Breaching the aicpa code of professional conduct

Ethics Case

AICPA Code of Professional Conduct

Effective December 15, 2014.

Updated for all Official Releases through September 1, 2018

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Table of Contents Preface: Applicable to All Members ...................................................................................... 1

0.100 Overview of the Code of Professional Conduct ........................................................ 1 .01 ................................................................................................................... 1 .02 ................................................................................................................... 1 .03 ................................................................................................................... 1 0.100.010 Principles and Rules of Conduct ............................................................. 1 0.100.020 Interpretations and Other Guidance .......................................................... 1

0.200 Structure and Application of the AICPA Code ......................................................... 2 0.200.010 Structure of the AICPA Code ................................................................. 2 0.200.020 Application of the AICPA Code .............................................................. 2 0.200.030 Citations ............................................................................................. 3 0.200.040 Transition Provisions ............................................................................ 4 0.200.050 Drafting Conventions ............................................................................ 4

0.300 Principles of Professional Conduct ........................................................................ 5 0.300.010 Preamble ............................................................................................ 5 0.300.020 Responsibilities .................................................................................... 5 0.300.030 The Public Interest ............................................................................... 5 0.300.040 Integrity .............................................................................................. 6 0.300.050 Objectivity and Independence ................................................................. 6 0.300.060 Due Care ............................................................................................ 6 0.300.070 Scope and Nature of Services ................................................................. 7

0.400 Definitions ........................................................................................................ 7 .01 ................................................................................................................... 8 .02 ................................................................................................................... 8 .03 ................................................................................................................... 9 .04 ................................................................................................................... 9 .05 ................................................................................................................... 9 .06 ................................................................................................................... 9 .07 ................................................................................................................... 9 .08 .................................................................................................................. 10 .09 .................................................................................................................. 10 .10 .................................................................................................................. 10 .11 .................................................................................................................. 10 .12 .................................................................................................................. 10 .13 .................................................................................................................. 11 .14 .................................................................................................................. 11 .15 .................................................................................................................. 11 .16 .................................................................................................................. 11 .17 .................................................................................................................. 11 .18 .................................................................................................................. 12 .19 .................................................................................................................. 12 .20 .................................................................................................................. 12 .21 .................................................................................................................. 12 .22 .................................................................................................................. 12 .23 .................................................................................................................. 12 .24 .................................................................................................................. 13 .25 .................................................................................................................. 13 .26 .................................................................................................................. 13 .27 .................................................................................................................. 13 .28 .................................................................................................................. 13 .29 .................................................................................................................. 13

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.30 .................................................................................................................. 14

.31 .................................................................................................................. 14

.32 .................................................................................................................. 14

.33 .................................................................................................................. 14

.34 .................................................................................................................. 14

.35 .................................................................................................................. 14

.36 .................................................................................................................. 15

.37 .................................................................................................................. 15

.38 .................................................................................................................. 15

.39 .................................................................................................................. 15

.40 .................................................................................................................. 15

.41 .................................................................................................................. 16

.42 .................................................................................................................. 16

.43 .................................................................................................................. 16

.44 .................................................................................................................. 16

.45 .................................................................................................................. 16

.46 .................................................................................................................. 16

.47 .................................................................................................................. 16

.48 .................................................................................................................. 16

.49 .................................................................................................................. 17 0.500 Nonauthoritative Guidance ................................................................................. 17

.01 .................................................................................................................. 17

.02 .................................................................................................................. 17

.03 .................................................................................................................. 17 0.600 New, Revised, and Pending Interpretations and Other Guidance ................................ 17

0.600.010 New and Revised Interpretations and Other Guidance ................................ 17 0.600.020 Pending Interpretations and Other Guidance ............................................ 19

0.700 Deleted Interpretations and Other Guidance ........................................................... 19 .01 .................................................................................................................. 19

Part 1 ............................................................................................................................. 23 1.000 Introduction ..................................................................................................... 23

.01 .................................................................................................................. 23

.02 .................................................................................................................. 23

.03 .................................................................................................................. 23 1.000.010 Conceptual Framework for Members in Public Practice .............................. 23 1.000.020 Ethical Conflicts ................................................................................. 29

1.100 Integrity and Objectivity .................................................................................... 30 1.100.001 Integrity and Objectivity Rule ............................................................... 30 Interpretations Under the Integrity and Objectivity Rule ........................................... 30

1.200 Independence ................................................................................................... 38 1.200.001 Independence Rule .............................................................................. 38 Interpretations Under the Independence Rule ......................................................... 38

1.300 General Standards ........................................................................................... 108 1.300.001 General Standards Rule ...................................................................... 109 Interpretations Under the General Standards Rule .................................................. 109

1.310 Compliance With Standards .............................................................................. 111 1.310.001 Compliance With Standards Rule ......................................................... 111 Interpretations Under the Compliance with Standards Rule ..................................... 111

1.320 Accounting Principles ...................................................................................... 111 1.320.001 Accounting Principles Rule ................................................................. 111 Interpretations Under the Accounting Standards Rule ............................................. 112

1.400 Acts Discreditable ........................................................................................... 114 1.400.001 Acts Discreditable Rule ...................................................................... 114 Interpretations Under the Acts Discreditable Rule ................................................. 114

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1.500 Fees and Other Types of Remuneration .............................................................. 122 1.500.008 Unpaid Fees ..................................................................................... 122 1.510 Contingent Fees ...................................................................................... 122 1.520 Commissions and Referral Fees ................................................................. 125

1.600 Advertising and Other Forms of Solicitation ........................................................ 128 1.600.001 Advertising and Other Forms of Solicitation Rule ................................... 128 Interpretations Under the Advertising and Other Forms of Solicitation Rule ................ 128

1.700 Confidential Information .................................................................................. 129 1.700.001 Confidential Client Information Rule .................................................... 129 Interpretations Under the Confidential Client Information Rule ................................ 130

1.800 Form of Organization and Name ....................................................................... 134 1.800.001 Form of Organization and Name Rule ................................................... 134 Interpretations Under the Form of Organization and Name Rule ............................... 135

Part 2 ............................................................................................................................ 139 2.000 Introduction ................................................................................................... 139

.01 ................................................................................................................ 139

.02 ................................................................................................................ 139 2.000.010 Conceptual Framework for Members in Business .................................... 139 2.000.020 Ethical Conflicts ............................................................................... 143

2.100 Integrity and Objectivity .................................................................................. 144 2.100.001 Integrity and Objectivity Rule ............................................................. 144 Interpretations Under the Integrity and Objectivity Rule ......................................... 144

2.300 General Standards ........................................................................................... 154 2.300.001 General Standards Rule ...................................................................... 154 Interpretations Under the General Standards Rule .................................................. 154

2.310 Compliance With Standards .............................................................................. 155 2.310.001 Compliance With Standards Rule ......................................................... 155 Interpretations Under the Compliance with Standards Rule ..................................... 156

2.320 Accounting Principles ...................................................................................... 156 2.320.001 Accounting Principles Rule ................................................................. 156 Interpretations Under the Accounting Principles Rule ............................................. 156

2.400 Acts Discreditable ........................................................................................... 158 2.400.001 Acts Discreditable Rule ...................................................................... 159 Interpretations Under the Acts Discreditable Rule ................................................. 159

Part 3 ............................................................................................................................ 163 3.000 Introduction ................................................................................................... 163

.01 ................................................................................................................ 163

.02 ................................................................................................................ 163 3.000.030 Applicability .................................................................................... 163

3.400 Acts Discreditable ........................................................................................... 163 3.400.001 Acts Discreditable Rule ...................................................................... 163 Interpretations Under the Acts Discreditable Rule ................................................. 163

Appendix A ................................................................................................................... 166 ............................................................................................................................ 166

Appendix B .................................................................................................................... 170 ............................................................................................................................ 170

Appendix C .................................................................................................................... 172 ............................................................................................................................ 172

Appendix D ................................................................................................................... 180 ............................................................................................................................ 180

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Preface: Applicable to All Members 0.100 Overview of the Code of Professional Conduct

.01 The AICPA Code of Professional Conduct (the code) begins with this preface, which applies to all members The term member, when used in part 1 of the code, applies to and means a member in public practice; when used in part 2 of the code, applies to and means a member in business; and when used in part 3 of the code, applies to and means all other members, such as those members who are retired or unemployed.

.02 A member may have multiple roles, such as a member in business and a member in public practice. In such circumstances, the member should consult all applicable parts of the code and apply the most restrictive provisions. [No prior reference: new content]

Effective Date

.03 Effective December 15, 2014.

0.100.010 Principles and Rules of Conduct

.01 The AICPA membership adopted the Code of Professional Conduct (the code) to provide guidance and rules to all members in the performance of their professional responsibilities. The code consists of principles and rules as well as interpretations and other guidance which are discussed in 0.100.020. The principles provide the framework for the rules that govern the performance of their professional responsibilities.

.02 The AICPA bylaws require that members adhere to the rules of the code. Compliance with the rules depends primarily on members’ understanding and voluntary actions; secondarily on reinforcement by peers and public opinion; and ultimately on disciplinary proceedings, when necessary, against members who fail to comply with the rules. Members must be prepared to justify departures from these rules.

