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A Entity and FSAC are under common control
ffiliations between entities have steadily
increased over the years. Due to factors such
An entity controls an FSAC and another entity
as mergers and acquisitions, the proliferation
the controlling entity (item e).
of private equity, and the manner in which compa- (sister entities) and each sister entity is material to
nies sponsor employee benefit plans, even smaller Examples:
companies can have numerous related entities or ■ Your audit client (AC) and an entity (AF) are each
“affiliates.” Independence rules apply when a CPA owned 100% by another controlling entity (CE).
firm (firm) has an attest relationship with an entity AC is material to CE; AF is material to CE.
(an attest client), but when do those rules apply
to an attest client’s affiliates? And which indepen- Entity is associated with FSAC employee benefit
dence rules apply? This article seeks to answer these plan About the
important questions. ■ A single employer sponsors an employee benefit author
plan FSAC (item g). Cathy Allen, CPA,
DEFINING AFFILIATES ■ A participating employer, union, or group
is the managing
“Affiliate” is defined in Definitions in the AICPA of employers has significant influence over a
member of Audit
Code of Professional Conduct (the Code) (ET multiemployer employee benefit plan FSAC and
Conduct LLC
§0.400.02) and applies solely to a “financial the plan is material to the employer, union, or
(auditconduct.com),
statement attest client” (FSAC), which is also group of employers (item h).
which provides
defined (ET §0.400.16). An FSAC exists when a ■ A participating employer is the administrator
customized self-
firm performs any of the following attest services of a multiple employer employee benefit plan
study courses
for an entity: FSAC (item i). on auditor
■ Financial statements audit or review; or Examples:
independence and
■ Financial statement compilation that does not ■ An entity (AF) is the sole sponsor of a Sec.
professional ethics
disclose a lack of independence. 401(k) plan that is your audit client (AC), or for CPA firms and
When a firm provides these types of attest services ■ AF participates in a multiemployer employee
other organizations.
to a client, the client is an FSAC, and the Code benefit plan (AC) with two other entities (Y and
She has been a
requires the firm to identify all of the FSAC’s affiliates. Z); AF has significant influence over AC and
member of the
The affiliates described in items a–l of the Affili- the investment is material to AF, or AICPA Professional
ate definition (ET §0.400.02) are categorized and ■ AF administers a health and welfare plan (AC).
Ethics Executive
summarized below. Committee (PEEC)
Employee benefit plan is associated with FSAC since May 2020. All
Entity is ‘downstream’ from FSAC ■ An FSAC (or entity the FSAC controls)
views expressed in
An FSAC controls the entity (item a) or has sponsors a single or multiple employer employee
this article are her
significant influence over an entity and the entity is benefit plan (item j).
own and do not
material to the FSAC (item b). ■ An FSAC (or entity the FSAC controls) has
represent official
Examples and illustrations key: Audit Client significant influence over a multiemployer
positions of either
(AC); Affiliate (AF); Controlling Entity (CE). employee benefit plan and the plan is material to PEEC or the AICPA.
Examples: the FSAC (item k).
■ Your audit client (AC) has a controlled subsid- Examples:
iary (AF), or ■ Your audit client (AC) is the sole sponsor of a
■ AC owns 30% of an entity’s (AF’s) common Sec. 401(k) plan (AF), or
stock (i.e., has significant influence over AF), ■ AC has significant influence over a multi-
which is material to AC. employer health insurance plan (AF) that is
material to AC.
Entity is ‘upstream’ from FSAC
An entity controls an FSAC or has significant Entity is trustee, investment adviser, or general
influence over an FSAC and the FSAC is material partner
to the entity (items c and d, respectively). ■ A trustee that is not an investment company
Examples: (fund) controls an FSAC (item f).
■ An entity (AF) controls your audit client (AC), or ■ A(n) investment adviser, general partner, or
■ AF owns 40% of AC’s common stock (i.e., has trustee has significant influence or control over
significant influence over AC), and the invest- an FSAC investment company (fund), and the
ment is material to AF. fund is material to the investment adviser,

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