Page 329 - JoFA_2022

LEARNING RESOURCE
FINANCIAL REPORTING

Independence
which will be effective on Dec. 31, 2022, with early
Gain an understanding of the AICPA Code of implementation permitted. These changes are not
Professional Conduct and independence rules
affecting accounting professionals. reflected in the preceding paragraph.

CPE SELF-STUDY IDENTIFYING AND MONITORING AFFILIATES
Identifying affiliates of an FSAC can be challeng-
ing, particularly in the private-equity (PE) environ-
ment, which impacts more accounting firms than
ever before. For example, an FSAC’s sister port-
folio company may have little interest in sharing
For more information or to make a purchase, go to aicpa.org/cpe-learning nonpublic information with your firm (i.e., whether
or call the Institute at 888-777-7077.
the sister company is material to the controlling PE
fund).
Due to these challenges, the Code requires
firms to employ “best efforts” to obtain the in-
significant data loss from a cyberattack and asks the formation needed to identify client affiliates (ET
audit firm to lend staff to assist it in reassembling §1.224.010.03).
certain information, including participant records If, after expending best efforts, a firm cannot ob-
and other plan-related information. The firm evalu- tain the information to determine which entities are
ates the situation using the Conceptual Framework affiliates of an FSAC, the firm should take the fol-
and concludes that it should not enter into the lowing steps to avoid an independence impairment:
arrangement because the nature of the work would 1. Discuss the matter, including the possible
create significant self-review and management par- impact on independence, with the FSAC’s
ticipation threats to independence that safeguards governance body.
could not reduce to an acceptable level. 2. Document the results of the discussion and
efforts taken to obtain the information.
Loan to or from certain individuals associated 3. Obtain written assurance from the FSAC that it
with an affiliate of FSAC cannot provide the information.
A covered member may have a loan with an Once the firm identifies an FSAC’s affiliates,
individual who is an officer, director, or 10% or the audit team should monitor the information
more owner of an affiliate of an FSAC during the carefully to avoid independence impairments.
period of the professional engagement unless the Implementing a variety of policies and procedures
covered member knows (or should know) of the — including periodic testing of their effectiveness —
person’s association with the affiliate, in which case to identify and monitor affiliates of FSACs can help
the firm should evaluate threats to independence ensure firms’ ongoing compliance with the indepen-
using the Conceptual Framework. (See the note dence rules. For example, a firm can:
below.) ■ Explain to the FSAC that accurate, timely infor-
mation is needed to maintain independence;
Nonclient or nonattest client acquires FSAC ■ Obtain the FSAC’s cooperation to provide the
A firm’s interest in or relationship with a nonclient data and communicate changes on a timely basis
(or nonattest client) that acquires or merges with (e.g., planned acquisition or merger);
an FSAC may impair its independence due to the ■ Include provisions in the firm’s engagement
creation of an affiliate relationship with the FSAC. letters requiring the FSAC’s cooperation;
This exception states that independence would not ■ Implement policies and procedures that
be impaired if: (1) the firm’s attest engagement cov- prompt the audit team to seek affiliate-related
ers only periods prior to the transaction and (2) the information from the FSAC periodically and
firm will cease providing financial statement attest consistently;
services to the acquirer (affiliate). (The firm should ■ Periodically test the effectiveness of the firm’s
also consider potential conflicts of interest.) policies and procedures to identify and monitor
Note: As part of an SEC Rule 2-01 convergence FSAC affiliates; or
project, the AICPA’s Professional Ethics Executive ■ Employ online tools or services that monitor
Committee (PEEC) recently adopted changes to activities that impact companies’ structure and
the “Client Affiliates” (and other) interpretations, holdings. ■

12 | Journal of Accountancy August 2022