Changes to AICPA Interpretations and Definitions Pose Risks for Those Unaware

The AICPA’s Professional Ethics Executive Committee has revised existing ethics definitions and existing and adopted new interpretations. The new and revised interpretations and guidance include new definitions for "Attest client" (ET sec. 0.400.03) and "Client" (ET sec. 0.400.07) which could be an issue for accountants unaware of the change.

The revised definition of "Client" clarifies that when the engaging entity is not the subject of the professional services (subject entity), accountants have two separate clients within one engagement and must treat them as separate clients.

The clarification of the definition of "Client" also impacts the application guidance for "Records Requests" (ET sec. 1.400.200) to clarify that accountants won’t violate the guidance (1) by returning the records to the person or entity that gave the records to the accountant, (2) when engaged by one party to benefit another party and provides the work products to the beneficiary (e.g., when engaged by a company to prepare its executives’ tax returns), and (3) unless there is an agreement that states otherwise when engaged to perform professional services with respect to an entity that is not intended to benefit from the professional services, and the accountant provides the work products to the engaging entity.

Accountants should be required to return client-provided records to parties who provided those records. So, if an engaging entity provided the accountant with records, then the accountant should return the records only to the engaging entity. And if the subject entity provided the records to the accountant, then the accountant should return the records to the subject entity and not to the engaging party.

The "Attest Client" definition has required accountants be independent of both the subject entity and the engaging entity, when the two are not the same entity. The clarified "Attest Client" definition no longer requires accountants to be independent of the engaging entity when engaged to perform an attest engagement on an entity when the engaging entity and the subject entity are not the same entity. Although accountants no longer need consider whether they are independent of the engaging entity in such instances, they should remain cognizant of potential threats to their objectivity (e.g., conflicts of interest) with regards to entities that engage the accountant to perform attest services for a subject entity client.


New Definition of Attest Client

.03 Attest client. A person or entity with respect to which a member performs 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.


New Definition of Client

.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 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.


Text of Revised Definition of Client

(Additions are in boldface italic, and deletions are in strikethrough.)

.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, if different, the a person or entity with respect to which a member or member’s firm performs professional services (subject entity) are performed. When the engaging entity and the subject entity are different, while there is only one engagement, they are separate clients. For purposes of this definition, the term employer does not include the following:

a. Person or entity engaged in public practice.
b. Federal, state, and local government or component unit thereof, provided that the member performing professional services with respect to the entity is
i. directly elected by voters of the government or component unit thereof with respect to which professional services are performed;
ii. an individual who is (1) appointed by a legislative body and (2) subject to removal by a legislative body; or
iii. appointed by someone other than the legislative body, so long as the appointment is confirmed by the legislative body and removal is subject to oversight or approval by the legislative body.

[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.


Text of Revised Definition of Attest Client

(Additions are in boldface italic, and deletions are in strikethrough.)

.03 Attest client. A client that engages a member to perform an attest engagement or A person or entity   with respect to which a member performs 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 Affiliates” 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.

Here is a link to other recent AICPA definitions, interpretations, and guidance.

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