Statements of Position



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Rule 101 and interpretation 101-1 specify transactions, interests, or relationships that impair independence, if they exist during various time periods. One of the time periods referred to in interpretation 101-1 is: "The period of a professional engagement." The committee proposes to define the period of a professional engagement as commencing when the member is engaged to perform the professional service and continuing until the relationship is terminated by the member or the client. The Professional Ethics Executive Committee receives many inquiries from members who are uncertain as to whether they may issue compilations or review reports when the members' independence is impaired with respect to the clients. The committee believes that explicit guidance is needed in the Code and recommends the adoption of the proposed ruling. The Professional Ethics Executive Committee is receiving an increasing number of inquiries from members who have the opportunity to join credit unions for which the members provide professional services requiring independence. Interpretation 101-1-A4 provides that independence is considered to be impaired if a member has any loan to or from the client. However, an exception is made if the member has a loan from a client which is a financial institution. Such a loan must meet criteria included in the interpretation and must be made under normal lending procedures, terms, and requirements. After considering the matter, the committee concluded that if a credit union meets the definition of a financial institution as provided in interpretation 101-5, and the loan is consistent with interpretation 101-1-A4, membership in the credit union would not impair the member's and the member's firm's independence. If the credit union does not meet the definition of a financial institution, or the loans or deposits are not in accordance with the interpretations and rulings of the Code, membership in the client credit union would cause the independence of the member and the member's firm to be impaired. Rule 301 provides, in part, that "a member in public practice shall not disclose any confidential client information without the specific consent of the client." In connection with a prospective sale or merger of a member's practice, it is often necessary to disclose confidential client information without obtaining the client's specific consent to do so. However, the committee believes that this should be permitted under rule 301, provided that the member take appropriate action to protect confidential client information. The Professional Ethics Executive Committee believes that an interpretation addressing this issue should be adopted. The proposed interpretation provides guidance regarding a member's independence with respect to both the subject of the assertion and the asserter for those attest engagements that are not covered by Statements on Auditing Standards, Statements on Standards for Accounting and Review Services, and Statements on Standards for Accountants' Services on Prospective Financial Information. The Professional Ethics Executive Committee believes that different independence standards should apply to the attest engagements to which the proposed interpretation applies and to attest engagements not covered by the proposal because of important differences that may exist between those two types of attest engagements. For example, the attest engagements covered by the proposal usually are completed in a brief period and often do not involve a continuing relationship with the client. The committee believes this proposal provides sufficient safeguards regarding the appearance of objectivity and integrity with respect to the member's performance of the covered attest engagements.

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Relational Format



Business ethics -- United States; Auditors -- Professional ethics -- Standards -- United States


Accounting | Taxation


Originally published by: American Institute of Certified Public Accountants; Copyright and permission to reprint held by: American Institute of Certified Public Accountants.

Proposed Professional Ethics Division rulings and interpretations ;Proposed ethics ruling under Rule 101;Meaning of the Period of a Professional Engagement;Audits, Reviews, or Compilations and a Lack of Independence;Member Joining Client Credit Union;Proposed Interpretation under Rule 301: Confidential Information and the Purchase, Sale, or Merger of a Practice;Confidential Information and the Purchase, Sale, or Merger of a Practice;Proposed interpretation under Rule 101: Confidential Information and the Purchase, Sale, or Merger of a Practice;Confidential Information and the Purchase, Sale, or Merger of a Practice; Exposure draft (American Institute of Certified Public Accountants), 1989, Aug. 18



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