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I creates significant hardship for the client to make
n March 2021, the AICPA Professional Ethics
Executive Committee (PEEC) released the “Staff
other arrangements and all the following additional
Augmentation Arrangements” interpretation (ET
■
§1.275.007), a new interpretation of the “Indepen- safeguards are met.
The firm expects that the arrangement will be
dence Rule” (ET §1.200.001) of the AICPA Code brief, presumably 30 days or less;
of Professional Conduct (the Code) that addresses ■ The firm does not expect the staff augmentation
the loaning of staff to an attest client. Concurrently, arrangement to reoccur;
PEEC issued related revisions to three existing ■ The firm’s loaned staff do not participate in and
independence interpretations: are unable to influence the attest engagement
■ The “Client Affiliates” interpretation (ET covering any period that includes the staff
§1.224.010); augmentation arrangement;
■ The “Agreed-Upon Procedure Engagements ■ The loaned staff perform only permissible services
Performed in Accordance With SSAEs” as per the Code’s “Nonattest Services” subtopic
interpretation (ET §1.297.020); and (ET §1.295) (e.g., the firm cannot lend a staff About the
■ The “Scope and Applicability of Nonattest person to act as a temporary CFO for the client author
Services” interpretation (ET §1.295.010). or perform a prohibited valuation service); and Cathy Allen is
This article highlights these changes to the ■ The client agrees to designate a person with
the managing
Code’s independence rules and related (nonauthori- suitable skill, knowledge, and/or experience to
member of Audit
tative) guidance. Note that the material in the ar- oversee the loaned staff’s activities. This indi-
Conduct LLC
ticle applies only to audits of nonpublic companies. vidual will (1) determine the nature and scope of
(auditconduct.com),
the activities; (2) supervise the loaned staff; and
WHAT IS A STAFF AUGMENTATION (3) evaluate the adequacy of the activities and which provides
ARRANGEMENT? findings that result. customized
webinars and
A “staff augmentation” or loaned staff arrangement self-study courses
exists when a firm lends its personnel to a client RELATED GUIDANCE
on auditor
to supplement or “augment” the client’s staff for a To help firms implement the new interpretation,
independence
certain period. Staff augmentation arrangements the AICPA Professional Ethics Division updated
and professional
differ from typical professional services engage- its nonauthoritative guidance in Frequently Asked
ethics for CPA
ments because the client’s management — not Questions: General Ethics. The guidance neither
firms and other
the firm’s — will supervise the firm’s personnel overrides nor amends the Code, which is the only
organizations.
(“loaned staff ”) and direct their work. authoritative source of AICPA ethics rules. A sum-
She has been a
The interpretation fills a void in the Code that mary of the guidance appears next:
member of the
required members to evaluate staff augmentation AICPA Professional
arrangements for attest clients using the “Concep- What are the differences between a staff Ethics Executive
tual Framework for Independence” interpretation augmentation arrangement and a nonattest Committee (PEEC)
(ET §1.210.010) and converges the Code with services engagement?
since May 2020. All
provisions in the International Code of Ethics for In a staff augmentation arrangement, the client agrees
views expressed in
Professional Accountants (including International to direct and supervise the loaned staff’s activities;
this article are her
Independence Standards), which addresses these the firm’s role is to ensure compliance with the terms
own and do not
arrangements under “Temporary Personnel Assign- of the arrangement. In a nonattest services engage-
represent official
ments” (§525). ment, the firm directs and supervises its own staff’s
positions of either
The new interpretation addresses possible activities. A nonattest services engagement typically
PEEC or the AICPA.
familiarity, management participation, advocacy, concludes with the issuance of certain deliverables
and self-review threats to the firm’s independence. that are subject to the firm’s quality control (QC)
Given the client’s role in supervising the staff ’s processes; for example, a manager in the firm reviews
day-to-day work, the appearance of independence an associate’s work prior to issuance.
is a prime consideration. For this reason, the Other FAQs clarify some of the safeguards
interpretation generally precludes a firm’s staff required to enter into a staff augmentation arrange-
augmentation arrangement with an attest client. ment with an attest client, that is, the arrangement:
However, the arrangement may be permitted under ■ Is not expected to reoccur; and
very limited conditions. Specifically, a staff aug- ■ Results from an unexpected situation that cre-
mentation arrangement would be permissible if the ated a significant hardship for the client to make
attest client encounters an unexpected situation that other arrangements.
journalofaccountancy.com May 2022 | 17