AICPA PEEC Proposals Update Compliance Audit Definitions and Interpretations
The AICPA Professional Ethics Executive Committee (PEEC) recently released two proposals that would update the AICPA Code of Professional Conduct (the Code).
The first proposal includes new or revised definitions and interpretations related to independence during compliance audit engagements. The second focuses on updates to several interpretations regarding officers, directors and beneficial owners of loans.
As more entities have received government funding due to the COVID-19 pandemic, the need for compliance audits has grown. Members have reported inconsistencies in practice for these engagements, so the PEEC examined whether existing requirements correspond to the potential risks.
As a result, the PEEC is proposing two new definitions and three revisions that will apply to members in public practice:
- New definition of "compliance audit"
- New definition of "compliance audit attest client"
- Revised definition of "financial statement attest client"
- Revised "Client Affiliates" interpretation
- Revised "State and Local Government Client Affiliates" interpretation
The proposal eliminates the affiliate requirements for compliance audits. In addition, the "Independence Rule" and its interpretations no longer apply to entities that meet the following criteria: (a) not subject to compliance audit procedures and (b) reports trivial and clearly inconsequential amounts.
The PEEC recommends the revisions become effective for compliance audits beginning after June 15, 2023, with early implementation allowed. The deadline for commenting is Sept. 1, 2022.
The second proposal applies revisions to the threshold for independence threats related to officers, directors and beneficial owners made by the PEEC's Loans, Acquisitions, and Other Transactions project to additional interpretations. The phrase "an officer or director of an attest client or an individual owning 10% or more of the attest client's outstanding equity securities or other ownership interests" was revised in several places in the Code to "an officer or director of an attest client with the ability to affect decision-making and any individual with a beneficial ownership interest (known through reasonable inquiry) that gives the individual significant influence over the attest client."
The PEEC is proposing that this change be made in the following additional interpretations:
- Revised "Offering or Accepting Gifts or Entertainment" interpretation of the "Integrity and Objectivity Rule"
- Revised "Offering or Accepting Gifts or Entertainment" interpretation of the "Independence Rule"
- Revised "Conceptual Framework for Members in Public Practice" interpretation
The PEEC recommends the revisions become effective Dec. 31, 2022, to align with the effective date of the loans project. Early implementation is allowed. The deadline for commenting is July 5, 2022.
Comments on both proposals may be made by email or at the AICPA website.