Page 71 - M & A Disputes

neutral arbitration services. Such a conflict is further borne out by virtue of the existing professional
standards regarding prohibited services, as those services are defined in the Sarbanes-Oxley Act of 2002
(SOX). For services provided by practitioners who are not members of a registered public accounting
firm, by virtue of the fact that attestation services could not be provided by these practitioners’ organiza-
tions, no conflict of interest of this nature can exist.

Under Section 201(a) of SOX, CPAs who are part of a registered public accounting firm that provides
audit- and attestation-related services to clients are precluded from providing specific prohibited ser-
vices, as those services are defined under SOX, to those same clients. These services would include neu-
tral arbitration services because those services are prohibited services, as covered within the definition
of legal services and expert services unrelated to the audit.

Similarly, Interpretation No. 101-3, "Nonattest Services," under Rule 101, Independence (AICPA, Pro-
fessional Standards, ET sec. 101 par. .05), states, in part, that "litigation services where a member serves
as a trier of fact, special master, court-appointed expert, or arbitrator ... create the appearance that the
member is not independent."

Professional conflicts generally prohibit the practitioner from serving in the neutral practitioner role;
however, prior business relationships may not. The key to addressing and resolving any potential con-
flict issues is the performance of a thorough relationship check and disclosure to the parties. In that case,
all parties to the engagement are apprised of prior and existing relationships, and all parties can make an
educated decision whether to proceed in engaging the practitioner as the neutral practitioner.

Engagement Letter

Engagement letters serve as the principal contract between the practitioner and the parties retaining the
practitioner to function as the neutral practitioner. The engagement letter establishes the set of services
to be provided by the practitioner and the responsibilities of the interested parties to the arbitration pro-
ceeding.

The engagement letter should be executed by all interested parties to the arbitration proceeding. The
neutral practitioner, in most instances, will issue the engagement letter and submit the agreement to both
parties for each to affirmatively acknowledge their own rights, responsibilities, and duties within the
framework of the dispute resolution proceeding.

Although engagement letters vary in format and content, most will include a general discussion of, and
set forth in reasonable detail, several common elements. The practitioner’s engagement letter should
provide enough specificity with regard to the items that will be adjudicated by the neutral practitioner,
the processes to be followed, and other administrative details, so that further disputes and ambiguity are
avoided. The common elements typically included in neutral practitioner engagement letters are dis-
cussed subsequently.

Identification of the Contract From Which the Dispute Arose

The engagement letter will frequently make reference to the governing transaction agreement between
the parties that gives rise to the dispute. This transaction agreement is most often a stock or an asset pur-
chase agreement pursuant to some arrangement between the parties as either buyer or seller, respective-
ly. By way of example, the engagement letter should refer to the arbitration proceeding being "conduct-
ed in accordance with Section 1.8(c)" of the defined transaction agreement when Section 1.8(c) is the
operative part of the agreement, as in our example previously provided.

© 2020 Association of International Certified Professional Accountants 69