0.100.020 Interpretations and Other Guidance

.01 Interpretations of the rules of conduct are adopted after exposure to the membership, state societies, state boards, and other interested parties. The interpretations of the rules of conduct, “Definitions” [0.400], “Application of the AICPA Code” [0.200.020], and “Citations” [0.200.030], provide guidelines about the scope and application of the rules but are not intended to limit such scope or application. A member who departs from the interpretations shall have the burden of justifying such departure in any disciplinary hearing. Interpretations that existed before the adoption of the code on January 12, 1988, will remain in effect until further action is deemed necessary by the appropriate senior committee.

.02 A member should also consult the following, if applicable:

• The ethical requirements of the member’s state CPA society and authoritative regulatory bodies such as state board(s) of accountancy

• The Securities and Exchange Commission (SEC)

• The Public Company Accounting Oversight Board (PCAOB)

• The Government Accountability Office (GAO)

• The Department of Labor (DOL)

• Federal, state and local taxing authorities

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• Any other body that regulates a member who performs professional services for an entity when the member or entity is subject to the rules and regulations of such regulatory body. [Prior reference: Introduction]

0.200 Structure and Application of the AICPA Code

0.200.010 Structure of the AICPA Code

.01 A variety of topics appear in parts 1–3 of the code. When applicable, topics are aligned with the relevant rule or rules of conduct. Topics may be further divided into subtopics, and some subtopics include one or more sections. Topics, subtopics, and sections interpret the rules of conduct (see “Interpretations and Other Guidance” [0.100.020]).

.02 Defined terms (see “Definitions” [0.400]) as well as the plurals and possessives thereof, are shown in italics throughout the code. When a defined term is used in the code but is not shown in italics, the definition in 0.400 should not be applied. [No prior reference: new content]

Effective Date

.03 Effective December 15, 2014.

0.200.020 Application of the AICPA Code

.01 The Code of Professional Conduct (the code) was originally adopted on January 12, 1988, and was periodically revised through June 1, 2014. On June 1, 2014, the AICPA issued a codification of the code’s principles, rules, interpretations and rulings (revised code). The revised code will be effective December 15, 2014, excluding the Conceptual Framework sections. These sections, “Conceptual Framework for Members in Public Practice” [1.000.010] and “Conceptual Framework for Members in Business” [2.000.010], will be effective December 15, 2015. Members are permitted to implement the revised code prior to December 15, 2014, but a member may not implement the relevant Conceptual Framework prior to implementing the entire revised code. Revisions made subsequent to June 1, 2014, are identified in appendix C, the Revision History Table, which notes the month and year of the change, the effective date of the change, the purpose for the revision, and when possible, a link to the marked revision of the content that appeared in the Journal of Accountancy. If the interpretation or paragraph does not contain a specific effective date or a reference to the revision history table, then the content was effective prior to June 1, 2014. [No prior reference: new content.]

.02 When used in the preface of the code, the term member includes members, associate members, and affiliate members, as well as international associates of the AICPA.

.03 The rules of conduct apply to all professional services performed, except

a. when the wording of the rule indicates otherwise.

b. that a member who is practicing outside the United States will not be considered in violation of a particular rule for departing from any of the rules stated herein, as long as the member’s conduct is in accordance with the rules of the organized accounting profession in the country in which he or she is practicing. However, when a member is associated with financial statements under circumstances that would lead the reader to assume that practices of the United States were followed, the member must comply with the “Compliance With Standards Rule” [1.310.001 for members in public practice and 2.310.001 for members in business] and the “Accounting Principles Rule” [1.320.001 for members in public practice and 2.320.001 for members in business].

c. that a member who is a member of a group engagement team (see the clarified Statement on Auditing Standards Special Considerations—Audits of Group Financial Statements [Including the Work of

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Component Auditors] [AICPA, Professional Standards, AU-C sec. 600]) will not be considered in violation of a particular rule if a foreign component auditor (accountant) departed from any of the rules stated herein with respect to the audit or review of group financial statements or other attest engagement, as long as the foreign component auditor’s (accountant’s) conduct, at a minimum, is in accordance with the ethics and independence requirements set forth in the International Ethics Standards Board for Accountants’ (IESBA’s) Code of Ethics for Professional Accountants, and the members of the group engagement team are in compliance with the rules stated therein.

d. that the independence of the member’s firm will not be considered impaired if another firm or entity located outside the United States that is within the member firm’s network departed from any of the rules stated herein, as long as the other firm or entity’s conduct, at a minimum, is in accordance with the independence requirements set forth in the IESBA’s Code of Ethics for Professional Accountants.

.04 A member shall not knowingly permit a person whom the member has the authority or capacity to control to carry out on his or her behalf, either with or without compensation, acts that, if carried out by the member, would place the member in violation of the rules. Further, a member may be held responsible for the acts of all persons associated with the member in public practice whom the member has the authority or capacity to control.

.05 The independence of a member in public practice or a covered member may be impaired with respect to a client as the result of the actions or relationships, as described in the “Independence Rule” [1.200.001] and its interpretations, of certain persons or entities whom the member or covered member does not have the authority or capacity to control. Even if the member is unable to control the actions or relationships of such persons or entities, the member’s independence may still be impaired. [Prior reference: ET section 91]

.06 The “Breach of an Independence Interpretation” [1.298.010] of the “Independence Rule” [1.200.001] contains guidance with which a member should comply if the member identifies a breach of an independence interpretation of the code. If a member identifies a breach of any other provision of this code, the member should evaluate the significance of the breach and its effect on the member’s ability to comply with the rules of the code. The member should take whatever actions may be available, as soon as practicable, to satisfactorily address the consequences of the breach. The member should determine whether to report the breach, for example, to those who may have been affected by the breach, 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, weighing the significance of the breach, 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. A member’s determination that the member has satisfactorily addressed the consequences of the breach will not, however, preclude an investigation or enforcement action concerning the underlying breach of the code and the member should be prepared to justify such determination.

Effective Date

.07 Paragraph .01 is effective December 15, 2014. Paragraph .06 is effective March 31, 2016, with early implementation allowed.

[See Revision History Table.]

0.200.030 Citations

Prior ET Sections

.01 The code has been revised by codifying the principles, rules, interpretations, and rulings. These revisions are effective December 15, 2014. To facilitate implementation of the revised code, the prior ET references

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from the professional standards of the AICPA will be included for a four-year period (until December 15, 2018) in appendix D, “Mapping Document,” and in bracketed text at the end of standards, where applicable.

Numeric Citations

.02 The numbering system for the code is “ET section X.XXX.XXX.” The single digit that begins the citation identifies the part wherein the content resides. Accordingly, content from the preface begins with the single digit 0.XXX.XXX, whereas content for part 1 begins with a 1.XXX.XXX, part 2 with 2.XXX.XXX, and part 3 with a 3.XXX.XXX.

.03 Next are two sets of three digit numbers that identify the topics and, when applicable, subtopics or sections. When a topic, subtopic or section appears in two or more parts of the code, the same number is used. For example, the “Acts Discreditable Rule” appears in parts 1, 2, and 3 and the citations for this rule are 1.400.001, 2.400.001, and 3.400.001, respectively. Accordingly, the two sets of three digit numbers remain the same with only the first digit changing.

.04 When only two digits appear, those digits represent the paragraph number. For example, the complete citation for this paragraph would be 0.200.030.04.

.05 All bracketed section references, such as [0.200.030.04] refer to sections within the Code of Professional Conduct. [No prior reference: new content]

Effective Date

.06 Effective December 15, 2014.

0.200.040 Transition Provisions

.01 The text of the transition provisions in effect as of May 31, 2013, has not been codified because the transition provisions apply to a limited number of situations. Nevertheless, these transition provisions are still authoritative. The texts of these transition provisions are available at http://aicpa.org/ InterestAreas/ProfessionalEthics/Community/DownloadableDocuments/Transistion%20Periods.pdf. [No prior reference: new content]

Effective Date

.02 Effective December 15, 2014.

0.200.050 Drafting Conventions

.01 The code utilizes certain drafting conventions to enhance the clarity of the interpretations and definitions. For example, when the term “should consider” is used in connection with a specified procedure or action, consideration of the procedure or action by the member is presumptively required. Actual performance of the action or procedure is up to the member, based upon the outcome of the member’s consideration and the member’s professional judgment. Other drafting conventions used in the code include use of the terms “consider,” “evaluate,” and “determine,” as follows:

a. “Consider” is used when the member is required to think about several matters.

b. “Evaluate” is used when the member has to assess and weigh the significance of a matter.

c. “Determine” is used when the member has to come to a conclusion and make a decision on a matter. [No prior reference: new content]

Effective Date

http://aicpa.org/InterestAreas/ProfessionalEthics/Community/DownloadableDocuments/Transistion%20Periods.pdf
http://aicpa.org/InterestAreas/ProfessionalEthics/Community/DownloadableDocuments/Transistion%20Periods.pdf
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.02 Effective December 15, 2014.

A complete nonauthoritative guide, Drafting Guide—Drafting Guidelines for Integrating the Conceptual Framework and Drafting Conventions and Style Guidance, is also available at http://aicpa.org/InterestAreas/ProfessionalEthics/ Community/DownloadableDocuments/Drafting%20Guide.pdf.

