Statements of Position

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The Professional Ethics Executive Committee has reconsidered interpretation 101-9 and concluded that revisions are necessary. The following significant revisions are proposed: (1) a revised definition of a member or a member's firm, which includes contractors and entities controlled by persons included in the definition of a member or a member's firm; (2) deletion of reference to "key assistants" to certain financial executives as positions with a client indicating significant influence; (3) a new section defining the phrase "office participating in a significant portion of the engagement"; (4) inclusion of specific time periods during which relationships of the auditor's nondependent close relatives cause independence impairments; and (5) reference to cohabitants as having a relationship that may cause an independence impairment. The Professional Ethics Executive Committee proposes to revise Ethics Ruling No. 14 (ET section 191.027-.028) to recognize that a member's service on the board of a federated fund-raising organization could impair the member's independence with respect to recipients of the funds distributed by that organization. Specifically, independence would be impaired if the fund-raising organization can affect the management decisions of the recipient organizations. The Professional Ethics Executive Committee proposes a revision of Ethics Ruling No. 41 (ET section 191.081-.082) to provide that a member's independence would not be considered to be impaired with respect to an insurance company that receives, holds in a pooled separate account, and invests contributions with respect to the member's retirement plan. The current ruling addresses independence in terms of the materiality of the member's retirement plan funds in relation to the net worth of the insurance company. The Professional Ethics Executive Committee proposes to delete Ethics Ruling No. 45 (ET section 191.089-.090) because the proposed revision of the current ruling on unpaid fees included elsewhere in this exposure draft discusses unpaid fees in relation to bankruptcy. The Professional Ethics Executive Committee proposes a revision of Ethics Ruling No. 52 (ET section 191.103-. 104) to clarify the intent and language of the ruling. The ruling deals with the issue of the effect on an auditor's independence of unpaid fees. The proposed revision clarifies the nature of unpaid fees, specifies the time when fees may impair an auditor's independence, and provides a rationale for such impairment. The Professional Ethics Executive Committee proposes to revise Ethics Ruling No. 54 (ET section 191.107-. 108) to include a member's performance of appraisal and valuation services within the professional services covered by the ruling. Ethics interpretation 101-1-B1 provides that independence would be considered to be impaired if the member was connected with the client in a capacity equivalent to that of a member of management. The proposed addition of appraisal and valuation services does not alter the requirement in the ruling consistent with interpretation 101-1-B1 that all significant matters of judgment relating to these additional services must be determined or approved by the client and the client must be in a position to have an informed judgment on the results of these services. The purpose of this interpretation was to cause attestation and certain other standards that were not covered under rules 202 and 204 of the pre-January 12, 1988 Code of Professional Ethics, to be enforceable under rule 201. As rule 202 of the new Code of Professional Conduct requires members performing professional services to comply with standards promulgated by bodies designated by Council, interpretation 201-4 is no longer necessary. The Professional Ethics Executive Committee therefore recommends the deletion of this interpretation from the Code.

Publication Date

1990

Relational Format

Book

Keywords

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

Disciplines

Accounting | Taxation

Comments

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

Omnibus proposal of Professional Ethics Division interpretations and rulings ;Proposed revision of interpretation 101-9 under Rule 101: The Meaning of Certain Independence Terminology and the Effect of Family Relationships on Independence;Meaning of Certain Independence Terminology and the Effect of Family Relationships on Independence;Proposed revision of ethics ruling no. 14 under Rule 101: Member on Board of Directors of United Fund;Member on Board of Directors of United Fund;Proposed revision of ethics ruling no. 41 under Rule 101; Member as Auditor of Mutual Insurance Company;Member as Auditor of Mutual Insurance Company;Proposed deletion of ethics ruling no. 45; Past Due Billings: Client in Bankruptcy;Past Due Billings: Client in Bankruptcy;Proposed revision of ethics ruling no. 52 under Rule 101: Past Due Fees  Past Due Fees;Proposed revision of ethics ruling no. 54 under Rule 101; Member Providing Actuarial Services;Member Providing Actuarial Services;Proposed deletion of interpretation 201-4 under Rule 201: Definition of the Term Engagement as Used in Rule 201;Definition of the Term Engagement as Used in Rule 201; Exposure draft (American Institute of Certified Public Accountants), 1990, May 22

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