AICPA Code of Professional Conduct

Financial statement attest client

An entity whose financial statements are audited, reviewed, or compiled when the member's compilation report does not disclose a lack of independence.

Financial interest

An ownership interest in an equity or a debt security issued by an entity, including rights and obligations to acquire such an interest and derivatives directly related to such interest

Tax Services

For purposes of this interpretation, tax services include preparation of a tax return, transmittal of a tax return, and transmittal of any related tax payment to the taxing authority, signing and filing a tax return, having a power of attorney limited strictly to tax matters; and authorized representation of attest clients in administrative proceedings before a taxing authority.

All Covered Members

1. An individual on the attest engagement team 2. An individual in a position to influence the attest engagement 3. A partner/partner equivalent/manager who provides more than 10 hours of nonattest service to the attest client within any fiscal year 4. A partner/partner equivalent in the office in which the lead attest engagement partner or partner equivalent primarily practices in connection with the attest engagement

Independence. Consists of two elements, defined as follows:

1. Independence of mind is the state of mind that permits a member to perform an attest service without being affected by influences that compromise professional judgment, thereby allowing an individual to act with integrity and exercise objectivity and professional skepticism. 2. Independence in appearance is the avoidance of circumstances that would cause a reasonable and informed third party who has knowledge of all relevant information, including the safeguards applied, to reasonably conclude that the integrity, objectivity, or professional skepticism of a firm or member of the attest engagement team is compromised.

Bookkeeping, Payroll, and other disbursements: However, threats not at an acceptable level and could not be reduced to an acceptable level by the application of safeguards, and independence would be impaired, if, for example, a member

1. determines or changes journal entries, any account coding or classification of transactions, or any other accounting records without first obtaining the attest client's approval. 2. authorizes or approves transactions. 3. prepares source documents. 4. makes changes to source documents without the attest client's approval. 5. accepts responsibility to authorize payment of attest client funds, electronically or otherwise, except for electronic payroll tax payments when the member complies with the requirements of the "Tax Services" interpretation of the "Independence Rule." 6. accepts responsibility to sign or cosign an attest client's checks, even if only in emergency situations. 7. maintains an attest client's bank account or otherwise has custody of an attest client's funds or makes credit or banking decisions for the attest client. 8. approves vendor invoices for payment.

Bookkeeping, Payroll, and other disbursements: Threats would be at an acceptable level and independence would not be impaired if

1. post client-approved journal or other entries to an attest client's trial balance. 2. propose standard, adjusting, or correcting journal entries or other changes affecting the F/S to the attest client. Prior to the member posting these journal entries or changes, the member should be satisfied that management has reviewed the entries and understands the nature of the proposed entries and the effect the entries will have on the attest client's financial statements.

Key position. A position in which an individual has

1. primary responsibility for significant accounting functions that support material components of the financial statements; 2. primary responsibility for the preparation of the financial statements; or 3. the ability to exercise influence over the contents of the financial statements, including when the individual is a member of the board of directors or similar governing body, CEO, president, CFO, chief operating officer, general counsel, chief accounting officer, controller, director of internal audit, director of financial reporting, treasurer, or any equivalent position.

Mutual funds

A covered member who owns shares in a mutual fund has a direct financial interest in the mutual fund. However, whether the underlying investments in the mutual fund are considered to be the covered member's direct financial interests or indirect financial interests depends on the proportion of the mutual fund's outstanding shares that the covered member owns and whether the mutual fund is diversified. If a covered member owns 5 percent or less of the outstanding shares of a diversified mutual fund, the underlying investments would be considered immaterial indirect financial interests.

Indirect financial interest

A financial interest beneficially owned through an investment vehicle, an estate, a trust, or an other intermediary when the beneficiary neither controls the intermediary nor has the authority to supervise or participate in the intermediary's investment decisions.

Direct financial interest

A financial interest that is a. owned directly by an individual or entity, including those managed on a discretionary basis by others. b. under the control of an individual or entity, including those managed on a discretionary basis by others. c. beneficially owned through an investment vehicle, estate, trust, or other intermediary when the beneficiary i. controls the intermediary or ii. has the authority to supervise or participate in the intermediary's investment decisions.

