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AUDITING

The Code is the only
Application of staff augmentation
interpretation to a financial
statement attest client’s affiliates authoritative source

A of AICPA ethics rules.

Audit client
services to PE Fund nor to the other portfolio
companies Y or Z.
■
Z is completely unrelated to Company X; it
B C is under separate management and shares no
employees, systems, or resources with X.
Controlled subsidiary Material investee ■ Under the exception, the firm should apply the
“Conceptual Framework for Independence”
interpretation (ET §1.210.010) to determine
whether loaning staff to Z would cause signifi-
Source: Cathy Allen.
cant threats to independence with respect to au-
dit client X. If so, the firm must apply safeguards
that reduce those threats to an acceptable level
Application of staff augmentation to maintain its independence of X.
interpretation to other types of Agreed-upon procedure engagements
affiliates A new paragraph in the “Agreed-Upon Procedure
Engagements Performed in Accordance With
PE SSAEs” interpretation (ET §1.297.020.04) may
allow a firm to loan staff to a client for which
the firm only provides an agreed-upon procedure
Fund engagement (AUP). Unlike the independence
rules applicable to all other attest services, a firm
Portfolio companies: performing an AUP engagement is not required
to comply with the “General Requirements for
Performing Nonattest Services” interpretation (ET
X Y Z §1.295.040) and may provide otherwise prohibited
nonattest services to the client if they do not relate
to the specific subject matter of the AUP engage-
Audit
ment. Therefore, the firm may loan staff to an AUP
client if the staff ’s activities do not relate to the
Source: Cathy Allen. specific subject matter of the AUP engagement.

Nonattest services
the same safeguards and conditions applicable to Firms deliver staff augmentation arrangements as
A under the new interpretation. professional services engagements, but to converge
However, the firm could potentially have a with international independence standards, PEEC
staff augmentation arrangement with other types included the new interpretation under the “Cur-
of affiliates, e.g., a parent or sister company, as rent Employment or Association With an Attest
illustrated below (see the chart “Application of Client” subtopic (ET §1.275). To help ensure that
Staff Augmentation Interpretation to Other Types firms look to the appropriate independence provi-
of Affiliates”): sion, PEEC added a reference in the “Scope and
■ Company X (an audit client) is one of three Applicability of Nonattest Services” interpretation
portfolio companies controlled by PE Fund, (ET §1.295.010) to the new “Staff Augmentation
a private-equity fund. The firm performs no Arrangements” interpretation (ET §1.275.007). ■

20 | Journal of Accountancy May 2022