0.300 Principles of Professional Conduct

0.300.010 Preamble

.01 Membership in the American Institute of Certified Public Accountants is voluntary. By accepting membership, a member assumes an obligation of self-discipline above and beyond the requirements of laws and regulations.

.02 These Principles of the Code of Professional Conduct of the American Institute of Certified Public Accountants express the profession’s recognition of its responsibilities to the public, to clients, and to colleagues. They guide members in the performance of their professional responsibilities and express the basic tenets of ethical and professional conduct. The Principles call for an unswerving commitment to honorable behavior, even at the sacrifice of personal advantage. [Prior reference: ET section 51]

0.300.020 Responsibilities

.01 Responsibilities principle. In carrying out their responsibilities as professionals, members should exercise sensitive professional and moral judgments in all their activities.

.02 As professionals, members perform an essential role in society. Consistent with that role, members of the American Institute of Certified Public Accountants have responsibilities to all those who use their professional services. Members also have a continuing responsibility to cooperate with each other to improve the art of accounting, maintain the public’s confidence, and carry out the profession’s special responsibilities for self-governance. The collective efforts of all members are required to maintain and enhance the traditions of the profession. [Prior reference: ET section 52]

0.300.030 The Public Interest

.01 The public interest principle. Members should accept the obligation to act in a way that will serve the public interest, honor the public trust, and demonstrate a commitment to professionalism.

.02 A distinguishing mark of a profession is acceptance of its responsibility to the public. The accounting profession’s public consists of clients, credit grantors, governments, employers, investors, the business and financial community, and others who rely on the objectivity and integrity of members to maintain the orderly functioning of commerce. This reliance imposes a public interest responsibility on members. The public interest is defined as the collective well-being of the community of people and institutions that the profession serves.

.03 In discharging their professional responsibilities, members may encounter conflicting pressures from each of those groups. In resolving those conflicts, members should act with integrity, guided by the precept that when members fulfill their responsibility to the public, clients’ and employers’ interests are best served.

.04 Those who rely on members expect them to discharge their responsibilities with integrity, objectivity, due professional care, and a genuine interest in serving the public. They are expected to provide quality services, enter into fee arrangements, and offer a range of services—all in a manner that demonstrates a level of professionalism consistent with these Principles of the Code of Professional Conduct.

.05 All who accept membership in the American Institute of Certified Public Accountants commit themselves to honor the public trust. In return for the faith that the public reposes in them, members should seek to continually demonstrate their dedication to professional excellence. [Prior reference: ET section 53]

http://aicpa.org/InterestAreas/ProfessionalEthics/Community/DownloadableDocuments/Drafting%20Guide.pdf
http://aicpa.org/InterestAreas/ProfessionalEthics/Community/DownloadableDocuments/Drafting%20Guide.pdf
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0.300.040 Integrity

.01 Integrity principle. To maintain and broaden public confidence, members should perform all professional responsibilities with the highest sense of integrity.

.02 Integrity is an element of character fundamental to professional recognition. It is the quality from which the public trust derives and the benchmark against which a member must ultimately test all decisions.

.03 Integrity requires a member to be, among other things, honest and candid within the constraints of client confidentiality. Service and the public trust should not be subordinated to personal gain and advantage. Integrity can accommodate the inadvertent error and honest difference of opinion; it cannot accommodate deceit or subordination of principle.

.04 Integrity is measured in terms of what is right and just. In the absence of specific rules, standards, or guidance or in the face of conflicting opinions, a member should test decisions and deeds by asking: “Am I doing what a person of integrity would do? Have I retained my integrity?” Integrity requires a member to observe both the form and the spirit of technical and ethical standards; circumvention of those standards constitutes subordination of judgment.

.05 Integrity also requires a member to observe the principles of objectivity and independence and of due care. [Prior reference: ET section 54]

0.300.050 Objectivity and Independence

.01 Objectivity and independence principle. A member should maintain objectivity and be free of conflicts of interest in discharging professional responsibilities. A member in public practice should be independent in fact and appearance when providing auditing and other attestation services.

.02 Objectivity is a state of mind, a quality that lends value to a member’s services. It is a distinguishing feature of the profession. The principle of objectivity imposes the obligation to be impartial, intellectually honest, and free of conflicts of interest. Independence precludes relationships that may appear to impair a member’s objectivity in rendering attestation services.

.03 Members often serve multiple interests in many different capacities and must demonstrate their objectivity in varying circumstances. Members in public practice render attest, tax, and management advisory services. Other members prepare financial statements in the employment of others, perform internal auditing services, and serve in financial and management capacities in industry, education, and government. They also educate and train those who aspire to admission into the profession. Regardless of service or capacity, members should protect the integrity of their work, maintain objectivity, and avoid any subordination of their judgment.

.04 For a member in public practice, the maintenance of objectivity and independence requires a continuing assessment of client relationships and public responsibility. Such a member who provides auditing and other attestation services should be independent in fact and appearance. In providing all other services, a member should maintain objectivity and avoid conflicts of interest.

.05 Although members not in public practice cannot maintain the appearance of independence, they nevertheless have the responsibility to maintain objectivity in rendering professional services. Members employed by others to prepare financial statements or to perform auditing, tax, or consulting services are charged with the same responsibility for objectivity as members in public practice and must be scrupulous in their application of generally accepted accounting principles and candid in all their dealings with members in public practice. [Prior reference: ET section 55]

0.300.060 Due Care

.01 Due care principle. A member should observe the profession’s technical and ethical standards, strive continually to improve competence and the quality of services, and discharge professional responsibility to the best of the member’s ability.

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.02 The quest for excellence is the essence of due care. Due care requires a member to discharge professional responsibilities with competence and diligence. It imposes the obligation to perform professional services to the best of a member’s ability, with concern for the best interest of those for whom the services are performed, and consistent with the profession’s responsibility to the public.

.03 Competence is derived from a synthesis of education and experience. It begins with a mastery of the common body of knowledge required for designation as a certified public accountant. The maintenance of competence requires a commitment to learning and professional improvement that must continue throughout a member’s professional life. It is a member’s individual responsibility. In all engagements and in all responsibilities, each member should undertake to achieve a level of competence that will assure that the quality of the member’s services meets the high level of professionalism required by these Principles.

.04 Competence represents the attainment and maintenance of a level of understanding and knowledge that enables a member to render services with facility and acumen. It also establishes the limitations of a member’s capabilities by dictating that consultation or referral may be required when a professional engagement exceeds the personal competence of a member or a member’s firm. Each member is responsible for assessing his or her own competence of evaluating whether education, experience, and judgment are adequate for the responsibility to be assumed.

.05 Members should be diligent in discharging responsibilities to clients, employers, and the public. Diligence imposes the responsibility to render services promptly and carefully, to be thorough, and to observe applicable technical and ethical standards.

.06 Due care requires a member to plan and supervise adequately any professional activity for which he or she is responsible. [Prior reference: ET section 56]

0.300.070 Scope and Nature of Services

.01 Scope and nature of services principle. A member in public practice should observe the Principles of the Code of Professional Conduct in determining the scope and nature of services to be provided.

.02 The public interest aspect of members’ services requires that such services be consistent with acceptable professional behavior for members. Integrity requires that service and the public trust not be subordinated to personal gain and advantage. Objectivity and independence require that members be free from conflicts of interest in discharging professional responsibilities. Due care requires that services be provided with competence and diligence.

.03 Each of these Principles should be considered by members in determining whether or not to provide specific services in individual circumstances. In some instances, they may represent an overall constraint on the nonaudit services that might be offered to a specific client. No hard-and-fast rules can be developed to help members reach these judgments, but they must be satisfied that they are meeting the spirit of the Principles in this regard.

.04 In order to accomplish this, members should

a. Practice in firms that have in place internal quality control procedures to ensure that services are competently delivered and adequately supervised.

b. Determine, in their individual judgments, whether the scope and nature of other services provided to an audit client would create a conflict of interest in the performance of the audit function for that client.

c. Assess, in their individual judgments, whether an activity is consistent with their role as professionals. [Prior reference: ET section 57]

0.400 Definitions

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Pursuant to its authority under the bylaws (paragraph .01 [3.6.2.2] of BL section 360, Committees [AICPA, Professional Standards]) to interpret the code, the Professional Ethics Executive Committee has issued the following definitions of terms appearing in the code.

.01 Acceptable level. In connection with independence, an acceptable level is a level at which a reasonable and informed third party who is aware of the relevant information would be expected to conclude that a member’s independence is not impaired. When used in connection with any rule but the “Independence Rule” [1.200.001] an acceptable level is a level at which a reasonable and informed third party who is aware of the relevant information would be expected to conclude that a member’s compliance with the rules is not compromised. [Prior reference: ET section 100-1 and new content]

Effective Date

When this definition is used in connection with any rule but the “Independence Rule” [1.200.001] it is effective December 15, 2014.