Independence Rule

A member in public practice shall be independent in the performance of professional services as required by standards promulgated by bodies designated by Council

Representation in court

A member who represents an attest client in court to resolve a tax dispute - impaired independence - threat - not reduced to an acceptable lvl thru safeguards For purposes of this interpretation, court encompasses a tax, district, or federal court of claims and the equivalent state, local, or foreign forums.

Close Relative

A parent, sibling, or nondependent child

Office

A reasonably distinct subgroup within a firm, whether constituted by formal organization or informal practice, in which personnel who make up the subgroup generally serve the same group of clients or work on the same categories of matters. Substance should govern the office classification. For example, the expected regular personnel interactions and assigned reporting channels of an individual may well be more important than an individual's physical location.

Immediate family

A spouse, spousal equivalent, or dependent (regardless of whether the dependent is related)

Cumulative effect on independence when providing multiple nonattest services

Cumulative Effect on Independence When Providing Multiple Nonattest Services performing multiple nonattest services can increase the significance of these threats as well as other threats to independence.

Forensic Accounting

Expert witness services create the appearance that a member is advocating or promoting an attest client's position - advocacy threat would not be at an acceptable level and could not be reduced to an acceptable level by the application of safeguards. Accordingly, if a member is engaged conditionally or unconditionally to provide expert witness services or expert testimony for an attest client, independence would be impaired

Gifts and Entertainment: Offering or Accepting gifts or entertainment

For purposes of this interpretation, the attest client also includes an individual in a key position with the attest client and individuals owning 10 percent or more of the attest client's outstanding equity securities or other ownership interests. The member should exercise judgment in determining whether gifts or entertainment would be considered reasonable in the circumstances. Examples of relevant facts and circumstances include the following: a. The nature of the gift or entertainment b. The occasion giving rise to the gift or entertainment c. The cost or value of the gift or entertainment d. The nature, frequency, and value of other gifts and entertainment offered or accepted e. Whether the entertainment was associated with the active conduct of business directly before, during, or after the entertainment f. Whether other attest clients also participated in the entertainment g. The individuals from the attest client's and member's firm who participated in the entertainment

Overview of Financial Interests

If a covered member had or was committed to acquire any direct financial interest in an attest client during the period of the professional engagement, the self-interest threat to the covered member's compliance with the "Independence Rule" would not be at an acceptable level and could not be reduced to an acceptable level by the application of safeguards. Accordingly, independence would be impaired. If a covered member had or was committed to acquire any material indirect financial interest in an attest client during the period of the professional engagement, the self-interest threat to the covered member's compliance with the "Independence Rule"would not be at an acceptable level and could not be reduced to an acceptable level by the application of safeguards. Accordingly, independence would be impaired. If a partner or professional employee of the firm, his or her immediate family, or any group of such persons acting together owned more than 5 percent of an attest client's outstanding equity securities or other ownership interests during the period of the professional engagement, the self-interest threat to compliance with the "Independence Rule" would not be at an acceptable level and could not be reduced to an acceptable level by the application of safeguards. Accordingly, independence would be impaired.

Cooperative Arrangements with Attest Clients

If a member or his or her firm has a cooperative arrangement with an attest client, self-interest, familiarity, and undue influence threats to the member or his or her firm's compliance with the "Independence Rule" may exist. Threats to compliance with the "Independence Rule" would not be at an acceptable level and could not be reduced to an acceptable level by the application of safeguards if, during the period of the professional engagement, the cooperative arrangement is material to the firm or attest client. Accordingly, independence would be impaired. A cooperative arrangement exists when a member or the member's firm and an attest client jointly participate in a business activity.

Management responsibilities

If a member were to assume a management responsibility for an attest client, the management participation threat would be so significant that no safeguards could reduce the threat to an acceptable level and independence would be impaired. It is not possible to specify every activity that is a management responsibility. However, management responsibilities involve leading and directing an entity, including making significant decisions regarding the acquisition, deployment, and control of human, financial, physical, and intangible resources. Examples of activities that would be considered management responsibilities and, as such, impair independence if performed for an attest client, include a. setting policy or strategic direction for the attest client. c. authorizing, executing, or consummating transactions or otherwise exercising authority on behalf of an attest client or having the authority to do so. d. preparing source documents, in electronic or other form, that evidence the occurrence of a transaction. k. accepting responsibility for designing, implementing, or maintaining internal control. l. performing ongoing evaluations of the attest client's internal control as part of its monitoring activities.

