Page 281 - JoFA_2022

AUDITING

Auditor independence

relating to government

client affiliates

You must apply, with one exception, the “Independence
Rule” and related interpretations of the AICPA Code of

Professional Conduct to your state or local government

client’s affiliates.

By Flo Ostrum, CPA, and Jennifer Kappler, CPA

W consistent with commercial affiliates, but some of About the
e all know how important it is that
auditors maintain their independence.
the concepts didn’t translate to the SLG environ-
authors
But at times, understanding and apply-
revised interpretation “State and Local Government
ing the rules can be challenging (see the sidebar, ment. This process led to PEEC’s adopting the Flo Ostrum, CPA, is
“How Pandemic Funding Could Impact Affiliate Client Affiliates,” formerly “Entities Included in a member of the
Determinations”). Take a closer look at the revised State and Local Government Financial State- AICPA Professional
ethics interpretation for state and local government ments,” (ET §1.224.020) under the “Independence Ethics Executive
client affiliates, and read a few tips on practically Rule” (ET §1.200.001) at its May 2019 meeting. Committee (PEEC)
applying the guidance. In the fall of 2020, PEEC issued a companion State and Local
Why did the AICPA Professional Ethics Execu- implementation guide to help members apply the Government
tive Committee (PEEC) revise the ethics interpre- revised interpretation. The implementation guide Affiliate Task Force
tation addressing state and local government client includes decision trees, examples, and tools to and is a partner
affiliates in 2019? The last time this interpretation assist the auditor in determining which entities are in Grant Thornton
in the AICPA Code of Professional Conduct (the affiliates of their financial statement attest client LLP’s Audit
Code) was revised prior to that date was in 1999, (FSAC). Due to the impact of the coronavirus Quality and Risk
shortly after the Governmental Accounting pandemic, PEEC chose to delay the effective date. Group. Jennifer
Standards Board (GASB) redefined financial The interpretation is now effective for years begin- Kappler, CPA, is a
reporting standards for state and local governments ning after Dec. 15, 2021. senior manager–
with the issuance of GASB Statement No. 34, Basic Professional Ethics
Financial Statements — and Management’s Discussion OVERVIEW at the Association
and Analysis — for State and Local Governments. If you audit financial statements of state or local of International
That standard brought about significant changes to governments, you must consider your indepen- Certified
the state and local government (SLG) environment dence responsibilities when it comes to affiliates Professional
and the required reporting structure. of your clients. Simply, you must apply the “In- Accountants,
Since that time, PEEC has issued guidance dependence Rule” and related interpretations to representing
addressing commercial affiliates. When evaluating affiliates of your FSAC. There is one exception to AICPA & CIMA.
the existing interpretation, PEEC wanted to be this requirement related to nonattest services,

journalofaccountancy.com July 2022 | 13