.02 Affiliate. The following entities are affiliates of a financial statement attest client:

a. An entity (for example, subsidiary, partnership, or limited liability company [LLC]) that a financial statement attest client can control.

b. An entity in which a financial statement attest client or an entity controlled by the financial statement attest client has a direct financial interest that gives the financial statement attest client significant influence over such entity and that is material to the financial statement attest client.

c. An entity (for example, parent, partnership, or LLC) that controls a financial statement attest client when the financial statement attest client is material to such entity.

d. An entity with a direct financial interest in the financial statement attest client when that entity has significant influence over the financial statement attest client, and the interest in the financial statement attest client is material to such entity.

e. A sister entity of a financial statement attest client if the financial statement attest client and sister entity are each material to the entity that controls both.

f. A trustee that is deemed to control a trust financial statement attest client that is not an investment company.

g. The sponsor of a single employer employee benefit plan financial statement attest client.

h. Any entity, such as a union, participating employer, or a group association of employers, that has significant influence over a multiemployer employee benefit plan financial statement attest client and the plan is material to such entity.

i. The participating employer that is the plan administrator of a multiple employer employee benefit plan financial statement attest client.

j. A single or multiple employer employee benefit plan sponsored by either a financial statement attest client or an entity controlled by the financial statement attest client. All participating employers of a multiple employer employee benefit plan are considered sponsors of the plan.

k. A multiemployer employee benefit plan when a financial statement attest client or entity controlled by the financial statement attest client has significant influence over the plan and the plan is material to the financial statement attest client.

l. An investment adviser, a general partner, or a trustee of an investment company financial statement attest client (fund) if the fund is material to the investment adviser, general partner, or trustee that is

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deemed to have either control or significant influence over the fund. When considering materiality, members should consider investments in, and fees received from, the fund.

[Prior reference: paragraph .20 of ET section 101]

[See Revision History Table.]

Nonauthoritative questions and answers related to the application of the independence rules to affiliates of employee benefit plans are available at www.aicpa.org/content/dam/aicpa/interestareas/professionalethics/resources/ tools/downloadabledocuments/faqs-application-independence-rules-affiliates-of-employee-benefit-plans.pdf.

.03 Attest client. A person or entity with respect to which an attest engagement is performed. [No prior reference: new content]

If the person or entity that engages a member or member’s firm (member) to perform professional services (engaging entity) is not also the attest client, the member should refer to the “Client Affiliate” interpretation [1.224.010] to determine whether the engaging entity is an affiliate from which the member should be independent. However, because threats to the member’s compliance with the “Integrity and Objectivity Rule” [1.100.001] and the “Conflicts of Interest for Members in Public Practice” interpretation [1.110.010] may still exist with respect to the engaging entity, members should comply with this rule and interpretation.

See paragraph .06 of the “Client Affiliate” interpretation [1.224.010] for acquisitions and business combinations that involve a financial statement attest client.

See paragraph .03 of the “Simultaneous Employment or Association With an Attest Client” interpretation [1.275.005] for independence guidance related to a member in a government audit organization that performs an attest engagement with respect to the government entity.

Effective Date

This definition is effective December 15, 2014.

[See Revision History Table.]

.04 Attest engagement. An engagement that requires independence, as set forth in the AICPA Statements on Auditing Standards (SASs), Statements on Standards for Accounting and Review Services (SSARSs), and Statements on Standards for Attestation Engagements (SSAEs). [Prior reference: paragraph .01 of ET section 92]

.05 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, as discussed in AU-C section 620, Using the Work of an Auditor’s Specialist (AICPA, Professional Standards), and individuals who perform only routine clerical functions, such as word processing and photocopying. [Prior reference: paragraph .02 of ET section 92]

.06 Beneficially owned. Describes a financial interest of which an individual or entity is not the record owner but has a right to some or all of the underlying benefits of ownership. These benefits include the authority to direct the voting or disposition of the interest or to receive the economic benefits of the ownership of the interest. [Prior reference: paragraph .17 of ET section 101]

.07 Client. Any person or entity, other than the member’s employer that engages a member or member’s firm to perform professional services (engaging entity) and also, a person or entity with respect to which a

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member or member’s firm performs professional services (subject entity). When the engaging entity and the subject entity are different, while there is only one engagement, they are separate clients.

[Prior reference: paragraph .03 of ET section 92]

See paragraph .03 of the “Simultaneous Employment or Association With an Attest Client” interpretation [1.275.005] for independence guidance related to a member in a government audit organization that performs an attest engagement with respect to the government entity.

[See Revision History Table.]

.08 Close relative. A parent, sibling, or nondependent child. [Prior reference: paragraph .04 of ET section 92]

.09 Confidential client information. Any information obtained from the client that is not available to the public. Information that is available to the public includes, but is not limited to, information

a. in a book, periodical, newspaper, or similar publication;

b. in a client document that has been released by the client to the public or that has otherwise become a matter of public knowledge;

c. on publicly accessible websites, databases, online discussion forums, or other electronic media by which members of the public can access the information;

d. released or disclosed by the client or other third parties in media interviews, speeches, testimony in a public forum, presentations made at seminars or trade association meetings, panel discussions, earnings press release calls, investor calls, analyst sessions, investor conference presentations, or a similar public forum;

e. maintained by, or filed with, regulatory or governmental bodies that is available to the public; or

f. obtained from other public sources.

Unless the particular client information is available to the public, such information should be considered confidential client information. Members are advised that federal, state, or local statutes, rules, or regulations concerning confidentiality of client information may be more restrictive than the requirements in the code. [Prior reference: paragraph .05 of ET section 92]

.10 Control (s) (led). As used in FASB Accounting Standards Codification (ASC) 810, Consolidation. When used in the “Client Affiliates” interpretation [1.224.010] of the “Independence Rule” [1.200.001], control depends upon the entity in question. For example, when used for not-for-profit entities, control is as used in FASB ASC 958-805-20; for commercial entities, control is as used in FASB ASC 810. [Prior reference: numerous ET sections; also see “Breakdown of the Term Control in the Code” at AICPA.org www.aicpa.org/interestareas/professionalethics/community/ downloadabledocuments/breakdown-of-the-term-control.pdf]

.11 Council. The AICPA Council. [Prior reference: paragraph .06 of ET section 92]

.12 Covered member. All of the following:

a. an individual on the attest engagement team.

b. an individual in a position to influence the attest engagement.

c. a partner, partner equivalent, or manager who provides 10 or more hours of nonattest services to the attest client within any fiscal year. Designation as covered member ends on the later of (i) the date that the firm signs the report on the financial statements for the fiscal year during which those

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services were provided or (ii) the date he or she no longer expects to provide 10 or more hours of nonattest services to the attest client on a recurring basis.

d. a partner or partner equivalent in the office in which the lead attest engagement partner or partner equivalent primarily practices in connection with the attest engagement.

e. the firm, including the firm’s employee benefit plans.

f. an entity whose operating, financial, or accounting policies can be controlled by any of the individuals or entities described in items a–e or two or more such individuals or entities if they act together. [Prior reference: paragraph .07 of ET section 92]

Effective Date

The addition of partner equivalents to this definition is effective for engagements covering periods beginning on or after December 15, 2014.

.13 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.

When used in this definition, the term control includes situations in which the covered member has the ability to exercise such control, either individually or acting together with his or her firm or other partners or professional employees of his or her firm. [Prior reference: paragraph .17 of ET section 101]

.14 Employing organization. Any entity that employs the member or engages the member on a contractual or volunteer basis in an executive, a staff, a governance, an advisory, or an administrative capacity to provide professional services. [No prior reference: new content]

Effective Date

This definition is effective December 15, 2014.

.15 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. [Prior reference: paragraph .17 of ET section 101]

.16 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. This term is used in the “Client Affiliates” interpretation [1.224.010] of the “Independence Rule” [1.200.001] and in the definition of an affiliate [0.400.02]. [Prior reference: paragraph .20 of ET section 101]

.17 Financial statements. A presentation of financial data, including accompanying disclosures, if any, intended to communicate an entity’s economic resources or obligations, or both, at a point in time or the changes therein for a period of time, in accordance with the applicable financial reporting framework. Incidental financial data to support recommendations to a client or in (a) documents for which the reporting is governed by SSAEs and (b) tax returns and supporting schedules do not, for this purpose, constitute financial statements. The statement, affidavit, or signature of preparers required on tax returns neither

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constitutes an opinion on financial statements nor requires a disclaimer of such opinion. [Prior reference: paragraph .10 of ET section 92]

.18 Firm. A form of organization permitted by law or regulation whose characteristics conform to resolutions of the Council and that is engaged in public practice. A firm includes the individual partners thereof, except for purposes of applying the “Independence Rule” [1.200.001] and related interpretations. For purposes of applying the “Independence Rule,” a firm includes a network firm when the engagement is either a financial statement audit or review engagement and the audit or review report is not restricted, as set forth in the AICPA SASs and SSARSs (AICPA, Professional Standards). [Prior reference: paragraph .11 of ET section 92]

.19 Immediate family. A spouse, spousal equivalent, or dependent (regardless of whether the dependent is related). [Prior reference: paragraph .13 of ET section 92]

.20 Impair(ed)(ing). In connection with independence, to effectively extinguish independence. When a member’s independence is impaired, the member is not independent. [Prior reference: paragraph .09 of ET section 100-1]

.21 Independence. Consists of two elements, defined as follows:

a. 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.

b. 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.