The independence of a member in public practice or a covered member may be impaired with respect to a client

If cannot control the actions or relationships of someone else (client), independence may be impaired

Current Employment or Association with an attest client: Simultaneous Employment or association with an attest client

In this interpretation, simultaneous employment or association with an attest client is serving as a director, an officer, an employee, a promoter, an underwriter, a voting trustee, a trustee for any pension or profitsharing trust of the attest client, or in any capacity equivalent to that of a member of management of an attest client during the period covered by the financial statements or the period of the professional engagement. If a partner or professional employee of the member's firm is simultaneously employed or associated with an attest client, familiarity, management participation, advocacy, or self-review threats to the member's compliance with the "Independence Rule" would not be at an acceptable level and could not be reduced to an acceptable level by the application of safeguards. Accordingly, independence would be impaired.

Attest client

Includes individual who is a key position & owns at least 10% ownership interest

Investment Advisory or Management

Independence impaired if a member provides investment advisory or management services to an attest client - self-review and management participation threats

Information Systems Design, Implementation, or Integration

Independence impaired if member provides information systems design, implementation, or integration services to an attest client - self-review and management participation threats

Conceptual Framework for Independence

It is impossible to enumerate all relationships or circumstances in which the appearance of independence might be questioned. Thus, in the absence of an independence interpretation that addresses a particular relationship or circumstance, a member should evaluate whether that relationship or circumstance would lead a reasonable and informed third party who is aware of the relevant information to conclude that there is a threat to either the member's or firm's independence, or both, that is not at an acceptable level. The code specifies that in some circumstances no safeguards can reduce an independence threat to an acceptable level. For example, the code specifies that a covered member may not own even an immaterial direct financial interest in an attest client because there is no safeguard to reduce the self-interest threat to an acceptable level. A member may not use the conceptual framework to overcome this prohibition or any other prohibition or requirement in an independence interpretation.

Preparation and transmittal

Member does not have control over the attest client's funds or assets and the individual designated by the attest client to oversee the tax services - threat acceptable level and independence not impaired

Administrative proceedings

Member represents the attest client's in administrative proceedings b4 a taxing authority obtaining the attest client's agreement prior to committing the client to a specific resolution with the taxing authority - threat acceptable level - independence not impaired

Management participation threat

The threat that a member will take on the role of attest client management or otherwise assume management responsibilities for an attest client. Examples of management participation threats include the following: a. A member serves as an officer or a director of the attest client. b. A member accepts responsibility for designing, implementing, or maintaining internal controls for the attest client. c. A member hires, supervises, or terminates the attest client's employees.

Individual in a position to influence the attest engagement

One who 1. evaluates the performance or recommends the compensation of the attest engagement partner; 2. directly supervises or manages the attest engagement partner 3. consults with the attest engagement team regarding technical or industry-related issues specific to the attest engagement; or 4. participates in or oversees, at all successively senior levels, quality control activities, including internal monitoring, with respect to the specific attest engagement.

Appraisal, Valuation, and Actuarial services

Self-review or management participation threats to compliance with the "Independence Rule" may exist when a member performs appraisal, valuation, or actuarial service for an attest client. Threats to compliance with the "Independence Rule" would not be at an acceptable level and could not be reduced to an acceptable level by the application of safeguards if the member performs an appraisal, a valuation, or an actuarial service for an attest client when (a) the services involve a significant degree of subjectivity and (b) the results of the service, individually or when combined with other valuation, appraisal, or actuarial services, are material to the attest client's financial statements. Accordingly, independence would be impaired under these circumstances.

Unpaid Fees

The existence of unpaid fees to a covered member for professional services previously rendered to an attest client may create self-interest, undue influence, or advocacy threats to the covered member's compliance with the "Independence Rule" Threats to the covered member's compliance with the "Independence Rule" would not be at an acceptable level and could not be reduced to an acceptable level by the application of safeguards if a covered member has unpaid fees from an attest client for any previously rendered professional service provided more than one year prior to the date of the current-year report. Accordingly, independence would be impaired. Unpaid fees include fees that are unbilled or a note receivable arising from such fees.

Family relationships with Attest Clients: Immediate family members

The immediate family of a covered member must comply with the "Independence Rule" and its interpretations

Period of the professional engagement

The period begins when a member either signs an initial engagement letter or other agreement to perform attest services or begins to perform an attest engagement for a client, whichever is earlier. The period lasts for the entire duration of the professional relationship, which could cover many periods, and ends with the formal or informal notification, either by the member or client, of the termination of the professional relationship or by the issuance of a report, whichever is later. Accordingly, the period does not end with the issuance of a report and recommence with the beginning of the following year's attest engagement.

