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firm takes a key position with an item c–l affiliate Lease arrangement with (item c–l) affiliate of
of an FSAC that would not be considered a key FSAC
position with the FSAC. The firm, an attest engagement team member, or
Illustration: You leave your firm to become person able to influence the attest engagement may
the CFO of a sister entity (AF) that is structurally have a lease arrangement with an item c–l affiliate
and operationally separate from your firm’s audit of an FSAC that does not meet the requirements
client (AC). Clearly, the CFO role is a key position of the “Leases” interpretation (ET §1.260.040) if
(see the sidebar, “Definition of ‘Key Position’ ”). the firm evaluates threats using the “Conceptual
However, due to the separation of AC and AF, your Framework for Independence” interpretation (ET
firm concludes that your serving as the CFO of AF §1.210.010) (Conceptual Framework) and con-
will not be considered a key position at AC and, cludes that threats are at an acceptable level.
therefore, not impact your firm’s independence with Illustration: Your firm would like to lease office
respect to AC. space from an audit client’s (AC’s) parent company
(AF). The arrangement does not meet the require-
Employment of covered member’s family in key ments of the “Leases” interpretation because the
position at (item c–l) affiliate of FSAC lease expense would be material to the firm. The
A covered member’s immediate family or close firm concludes that threats to its independence are
relative may be employed in a key position at an significant (not at an acceptable level) but believes
item c–l affiliate of an FSAC during the period of that a second review of the audit by an independent
the professional engagement or period covered by professional unaffiliated with the engagement
the financial statements if the family member is not would sufficiently reduce the threat to an acceptable
in a key position with respect to the FSAC (ET level. The firm will also have a discussion with AC’s
§1.224.010.02(d)). and AF’s governance bodies to determine whether
Illustration: You are the engagement partner the lease arrangement raises any concerns regarding
for three employee benefits plans (AC1, AC2, the firm’s independence and discuss the safeguard
and AC3 — the plans). A participating employer (i.e., second review of the audit engagement by an
in the plans (AF) offers the controller position to outside professional) the firm proposes to apply.
your spouse, so the question is whether this posi-
tion at AF would equate to a key position at the Staff augmentation arrangement with (item c–l)
plans. Questions to ask are, “Would your spouse affiliate of FSAC
be responsible for preparing the plans’ financial A firm may enter into an otherwise impermissible
statements or for significant accounting func- staff augmentation (loaned staff) arrangement with
tions underlying those statements?” and “Would an item c–l affiliate of an FSAC affiliate if the firm
your spouse be able to exercise influence over evaluates threats using the Conceptual Framework
the plans’ financial statements?” If the answer to and concludes that threats are at an acceptable level
either of these questions is “yes,” independence (ET §1.224.010.02(f)).
would be impaired (that is, the exception cannot Illustration: The sole sponsor (AF) of an
be applied). employee benefit plan audit client (AC) suffers

Definition of ‘key position’

A “key position” is a position in which an individual has: body, CEO, president, CFO, COO, general counsel, chief
accounting officer, controller, director of internal audit,
■ Primary responsibility for significant accounting functions that
support material components of the financial statements; director of financial reporting, treasurer, or any equivalent
■ Primary responsibility for the preparation of the financial position.
statements; or For purposes of attest engagements not involving financial
■ The ability to exercise influence over the contents of the statements, a key position is one in which an individual is
financial statements, including when the individual is a primarily responsible for, or able to influence, the subject matter
member of the board of directors or similar governing of the attest engagement.

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