This definition should not be interpreted as an absolute. For example, the phrase “without being affected by influences that compromise professional judgment” is not intended to convey that the member must be free of any and all influences that might compromise objective judgment. Instead, the member should determine whether such influences, if present, create a threat that is not at an acceptable level that a member would not act with integrity and exercise objectivity and professional skepticism in the conduct of a particular engagement or would be perceived as not being able to do so by a reasonable and informed third party with knowledge of all relevant information. [Prior reference: paragraphs .06–.08 of ET section 100-1]

.22 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. When used in this definition, control includes situations in which the covered member has the ability to exercise such control, either individually or acting together with his or her firm or other partners or professional employees of his or her firm. [Prior reference: paragraph .17 of ET section 101]

.23 Individual in a position to influence the attest engagement. One who

a. evaluates the performance or recommends the compensation of the attest engagement partner;

b. directly supervises or manages the attest engagement partner , including all successively senior levels above that individual through the firm’s chief executive;

c. consults with the attest engagement team regarding technical or industry-related issues specific to the attest engagement; or

d. participates in or oversees, at all successively senior levels, quality control activities, including internal monitoring, with respect to the specific attest engagement.

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[Prior reference: paragraph .14 of ET section 92]

.24 Institute. The AICPA. [Prior reference: paragraph .15 of ET section 92]

.25 Interpretation. Pronouncements issued by the division of professional ethics to provide guidelines concerning the scope and application of the rules of conduct. [Prior reference: paragraph .16 of ET section 92]

.26 Joint closely held investment. An investment in an entity or a property by the member and the attest client (or the attest client’s officers or directors or any owner who has the ability to exercise significant influence over the attest client) that enables them to control the entity or property. [Prior reference: paragraph .17 of ET section 92]

[See Revision History Table.]

.27 Key position. A position in which an individual has

a. primary responsibility for significant accounting functions that support material components of the financial statements;

b. primary responsibility for the preparation of the financial statements; or

c. 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, chief executive officer, president, chief financial officer, chief operating officer, general counsel, chief accounting officer, controller, director of internal audit, director of financial reporting, treasurer, or any equivalent position.

For purposes of attest engagements not involving financial statements, a key position is one in which an individual is primarily responsible for, or able to influence, the subject matter of the attest engagement, as previously described. [Prior reference: paragraph .18 of ET section 92]

[See Revision History Table.]

.28 Lending institution. An entity that, as part of its normal business operations, makes loans. This definition is not meant to include an organization that might schedule payment for services for a client over a period of time. Examples of such entities are banks, credit unions, certain retailers, and insurance and finance companies. For example, for automobile leases addressed by the “Loans and Leases With Lending Institutions” interpretation [1.260.020] of the “Independence Rule” [1.200.001], an entity is considered a lending institution if it leases automobiles as part of its normal business operations. [Prior reference: paragraph .09 of ET section 92]

Effective Date

This revised definition is effective December 15, 2014.

.29 Loan. A contractual obligation to pay or right to receive money on demand or on a fixed or determinable date and includes a stated or implied rate of return to the lender. For purposes of this definition, loans include, among other things, a guarantee of a loan, a letter of credit, a line of credit, or a loan commitment. However, for purposes of this definition, a loan would not include debt securities (which are considered a financial interest) or lease arrangements. [Prior reference: paragraph .19 of ET section 92]

Effective Date

This revised definition is effective December 15, 2014.

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.30 Manager. A professional employee of the firm who has continuing responsibility for the planning and supervision of engagements for specified clients. [Prior reference: paragraph .20 of ET section 92]

.31 Member. A member, associate member, affiliate member, or international associate of the AICPA. When the term member is used in part 1 of the code, it means a member in public practice; when used in part 2 of the code, it means a member in business; and when used in part 3 of the code, it means all other members. [Prior reference: paragraph .21 of ET section 92]

.32 Member(s) in business. A member who is employed or engaged on a contractual or volunteer basis in a(n) executive, staff, governance, advisory, or administrative capacity in such areas as industry, the public sector, education, the not-for-profit sector, and regulatory or professional bodies. This does not include a member engaged in public practice. [Prior reference: paragraph .22 of ET section 92]

.33 Network. For purposes of the “Network and Network Firms” interpretation [1.220.010] of the “Independence Rule” [1.200.001], a network is an association of entities that includes one or more firms that (a) cooperate for the purpose of enhancing the firms’ capabilities to provide professional services and (b) share one or more of the following characteristics:

a. The use of a common brand name, including common initials, as part of the firm name

b. Common control among the firms through ownership, management, or other means

c. Profits or costs, excluding costs of operating the association; costs of developing audit methodologies, manuals, and training courses; and other costs that are immaterial to the firm

d. A common business strategy that involves ongoing collaboration amongst the firms whereby the firms are responsible for implementing the association’s strategy and are held accountable for performance pursuant to that strategy

e. A significant part of professional resources

f. Common quality control policies and procedures that firms are required to implement and that are monitored by the association

A network may comprise a subset of entities within an association only if that subset of entities cooperates and shares one or more of the characteristics set forth in the preceding list. [Prior reference: paragraph .23 of ET section 92]

.34 Network firm. A firm or other entity that belongs to a network. This includes any entity (including another firm) that the network firm, by itself or through one or more of its owners, controls, is controlled by, or is under common control with. [Prior reference: paragraph .24 of ET section 92]

.35 Normal lending procedures, terms, and requirements. In connection with a covered member’s loan from a lending institution, lending procedures, terms, and requirements that are reasonably comparable with those relating to loans of a similar character committed to other borrowers during the period in which the loan to the covered member is committed. Accordingly, in making such comparison and evaluating whether a loan was made under normal lending procedures, terms, and requirements, the covered member should consider all the circumstances under which the loan was granted, including the following:

a. The amount of the loan in relation to the value of the collateral pledged as security and the credit standing of the covered member

b. Repayment terms

c. Interest rate, including points

d. Closing costs

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e. General availability of such loans to the public

Related prohibitions that may be more restrictive are prescribed by certain state and federal agencies having regulatory authority over such lending institutions. Broker-dealers, for example, are subject to regulation by the SEC. [Prior reference: paragraph .25 of ET section 92]

.36 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. [Prior reference: paragraph .26 of ET section 92]

.37 Partner. A proprietor, a shareholder, an equity or a nonequity partner, or any individual who assumes the risks and benefits of firm ownership or is otherwise held out by the firm to be the equivalent of any of the aforementioned. [Prior reference: paragraph .27 of ET section 92]

.38 Partner equivalent. A professional employee who is not a partner of the firm but who either

a. has the ultimate responsibility for the conduct of an attest engagement, including the authority to sign or affix the firm’s name to an attest report or issue, or authorize others to issue, an attest report on behalf of the firm without partner approval; or

b. has the authority to bind the firm to conduct an attest engagement without partner approval. For example, the professional employee has the authority to sign or affix the firm’s name to an attest engagement letter or contract to conduct an attest engagement without partner approval.

Firms may use different titles to refer to professional employees with this authority, although a title is not determinative of a partner equivalent. For purposes of this definition, partner approval does not include any partner approvals that are part of the firm’s normal approval and quality control review procedures applicable to a partner.

This definition is solely for the purpose of applying the “Independence Rule” [1.200.001] and its interpretations and should not be used or relied upon in any other context, including the determination of whether the partner equivalent is an owner of the firm. [Prior reference: paragraph .28 of ET section 92.]

Effective Date

This definition is effective for engagements covering periods beginning on or after December 15, 2014.

.39 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, 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. [Prior reference: paragraph .29 of ET section 92]

[See Revision History Table.]

.40 Professional services. Include all services requiring accountancy or related skills that are performed by a member for a client, an employer, or on a volunteer basis. These services include, but are not limited to accounting, audit and other attest services, tax, bookkeeping, management consulting, financial management, corporate governance, personal financial planning, business valuation, litigation support, educational, and those services for which standards are promulgated by bodies designated by Council. [Prior reference: paragraph .31 of ET section 92]

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.41 Public interest entities. All of the following:

a. All listed entities, including entities that are outside the United States whose shares, stock, or debt are quoted or listed on a recognized stock exchange or marketed under the regulations of a recognized stock exchange or other equivalent body.

b. Any entity for which an audit is required by regulation or legislation to be conducted in compliance with the same independence requirements that apply to an audit of listed entities (for example, requirements of the SEC, the PCAOB, or other similar regulators or standard setters).

Members may wish to consider whether additional entities should also be treated as public interest entities because they have a large number and wide range of stakeholders. Factors to be considered may include

• the nature of the business, such as the holding of assets in a fiduciary capacity for a large number of stakeholders;

• size; and

• number of employees.

Members should refer to the independence regulations of applicable authoritative regulatory bodies when a member performs attest services and is required to be independent of the attest client under such regulations. [Prior reference: paragraph .20 of ET section 100-1]

[See Revision History Table.]