Familiarity threat

The threat that, because of a long or close relationship with an attest client, a member will become too sympathetic to the attest client's interests or too accepting of the attest client's work or product. Examples of familiarity threats include the following: a. A member of the attest engagement team has an immediate family member or close relative in a key position at the attest client, such as the attest client's CEO. b. A partner or partner equivalent of the firm has been a member of the attest engagement team for a prolonged period. c. A member of the firm has recently been a director or an officer of the attest client. d. A member of the attest engagement team has a close friend who is in a key position at the attest client.

Self-interest threat

The threat that a member could benefit, financially or otherwise, from an interest in, or relationship with, an attest client or persons associated with the attest client. Examples of self-interest threats include the following: a. A member has a direct financial interest or material indirect financial interest in the attest client. b. A member has a loan from the attest client, an officer or a director of the attest client, or an individual who owns 10 percent or more of the attest client's outstanding equity securities. c. A member or his or her firm relies excessively on revenue from a single attest client. d. A member or member's firm has a material joint venture or other material joint business arrangement with the attest client.

Self-review threat

The threat that a member will not appropriately evaluate the results of a previous judgment made, or service performed or supervised by the member or an individual in the member's firm and that the member will rely on that service in forming a judgment as part of an attest engagement. Certain self-review threats, such as preparing source documents used to generate the attest client's financial statements, pose such a significant self-review threat that no safeguards can eliminate or reduce the threats to an acceptable level.

Advocacy threat

The threat that a member will promote an attest client's interests or position to the point that his or her independence is compromised. Examples of advocacy threats include the following: a. A member promotes the attest client's securities as part of an initial public offering. b. A member provides expert witness services to an attest client. c. A member represents an attest client in U.S. tax court or other public forum.

Undue influence threat

The threat that a member will subordinate his or her judgment to that of an individual associated with an attest client or any relevant third party due to that individual's reputation or expertise, aggressive or dominant personality, or attempts to coerce or exercise excessive influence over the member. Examples of undue influence threats include the following: a. Management threatens to replace the member or member's firm over a disagreement on the application of an accounting principle. b. Management pressures the member to reduce necessary audit procedures in order to reduce audit fees. c. The member receives a gift from the attest client, its management, or its significant shareholders.

Considering Employment or association with an attest client

This interpretation applies to a member of the attest engagement team or an individual in a position to influence the attest engagement (individual) who intends to seek or discuss potential employment or association with an attest client or is in receipt of a specific offer of employment from an attest client. The undue influence and self-interest threats to compliance with the "Independence Rule" would be at an acceptable level and independence would not be impaired if all of the following safeguards are met: a. The individual promptly reports such consideration or offer to an appropriate person in the firm. b. The individual immediately ceases participation in the engagement and does not provide any services to the attest client until the employment offer is rejected or employment is no longer sought. c. If a covered member becomes aware that an individual is considering employment or association with an attest client, the covered member should notify an appropriate person in the firm. d. The appropriate person in the firm should consider whether, based on the nature of the engagement and the individual involved, the firm should perform additional procedures to provide reasonable assurance that any work that the individual performed for the attest client was performed in compliance with the "Integrity and Objectivity Rule"

Former employment or association with an attest client

This interpretation applies to covered members who were formerly employed by an entity or associated with an entity as an officer, a director, a promoter, an underwriter, a voting trustee, or a trustee for the entity's pension or profit sharing trust and subsequently became employed by a firm that provides attest service to that entity. When a member becomes a partner or professional employee of a firm that provides attest services to an entity where the member was formerly employed or otherwise associated, familiarity, self-interest, self-review, or management participation threats to the member's compliance with the "Independence Rule" may exist. If a covered member participates on the client's attest engagement or is an individual in a position to influence the attest engagement covering any period that includes the covered member's former employment or association with the attest client, threats to the member's compliance with the "Independence Rule" would not be at an acceptable level and could not be reduced to an acceptable level by the application of safeguards. Accordingly, independence would be impaired.

Subsequent employment or association with an attest client

This interpretation applies to partners and professional employees who leave their firms and are subsequently employed by, or associated with, one of the firm's attest clients in a key position.

