting Firms 1.224 Affiliates, including
Governmental Units 1.226 Reissued Reports1.228 Engagement Contractual Terms1.230 Fees1.240 Financial Interests1.245 Trusts and Estates1.250 Participation in Employee
Benefit Plans1.255 Depository, Brokerage and
Other Accounts 1.257 Insurance Products1.260 Loans, Leases, and Guarantees
1.265 Business Relationships1.270 Family Relationships with Attest
Clients1.275 Current Employment or Association
with an Attest Client1.277 Former Employment or Association
with Attest Client1.279 Considering or Subsequent
Employment or Association with Attest Client1.280 Memberships1.285 Gifts and Entertainment 1.290 Actual or Threatened Litigation1.295 Nonattest Services1.297 Independence Standards for
Engagements Performed in Accordance with SSAEs
Independence Sub-Topics
Financial Interest1.240.010 – Overview of Financial Interests1.240.020 – Unsolicited Financial Interests1.240.030 – Mutual Funds1.240.040 – Retirement, Savings, Compensation, or
Similar Plans1.240.050 – Partnerships1.240.060 – Limited Liability Companies1.240.070 - Section 529 Plans
Loans, Leases and Guarantees1.260.010 - Loans1.260.020 – Loans and Leases with Lending
Institutions1.260.030 – Servicing of a Loan1.260.040 – Leases1.260.050 – Association With an Entity That Has a Loan
to or From an Attest Client
Mapping Content and CitationsAICPA Ethics Codification
Mapping Document…excerpt
http://www.aicpa.org/InterestAreas/ProfessionalEthics/Community/DownloadableDocuments/Mapping.xlsx
AICPA Ethics Codificaiton Mapping As of December 31, 2013Extant Code Citations Title In Code New Citation In Code Title In Codification New 0.100 Overview of the Code of Professional ConductIntroduction Composition, Applicability, and
Compliance0.100.010 Principles and Rules of Conduct
Introduction Other Guidance 0.100.020 Interpretations and Other GuidanceNew 0.200.010 Structure of the AICPA CodeNew 0.200.020.01 Application of the AICPA CodeET section 91 Applicability 0.200.020.02-.05 Application of the AICPA CodeNew 0.200.030 CitationsNew 0.200.040 Transition ProvisionsNew 0.200.050 Drafting ConventionsET section 51 Preamble 0.300.010 PreambleET section 52 Article I - Responsibilities 0.300.020 ResponsibilitiesET section 53 Article II - The Public Interest 0.300.030 The Public InterestET section 54 Article III - Integrity 0.300.040 Integrity
Prior Citations in Exposure Draft1.400.210 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’s client 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]
Framework Document…excerptPart 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
Questions
Slide 24