.42 Public practice. Consists of the performance of professional services for a client by a member or member’s firm. [Prior reference: paragraph .30 of ET section 92]

.43 Safeguards. Actions or other measures that may eliminate a threat or reduce a threat to an acceptable level. [Prior reference: paragraph .20 of ET section 100-1]

.44 Share-based compensation arrangements. As defined in the FASB ASC glossary under the term share- based payment arrangements. [Prior reference: paragraph .02 ET section 101]

.45 Significant influence. As defined in FASB ASC 323-10-15. [Prior reference: paragraph .32 of ET section 92]

.46 Source documents. The documents upon which evidence of an accounting transaction are initially recorded. Source documents are often followed by the creation of many additional records and reports that do not, however, qualify as initial recordings. Examples of source documents are purchase orders, payroll time cards, and customer orders. [Prior reference: footnote 17 in paragraph .05 of ET section 101]

.47 Third-party service provider. All of the following:

a. An entity that the member does not control, individually or collectively with his or her firm or with members of his or her firm.

b. An individual not employed by the member who assists the member in providing professional services to clients (for example, bookkeeping, tax return preparation, consulting, or attest services, including related clerical and data entry functions). [Prior reference: paragraphs .224–.225 of ET section 191, .023–.024 of ET section 291, and .001–.002 of ET section 391]

.48 Those charged with governance. The person(s) or organization(s) (for example, a corporate trustee) with responsibility for overseeing the strategic direction of the entity and the obligations related to the accountability of the entity. This includes overseeing the financial reporting process. Those charged with

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governance may include management personnel (for example, executive members of a governance board or an owner-manager).

When an interpretation requires communicating with those charged with governance, the member should determine the appropriate person(s) within the entity's governance structure with whom to communicate, based on the nature and importance of the particular circumstances and matter to be communicated. If the member communicates with a subgroup of those charged with governance (for example, an audit committee or an individual), the member should determine whether communication with all of those charged with governance is also necessary, so that they are adequately informed. [Prior reference: paragraph .33 of ET section 92]

Effective Date

This definition is effective April 30, 2014.

.49 Threat(s). In connection with independence, threats are relationships or circumstances that could impair independence. In connection with any rule but the “Independence Rule” [1.200.001], threats are relationships or circumstances that could compromise a member’s compliance with the rules. [Prior reference: paragraph .10 of ET section 100-1]

Effective Date

When this definition is used in connection with any rule but the “Independence Rule” it is effective December 15, 2014.

0.500 Nonauthoritative Guidance

.01 The code is the only authoritative source of AICPA ethics rules and interpretations. The staff of the Professional Ethics Division has issued nonauthoritative guidance to assist members and others in their implementation of the code. Such guidance does not amend or override the code. Further, the guidance is not meant to be exhaustive and does not establish best practices, set standards, or serve as official pronouncements of the AICPA. These documents were not approved in accordance with normal due process, which requires proposed changes to be exposed to the public and requires consideration of members’ and others’ comments.

.02 References to relevant nonauthoritative guidance, when available, are provided throughout the code in boxed text at the end of the applicable interpretation. [No prior reference: new content]

Effective Date

.03 Effective December 15, 2014.

0.600 New, Revised, and Pending Interpretations and Other Guidance

0.600.010 New and Revised Interpretations and Other Guidance

.01 Periodically, new or revised authoritative ethics interpretations and other guidance are issued. Publication of the text of a new or revised pronouncement or a notice with a link to the text of a new or revised authoritative interpretation and other guidance in the Journal of Accountancy constitutes notice to members. Hence, the effective date of the interpretation and other guidance is the last day of the month in which the pronouncement or notice is published in the Journal of Accountancy, unless otherwise noted. The Professional Ethics Division takes into consideration the time that would have been reasonable for the member to comply with the pronouncement. This section lists the citation and title of any new or revised interpretation or other guidance for a period of 12 months after its effective date. When an interpretation or other guidance is not yet effective, it will appear as a pending interpretation or other guidance (see “Pending Interpretations and Other Guidance” [0.600.020]).

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• “Leases” [1.260.040] (Revised December 2018. Effective for fiscal years beginning after December 15, 2019. Early implementation is allowed.)

• “Client Affiliates” [1.224.010] (Revised December 2018. Effective upon revision.)

• “Disclosing Client Information in Connection With a Quality Review” [1.700.110] (Added December 2018. Effective upon revision.)

• “Covered member” [0.400.12] (Revised July 2018. Effective upon revision)

• “Agreed-Upon Procedure Engagements Performed in Accordance With SSAEs” [1.297.020] (Revised July 2018. Effective upon revision)

• “Attest client” [0.400.03] (Revised December 2017. Effective December 31, 2017)

• “Client” [0.400.07] (Revised December 2017. Effective December 31, 2017)

• “Joint closely held investment” [0.400.26] (Revised December 2017. Effective December 31, 2017)

• “Key position” [0.400.27] (Revised December 2017. Effective December 31, 2017)

• “Period of the professional engagement” [0.400.39] (Revised December 2017. Effective December 31, 2017)

• “Public interest entities” [0.400.41] (Revised December 2017. Effective December 31, 2017)

• “Introduction” [1.000] (Revised December 2017. Effective December 31, 2017)

• “Entities Included in State and Local Government Financial Statements” [1.224.020] (Revised December 2017. Effective December 31, 2017)

• “Simultaneous Employment or Association With an Attest Client” [1.275.005] (Revised December 2017. Effective December 31, 2017)

• “Member of a Credit Union” [1.280.040] (Revised December 2017. Effective December 31, 2017)

• “Actual or Threatened Litigation” [1.290.010] (Revised December 2017. Effective December 31, 2017)

• “General Requirements for Performing Nonattest Services” [1.295.040] (Revised December 2017. Effective December 31, 2017)

• “Bookkeeping, Payroll, and Other Disbursements” [1.295.120] (Revised December 2017. Effective December 31, 2017)

• “Executive or Employee Recruiting” [1.295.135] (Revised December 2017. Effective December 31, 2017)

• “Forensic Accounting” [1.295.140] (Revised December 2017. Effective December 31, 2017)

• “Internal Audit” [1.295.150] (Revised December 2017. Effective December 31, 2017)

• “Application of the Independence Rule to Engagements Performed in Accordance with Statements on Standards for Attestation Engagements” [1.297.010] (Revised December 2017. Effective December 31, 2017)

• “Records Requests” [1.400.200] (Revised December 2017. Effective December 31, 2017)

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• “Services Performed by a Member’s Spouse for a Contingent Fee” [1.510.030] (Revised December 2017. Effective December 31, 2017)

• “Contingent Fee Arrangements With an Investment Advisory Services Nonattest Client That Is Related to a Client” [1.510.040] (Revised December 2017. Effective December 31, 2017)

• “Investment Advisory Services” [1.510.050] (Revised December 2017. Effective December 31, 2017)

• “Services Performed by a Member’s Spouse for a Commission” [1.520.030] (Revised December 2017. Effective December 31, 2017)

• “Referral of Products of Others” [1.520.040] (Revised December 2017. Effective December 31, 2017)

• “Commission Arrangements With an Investment Advisory Services Nonattest Client That Is Related to a Client” [1.520.050] (Revised December 2017. Effective December 31, 2017)

• “Disclosing Information to Persons or Entities Associated with Clients” [1.700.030] (Revised December 2017. Effective December 31, 2017)

• “Knowing Misrepresentations in the Preparation and Presentation of Information” [2.130.010] (Revised June 2017. Effective August 31, 2017.)

• “Pressure to Breach the Rules” [2.170] (Added June 2017. Effective August 31, 2017.)

• “Pressure to Breach the Rules” [2.170.010] (Added June 2017. Effective August 31, 2017.)

• “Transfer of Files and Return of Client Records in Sale, Transfer, Discontinuance or Acquisition of a Practice” [1.400.205] (Added August 2016. Effective June 30, 2017. Early implementation is allowed)

• “Disclosure of Commissions and Referral Fees” [1.520.080] (Added August 2016. Effective for commission or a referral fee arrangements entered into on or after January 31, 2017.)

• “Disclosing Client Information in Connection With a Review or Acquisition of the Member’s Practice” [1.700.050] (Revised August 2016. Effective October 31, 2016)

Effective Date

.02 Paragraph .01, excluding the bulleted text, is effective December 15, 2014.

0.600.020 Pending Interpretations and Other Guidance

.01 Periodically, new or revised authoritative ethics interpretations and other guidance are issued. This section lists the titles and citations of any pending new or revised interpretations or other guidance until they are effective and notes whether early application is permitted or encouraged. Once the interpretation or other guidance becomes effective, it will appear under the “New and Revised Interpretation and Other Guidance” section of the preface [0.600.010].

• “Hosting Services” [1.295.143] (Added June 2017. Effective July 1, 2019)

Effective Date

.02 Paragraph .01, excluding the bulleted text, is effective December 15, 2014.

0.700 Deleted Interpretations and Other Guidance

.01 The following interpretations and other guidance were deleted from the code during the 10 years prior to the 2014 edition:

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• Definition of holding out (ET sec. 92 par. .12) (Deleted March 2013, effective May 31, 2013)

• Ethics Ruling No. 65, “Use of the CPA Designation by Member Not in Public Practice” (ET sec. 191 par. .130) (Deleted March 2013, effective May 31, 2013)

• Ethics Ruling No. 38, “CPA Title, Controller of Bank” (ET sec. 591 par. .075–.076) (Deleted March 2013, effective May 31, 2013)

• Ethics Ruling No. 78, “Letterhead: Lawyer-CPA” (ET sec. 591 par. .155–.156) (Deleted March 2013, effective May 31, 2013)

• Ethics Ruling No. 134, “Association of Accountants Not Partners” (ET sec. 591 par. .267–.268) (Deleted August 2012)

• Ethics Ruling No. 74, “Audits, Reviews, or Compilations and a Lack of Independence” (ET sec. 191 par. .148–.149) (Deleted April 2012).