Attest engagement team

Those individuals participating in the attest engagement, including those who perform concurring and engagement quality reviews. The attest engagement team includes all employees and contractors retained by the firm who participate in the attest engagement, regardless of their functional classification (for example, audit, tax, or management consulting services). The attest engagement team excludes specialists and individuals who perform only routine clerical functions, such as word processing and photocopying.

Loans

Threats would be at an acceptable level and independence would not be impaired if a covered member or his or her immediate family has an unsecured loan that is not material to the covered member's net worth (that is, immaterial unsecured loan), a home mortgage, or a secured loan from a lending institution attest client, if all the following safeguards are met: a. The home mortgage, secured loan, or immaterial unsecured loan was obtained under the lending institution's normal lending procedures, terms, and requirements. b. The home mortgage, secured loan, or immaterial unsecured loan was obtained i. from the lending institution prior to its becoming an attest client; c. After becoming a covered member, any home mortgage, secured loan, or immaterial unsecured loan must be kept current regarding all terms at all times, and the terms may not change in any manner not provided for in the original agreement. d. The estimated fair value of the collateral for a home mortgage or other secured loan must equal or exceed the outstanding balance

Close Relatives

When a close relative of a covered member is employed by an attest client or has financial interests in an attest client, management participation, familiarity, and self-interest threats to the covered member's compliance with the "Independence Rule" may exist. Threats to compliance with the "Independence Rule" would not be at an acceptable level and could not be reduced to an acceptable level by the application of safeguards, and independence would be impaired, if an individual participating on the attest engagement team has a close relative who has either of the following: a. A key position with the attest client during the period covered by the financial statements or during the period of the professional engagement. b. A financial interest in the attest client during the period of the professional engagement that i. the individual knows or has reason to believe was material to the close relative or ii. enabled the close relative to exercise significant influence over the attest client.

Nonattest services: Scope and Applicability of Nonattest Services

When a member performs nonattest services for an attest client, self-review, management participation, or advocacy threats to the member's compliance with the "Independence Rule" may exist. When significant independence threats exist during the period of the professional engagement or the period covered by the financial statements (except as provided for in paragraph .03), independence will be impaired unless the threats are reduced to an acceptable level and any requirements included in the interpretations of the "Nonattest Services" subtopic under the "Independence Rule" have been met.

Immediate Family Member Is Employed by the Attest Client

When an individual in a covered member's immediate family is employed by an attest client, management participation, familiarity, and self-interest threats to the covered member's compliance with the "Independence Rule" may exist. If a covered member's immediate family is employed by an attest client but is not in a key position, threats would be at an acceptable level and independence would not be impaired. If a covered member's immediate family is in a key position with an attest client during the period covered by the financial statements or during the period of the professional engagement, threats to compliance with the "Independence Rule" would not be at an acceptable level and could not be reduced to an acceptable level by the application of safeguards . Accordingly, independence would be impaired.

Depository Accounts

When the covered member is an individual, the threat would be at an acceptable level, and independence would not be impaired if a. the balance in the depository account(s) is fully insured by the appropriate state or federal government deposit insurance agencies or by any other insurer, or

The "Breach of an Independence Interpretation" of the "Independence Rule"

contains guidance for a member if identify a breach of an independence interpretation of the code. If see a breach, the member should evaluate the significance of the breach and effect on the member's ability to comply with the rules of the code. The member should take immediate action, to satisfactorily address the consequences of the breach. The member should determine whether to report the breach, for example, to those affected, a professional body, relevant regulator, or oversight authority. In making the evaluation and in determining what actions should be taken, the member should exercise professional judgment and take into account whether a reasonable and informed third party, thinking about the significance and the action to be taken, and all the specific facts and circumstances available to the member at that time, would be likely to conclude that the member is able to comply with the rules of the code. Just b/c member believes addressed doesn't mean that it's over/prevents an investigation or enforcement action concerning the underlying breach of the code and the member should be prepared to justify such determination.

Internal Audit

internal audit services involve assisting the attest client in the performance of its internal audit activities (internal audit outsourcing) When a member provides internal audit services to an attest client, self-review and management participation threats The attest client's management is responsible for directing the internal audit function including implementing and maintaining internal control. Outsourcing internal audit functions to the member - threats not at an acceptable level & independence impaired