Transcript AICPA/IESBA Convergence

AICPA/IESBA Convergence
Lisa Snyder, CPA, CGMA
Director, AICPA Professional Ethics
IESBA Meeting
London
January 12-14, 2015
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AICPA/IESBA Convergence
U.S. Regulators/Standard-Setters
• American Institute of CPAs (AICPA)
• State boards of accountancy
– 55 states/jurisdictions
– Oversee CPA license
• Public Company Accounting Oversight Board (PCAOB)
• Securities and Exchange Commission (SEC)
• Government Accountability Office (GAO)
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Incorporated CF for Independence (2011)
• Banking Regulators (FDIC)
• Department of Labor (DOL)
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AICPA/IESBA Convergence
AICPA
• AICPA
– Voluntary membership organization
– 400,000 members
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Includes members in business, public practice, government, education
– AICPA bylaws require members comply with AICPA Code of
Professional Conduct
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Failure to comply may result in disciplinary action
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AICPA/IESBA Convergence
AICPA PEEC
• AICPA Professional Ethics Executive Committee (PEEC)
– Establishes independence & ethics standards for CPA profession
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AICPA Code of Professional Conduct
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Non-listed entities only
• Revisions to AICPA Code require full due process
– Rule changes require vote by membership
– Interpretations of rules require exposure to membership
– All standard-setting discussions held in open meetings
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AICPA/IESBA Convergence
AICPA PEEC
• PEEC Composition (20 members)
– 12 members public practice (Big 4, Large, SMP)
– 3 public members (non-CPAs/non-AICPA members)
– 4 members from state boards of accountancy
– 1 member in business
• PEEC Task Forces
– “Convergence task forces” to consider new/revised IESBA
standards
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AICPA/IESBA Convergence
Convergence Efforts
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Recognition of IESBA Code for Audits of Group F/S and Network Firms
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Incorporation of Conceptual Frameworks
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Network Firms
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Ethical Conflict (Resolution)
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Conflicts of Interest
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Definition of Those Charged With Governance
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Confidential Info Obtained From Employment Activities
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Management Responsibilities
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Breaches of Independence
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AICPA/IESBA Convergence
Convergence Challenges
• Members must comply with AICPA Code and state board rules
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AICPA and NASBA initiative to promote revised AICPA Code
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17 states adopt extant Code / 23 states have own rules / 15 states adopt portion
State rules changes often require legislative action
• Convergence with U.S. standard-setters/regulators
• SEC/PCAOB set rules for listed entities
– AICPA has no authority to set standards for listed entities/PIEs
• Code revisions require due process/membership “support”
• Compliance with U.S. laws (e.g., federal anti-trust laws)
• U.S. litigious environment
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AICPA/IESBA Convergence
Revised AICPA Code (Codification Project)
• Revised/Codified AICPA Code effective Dec. 15, 2014
• Similar drafting conventions as IESBA used
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Use “should/must” instead of “shall”
• Incorporates Conceptual Framework (CF) approach
– Significant move towards convergence with IESBA
– Each topic identifies relevant threats and safeguards
– Two new CFs for members in public practice and business
• CFs only used when no guidance in Code exists or guidance refers
member to CF to evaluate threats
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AICPA/IESBA Convergence
Revised AICPA Code (Codification Project)
• Revised Code Structure
– Preface
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Principles
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Defined terms, Application of Code
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New/revised, pending and deleted standards for past year
– Part 1: Members in public practice (includes independence)
– Part 2: Members in business
– Part 3: All Other Members
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AICPA/IESBA Convergence
AICPA Code vs. IESBA Code
• AICPA Code “substantially equivalent” to IESBA Code
– Would lead to the same result
• Requires compliance with rules vs. principles
• Most independence requirements apply to all audit/assurance clients
– No separate section (Section 291) for “other assurance engagements”
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Do not address listed entities/PIEs
Some AICPA rules more restrictive
Contains additional topics / more detailed guidance on certain topics
Excludes certain topics or topic only identified as threat in AICPA CF
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AICPA/IESBA Convergence
Recognition of IESBA Code
• Audit of Group Financial Statements
– A member of group engagement team will not be in violation of a particular
rule if foreign component auditor (FCA) departed from AICPA Code
provided FCA’s conduct, at a minimum, complies with IESBA Code
– Members of U.S. group engagement team must comply with AICPA Code
• Network Firms
– Independence of firm will not be impaired if another network firm located
outside U.S. departed from AICPA Code provided other firm’s conduct, at
a minimum, complies with IESBA Code
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AICPA/IESBA Convergence
Rules vs. Principles
– AICPA must enforce rules (based on principles)
– Most authoritative guidance issued as interpretations of the rules
AICPA Rules
IESBA Principles
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Independence
Integrity and Objectivity
General Standards
Compliance with Standards
Accounting Principles
Confidential Client Information
Contingent Fees
Acts Discreditable
Advertising and Other Forms of
Solicitation
• Commissions & Referral Fees
• Form of Organization and Name
Integrity
Objectivity
Professional Competence and Due Care
Confidentiality
Professional Behavior
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AICPA/IESBA Convergence
Threats
– AICPA/IESBA Codes cover same threats but some different terms
AICPA Threats
IESBA Threats
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Self-review threat
Advocacy threat
Familiarity threat
Undue influence threat
Self-interest threat
Adverse interest threat
Management participation
threat
Self-review threat
Advocacy threat
Familiarity threat
Intimidation threat
Self-interest threat
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AICPA/IESBA Convergence
AICPA vs. IESBA Code
• Examples of AICPA more restrictive requirements
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Prohibit loans to audit client even if immaterial
Independence required for client affiliates/related entities for non-PIEs
Documentation requirement for non-assurance services
Prohibit expert witness services and representing client in (tax) court
• Examples of topics only identified as specific threat in AICPA CF
– Fees – Relative Size
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Non-authoritative guidance also issued; SEC “no action” letter for listed entities
– Compensation & Evaluation Policies (SEC rules for listed entities)
– Long association (SEC rules for listed entities)
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AICPA/IESBA Convergence
AICPA vs. IESBA Code
• Examples of topics not addressed in AICPA Code
– Professional appointments (client/engagement acceptance)
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Addressed in AICPA QC standards
– Second opinions
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Addressed in AICPA Audit Standards
• Examples of topics not addressed in IESBA Code
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Outsourcing services to third parties
Subordination of judgment
Indemnification and limitation of liability agreements
Investment advisory/management services
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AICPA/IESBA Convergence
AICPA vs. IESBA Code
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Other Differences - Breaches (Independence)
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In order to address breach, firm must have established policies/procedures that
provide reasonable assurance independence is obtained (i.e., must comply with QC
standards)
If breach results in significant threat such that engagement team’s integrity,
objectivity and professional skepticism are compromised, no actions can be taken to
satisfactorily address breach
Rebuttable presumption that no actions could satisfactorily address the breach
when lead engagement partner/individual in position to influence engagement:
• Committed the breach; or
• Knows of a breach and fails to ensure breach is promptly communicated/known
by an appropriate individual within the firm
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AICPA/IESBA Convergence
SEC/PCAOB Rules More Restrictive
• Non-audit Services:
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Bookkeeping
Financial information systems design/ implementation
Appraisal, actuarial and valuation services
Internal audit services;
Human resources;
Audit committee pre-approval
• Partner rotation
• Cooling-off requirement (for employment at audit client)
• Tax Services for Persons in FROR (PCAOB)
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AICPA/IESBA Convergence
Questions
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