• Ethics Ruling No. 135, “Association of Firms Not Partners” (ET sec. 591 par. .269–.270) (Deleted April 2012).

• Interpretation No. 101-8, “Effect on Independence of Financial Interests in Nonclients Having Investor or Investee Relationships With a Covered Member’s Client” (ET sec. 101 par. .10) (Deleted November 2011. Reestablished and effective October 31, 2012 until the earlier of January 1, 2014, or adoption of Interpretation 101-18).

• Ethics Ruling No. 9, “Member as Representative of Creditor’s Committee” (ET sec. 191 par. .017–.018) (Deleted November 2011)

• Ethics Ruling No. 10, “Member as Legislator” (ET sec. 191 par. .019–.020) (Deleted November 2011)

• Ethics Ruling No. 12, “Member as Trustee of Charitable Foundation” (ET sec. 191 par. .023–.024) (Deleted November 2011)

• Ethics Ruling No. 16, “Member on Board of Directors of Nonprofit Social Club” (ET sec. 191 par. .031–.032) (Deleted November 2011)

• Ethics Ruling No. 19, “Member on Deferred Compensation Committee” (ET sec. 191 par. .037–.038) (Deleted November 2011)

• Ethics Ruling No. 21, “Member as Director and Auditor of an Entity’s Profit Sharing and Retirement Trust” (ET sec. 191 par. .041–.042) (Deleted November 2011. Reestablished and effective October 31, 2012 until the earlier of January 1, 2014, or adoption of Interpretation 101-18)

• Ethics Ruling No. 29, “Member as Bondholder” (ET sec. 191 par. .057–.058) (Deleted November 2011)

• Ethics Ruling No. 38, “Member as Co-Fiduciary With Client Bank” (ET sec. 191 par. .075–.076) (Deleted November 2011. Reestablished and effective October 31, 2012 until the earlier of January 1, 2014, or adoption of Interpretation 101-18)

• Ethics Ruling No. 48, “Faculty Member as Auditor of a Student Fund” (ET sec. 191 par. .095–.096) (Deleted November 2011)

• Ethics Ruling No. 60, “Employee Benefit Plans—Member’s Relationships With Participating Employer,” (ET sec. 191 par. .119–.120) (Deleted November 2011. Reestablished and effective October 31, 2012 until the earlier of January 1, 2014, or adoption of Interpretation 101-18)

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• Ethics Ruling No. 69, “Investment With a General Partner” (ET sec. 191 par. .138–.139) (Deleted November 2011. Reestablished and effective October 31, 2012 until the earlier of January 1, 2014, or adoption of Interpretation 101-18)

• Ethics Ruling No. 81, “Member’s Investment in a Limited Partnership” (ET sec. 191 par. .162–.163) (Deleted November 2011. Reestablished and effective October 31, 2012 until the earlier of January 1, 2014, or adoption of Interpretation 101-18)

• Ethics Ruling No. 98, “Member’s Loan From a Nonclient Subsidiary or Parent of an Attest Client” (ET sec. 191 par. .196–.197) (Deleted November 2011. Reestablished and effective October 31, 2012 until the earlier of January 1, 2014, or adoption of Interpretation 101-18)

• Ethics Ruling No. 103, “Attest Report on Internal Controls” (ET sec. 191 par. .206–.207) (Deleted November 2011)

• Ethics Ruling No. 106, “Member Has Significant Influence Over an Entity That Has Significant Influence Over a Client” (ET sec. 191 par. .212–.213) (Deleted November 2011. Reestablished and effective October 31, 2012 until the earlier of January 1, 2014, or adoption of Interpretation 101-18)

• Ethics Ruling No. 111, “Employee Benefit Plan Sponsored by Client” (ET sec. 191 par. .222–.223) (Deleted November 2011. Reestablished and effective October 31, 2012 until the earlier of January 1, 2014, or adoption of Interpretation 101-18)

• Ethics Ruling No. 11, “Applicability of Rule 203 to Members Performing Litigation Support Services” (ET sec. 291 par. .021–.022) (Deleted November 2011)

• Ethics Ruling No. 2, “Fees: Collection of Notes Issued in Payment” (ET sec. 591 par. .003–.004) (Deleted November 2011)

• Ethics Ruling No. 33, “Course Instructor” (ET sec. 591 par. .065–.066) (Deleted November 2011)

• Ethics Ruling No. 108, “Member Interviewed by the Press” (ET sec. 591 par. .215–.216) (Deleted November 2011)

• Ethics Ruling No. 117, “Consumer Credit Company Director” (ET sec. 591 par. .233–.234) (Deleted November 2011)

• Ethics Ruling No. 140, “Political Election” (ET sec. 591 par. .279–.280) (Deleted November 2011)

• Ethics Ruling No. 144, “Title: Partnership Roster” (ET sec. 591 par. .287–.288) (Deleted November 2011)

• Ethics Ruling No. 176, “Member’s Association With Newsletters and Publications” (ET sec. 591 par. .351–.352) (Deleted November 2011)

• Ethics Ruling No. 177, “Data Processing: Billing Services” (ET sec. 591 par. .353–.354) (Deleted November 2011)

• Ethics Ruling No. 179, “Practice of Public Accounting Under Name of Association or Group” (ET sec. 591 par. .357–.358) (Deleted November 2011)

• Ethics Ruling No. 101, “Client advocacy and Expert Witness Services” (ET sec. 191 par. .202–.203) (Deleted July 2007)

• Ethics Ruling No. 182, “Termination of Engagement Prior to Completion” (ET sec. 591 par. .363–.364) (Deleted April 2006).

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• Ethics Ruling No. 1, “Acceptance of a Gift” (ET sec. 191 par. .001–.002) (Deleted January 2006).

• Ethics Ruling No. 35, “Stockholder in Mutual Funds” (ET sec. 191 par. .069–.070) (Deleted December 2005).

• Ethics Ruling No. 36, “Participant in Investment Club” (ET sec. 191 par. .071–.072) (Deleted December 2005).

• Ethics Ruling No. 79, “Member’s Investment in a Partnership That Invests in Client” (ET sec. 191 par. .158–.159) (Deleted December 2005).

• Ethics Ruling No. 109, “Member’s Investment in Financial Services Products that Invest in Clients” (ET sec. 191 par. .218–.219) (Deleted December 2005).

• Ethics Ruling No. 66, “Member’s Retirement or Savings Plan Has Financial Interest in Client” (ET sec. 191 par. .132–.133) (Deleted December 2005).

• Ethics Ruling No. 68, “Blind Trust” (ET sec. 191 par. .136–.137) (Deleted December 2005).

The content of these deleted standards is available in a nonauthoritative document at http://aicpa.org/InterestAreas/ ProfessionalEthics/Community/DownloadableDocuments/Deletions.pdf.

http://aicpa.org/InterestAreas/ProfessionalEthics/Community/DownloadableDocuments/Deletions.pdf
http://aicpa.org/InterestAreas/ProfessionalEthics/Community/DownloadableDocuments/Deletions.pdf
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Part 1 Members in Public Practice

1.000 Introduction

.01 Part 1 of the Code of Professional Conduct (the code) applies to members in public practice. Accordingly, when the term member is used in part 1 of the code, the requirements apply only to members in public practice. When a member in public practice is also a member in business (for example, serves as a member of an entity’s board of directors), the member should also consult part 2 of the code, which applies to a member in business.

.02 Government auditors within a government audit organization who audit federal, state, or local governments or component units thereof, that are structurally located within the government audit organization, are considered in public practice with respect to those entities provided the head of the government audit organization meets at least one of the following criteria:

a. Is directly elected by voters of the government entity with respect to which attest engagements are performed

b. Is appointed by a legislative body and is subject to removal by a legislative body

c. Is appointed by someone other than the legislative body, as long as the appointment is confirmed by the legislative body and removal is subject to oversight or approval by the legislative body

[No prior reference: new content]

Effective Date

.03 Effective December 15, 2014.

[See Revision History Table.]

1.000.010 Conceptual Framework for Members in Public Practice

Introduction

.01 Members may encounter various relationships or circumstances that create threats to the member’s compliance with the rules. The rules and interpretations seek to address many situations; however, they cannot address all relationships or circumstances that may arise. Thus, in the absence of an 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 the member’s compliance with the rules that is not at an acceptable level. When making that evaluation, the member should apply the conceptual framework approach as outlined in this interpretation.

.02 The code specifies that in some circumstances no safeguards can reduce a threat to an acceptable level. For example, the code specifies that a member may not subordinate the member’s professional judgment to others without violating the “Integrity and Objectivity Rule” [1.100.001]. A member may not use the conceptual framework to overcome this prohibition or any other prohibition or requirement in the code.

.03 The “Conceptual Framework for Independence” interpretation [1.210.010] of the “Independence Rule” [1.200.001] provides authoritative guidance that members should use when making decisions on independence matters that are not explicitly addressed by the “Independence Rule” and its interpretations.

Definitions Used in Applying the Conceptual Framework

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.04 Acceptable level. A level at which a reasonable and informed third party who is aware of the relevant information would be expected to conclude that a member’s compliance with the rules is not compromised.

.05 Safeguards. Actions or other measures that may eliminate a threat or reduce a threat to an acceptable level.

.06 Threats. Relationships or circumstances that could compromise a member’s compliance with the rules.

Conceptual Framework Approach

.07 Under the conceptual framework approach, members should identify threats to compliance with the rules and evaluate the significance of those threats. Members should evaluate identified threats both individually and in the aggregate because threats can have a cumulative effect on a member’s compliance with the rules. Members should perform three main steps in applying the conceptual framework approach:

a. Identify threats. The relationships or circumstances that a member encounters in various engagements and work assignments will often create different threats to complying with the rules. When a member encounters a relationship or circumstance that is not specifically addressed by a rule or an interpretation, under this approach, the member should determine whether the relationship or circumstance creates one or more threats, such as those identified in paragraphs .10–.16 that follow. The existence of a threat does not mean that the member is in violation of the rules; however, the member should evaluate the significance of the threat.

b. Evaluate the significance of a threat. In evaluating the significance of an identified threat, the member should determine whether a threat is at an acceptable level. A threat is at an acceptable level when a reasonable and informed third party who is aware of the relevant information would be expected to conclude that the threat would not compromise the member’s compliance with the rules. Members should consider both qualitative and quantitative factors when evaluating the significance of a threat, including the extent to which existing safeguards already reduce the threat to an acceptable level. If the member evaluates the threat and concludes that a reasonable and informed third party who is aware of the relevant information would be expected to conclude that the threat does not compromise a member’s compliance with the rules, the threat is at an acceptable level, and the member is not required to evaluate the threat any further under this conceptual framework approach.

c. Identify and apply safeguards. If, in evaluating the significance of an identified threat, the member concludes that the threat is not at an acceptable level, the member should apply safeguards to eliminate the threat or reduce it to an acceptable level. The member should apply judgment in determining the nature of the safeguards to be applied because the effectiveness of safeguards will vary, depending on the circumstances. When identifying appropriate safeguards to apply, one safeguard may eliminate or reduce multiple threats. In some cases, the member should apply multiple safeguards to eliminate or reduce one threat to an acceptable level. In other cases, an identified threat may be so significant that no safeguards will eliminate the threat or reduce it to an acceptable level, or the member will be unable to implement effective safeguards. Under such circumstances, providing the specific professional services would compromise the member’s compliance with the rules, and the member should determine whether to decline or discontinue the professional services or resign from the engagement.

Threats

.08 Many threats fall into one or more of the following seven broad categories: adverse interest, advocacy, familiarity, management participation, self-interest, self-review, and undue influence.

.09 Examples of threats associated with a specific relationship or circumstance are identified in the interpretations of the code. Paragraphs .10–.16 of this section define and provide examples, which are not all inclusive, of each of these threat categories.

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.10 Adverse interest threat. The threat that a member will not act with objectivity because the member’s interests are opposed to the client’s interests. Examples of adverse interest threats include the following:

a. The client has expressed an intention to commence litigation against the member.

b. A client or officer, director, or significant shareholder of the client participates in litigation against the firm.

c. A subrogee asserts a claim against the firm for recovery of insurance payments made to the client.

d. A class action lawsuit is filed against the client and its officers and directors and the firm and its professional accountants.

.11 Advocacy threat. The threat that a member will promote a client’s interests or position to the point that his or her objectivity or independence is compromised. Examples of advocacy threats include the following:

a. A member provides forensic accounting services to a client in litigation or a dispute with third parties.

b. A firm acts as an investment adviser for an officer, a director, or a 10 percent shareholder of a client.

c. A firm underwrites or promotes a client’s shares.

d. A firm acts as a registered agent for a client.

e. A member endorses a client’s services or products.

.12 Familiarity threat. The threat that, due to a long or close relationship with a client, a member will become too sympathetic to the client’s interests or too accepting of the client’s work or product. Examples of familiarity threats include the following:

a. A member’s immediate family or close relative is employed by the client.

b. A member’s close friend is employed by the client.

c. A former partner or professional employee joins the client in a key position and has knowledge of the firm’s policies and practices for the professional services engagement.

d. Senior personnel have a long association with a client.

e. A member has a significant close business relationship with an officer, a director, or a 10 percent shareholder of a client.

.13 Management participation threat. The threat that a member will take on the role of client management or otherwise assume management responsibilities, such may occur during an engagement to provide nonattest services.

.14 Self-interest threat. The threat that a member could benefit, financially or otherwise, from an interest in, or relationship with, a client or persons associated with the client. Examples of self-interest threats include the following:

a. The member has a financial interest in a client, and the outcome of a professional services engagement may affect the fair value of that financial interest.

b. The member’s spouse enters into employment negotiations with the client.

c. A firm enters into a contingent fee arrangement for a tax refund claim that is not a predetermined fee.

d. Excessive reliance exists on revenue from a single client.

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.15 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 another service. Examples of self-review threats include the following:

a. The member relies on the work product of the member’s firm.

b. The member performs bookkeeping services for a client.

c. A partner in the member’s office was associated with the client as an employee, an officer, a director, or a contractor.

.16 Undue influence threat. The threat that a member will subordinate his or her judgment to an individual associated with a 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. The firm is threatened with dismissal from a client engagement.

b. The client indicates that it will not award additional engagements to the firm if the firm continues to disagree with the client on an accounting or tax matter.

c. An individual associated with a client or any relevant third party threatens to withdraw or terminate a professional service unless the member reaches certain judgments or conclusions.

Safeguards

.17 Safeguards may partially or completely eliminate a threat or diminish the potential influence of a threat. The nature and extent of the safeguards applied will depend on many factors. To be effective, safeguards should eliminate the threat or reduce it to an acceptable level.

.18 Safeguards that may eliminate a threat or reduce it to an acceptable level fall into three broad categories:

a. Safeguards created by the profession, legislation, or regulation.

b. Safeguards implemented by the client. It is not possible to rely solely on safeguards implemented by the client to eliminate or reduce significant threats to an acceptable level.

c. Safeguards implemented by the firm, including policies and procedures to implement professional and regulatory requirements.

.19 The effectiveness of a safeguard depends on many factors, including those listed here:

a. The facts and circumstances specific to a particular situation

b. The proper identification of threats

c. Whether the safeguard is suitably designed to meet its objectives

d. The party(ies) who will be subject to the safeguard

e. How the safeguard is applied

f. The consistency with which the safeguard is applied

g. Who applies the safeguard

h. How the safeguard interacts with a safeguard from another category

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i. Whether the client is a public interest entity

.20 Examples of safeguards within each category are presented in the following paragraphs. Because these are only examples and are not intended to be all inclusive, it is possible that threats may be sufficiently mitigated through the application of other safeguards not specifically identified herein.

.21 The following are examples of safeguards created by the profession, legislation, or regulation:

a. Education and training requirements on independence and ethics rules

b. Continuing education requirements on independence and ethics

c. Professional standards and the threat of discipline

d. External review of a firm’s quality control system

e. Legislation establishing prohibitions and requirements for a firm or a firm’s professional employees

f. Competency and experience requirements for professional licensure

g. Professional resources, such as hotlines, for consultation on ethical issues

.22 Examples of safeguards implemented by the client that would operate in combination with other safeguards are as follows:

a. The client has personnel with suitable skill, knowledge, or experience who make managerial decisions about the delivery of professional services and makes use of third-party resources for consultation as needed.

b. The tone at the top emphasizes the client’s commitment to fair financial reporting and compliance with the applicable laws, rules, regulations, and corporate governance policies.

c. Policies and procedures are in place to achieve fair financial reporting and compliance with the applicable laws, rules, regulations, and corporate governance policies.

d. Policies and procedures are in place to address ethical conduct.

e. A governance structure, such as an active audit committee, is in place to ensure appropriate decision making, oversight, and communications regarding a firm’s services.

f. Policies are in place that bar the entity from hiring a firm to provide services that do not serve the public interest or that would cause the firm’s independence or objectivity to be considered impaired.

.23 The following are examples of safeguards implemented by the firm:

a. Firm leadership that stresses the importance of complying with the rules and the expectation that engagement teams will act in the public interest.

b. Policies and procedures that are designed to implement and monitor engagement quality control.

c. Documented policies regarding the identification of threats to compliance with the rules, the evaluation of the significance of those threats, and the identification and application of safeguards that can eliminate identified threats or reduce them to an acceptable level.

d. Internal policies and procedures that are designed to monitor compliance with the firm’s policies and procedures.

e. Policies and procedures that are designed to identify interests or relationships between the firm or its partners and professional staff and the firm’s clients.

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f. The use of different partners, partner equivalents, and engagement teams from different offices or that report to different supervisors.

g. Training on, and timely communication of, a firm’s policies and procedures and any changes to them for all partners and professional staff.

h. Policies and procedures that are designed to monitor the firm’s, partner’s, or partner equivalent’s reliance on revenue from a single client and that, if necessary, trigger action to address excessive reliance.

i. Designation of someone from senior management as the person responsible for overseeing the adequate functioning of the firm’s quality control system.

j. A means for informing partners and professional staff of attest clients and related entities from which they must be independent.

k. A disciplinary mechanism that is designed to promote compliance with policies and procedures.

l. Policies and procedures that are designed to empower staff to communicate to senior members of the firm any engagement issues that concern them without fear of retribution.

m. Policies and procedures relating to independence and ethics communications with audit committees or others charged with client governance.

n. Discussion of independence and ethics issues with the audit committee or others responsible for the client’s governance.