AICPAEthics Codification Project

As of January 24, 2014

Project ObjectiveCreate user friendly, intuitively arranged CodeRevise without making significant changes to existing requirements and restrictions• Clarity through better drafting conventions• Substantive changes will follow due process

Incorporate conceptual framework approach• Incorporate threats and safeguards• Conceptual framework only applies when no guidance

in Code exists• Cannot be used to override existing requirements

Project Objective cont. Incorporate references to division’s nonauthoritative guidancePhysically different – Separate parts

- Part 1: Members in public practice- Part 2: Members in business- Part 3: All Other Members

On-line Codification with enhanced functionalityProject Page on aicpa.org. Contains information such as:• Mapping Documents• Informational Video and articles• Project Timeline• Drafting Guidelines

www.aicpa.org/InterestAreas/ProfessionalEthics/Community/Pages/aicpa-ethics-codification-project.aspx

Substantive ChangesAICPA Ethics Codification

Incorporate Conceptual Frameworks

Two New Frameworks• Conceptual Framework for Members in the Practice of Public

Accounting • Conceptual Framework for Members in Business

Applied when no guidance on a particular relationship or circumstanceViolation of applicable Rule • If the member cannot demonstrate that safeguards were applied

that eliminated or reduced significant threats to an acceptable level

Other Substantive Changes

Ethical ConflictsDefinition of Attest ClientLoans and Lending InstitutionsBlind Trusts Expanded Application• Self-Review Treat• Director Positions• False, Misleading or Deceptive Acts• Billing for a Subcontractor's Services• Attest Engagement Performed with Former Partner• Use of AICPA Awarded Designation

What is a Conceptual Framework

Nothing on Point in the Code• Old Thinking

Relationship or circumstance must be permitted• Revised Thinking

Apply the conceptual framework

Requires professional judgment• Reasonable Third Party

- For example, if the situation involves a staff person often an effective safeguard is:- The staff's removal from the engagement- Additional review of the staff’s work

Steps of the Conceptual Framework

Step 1Identify Threats

Step 2Evaluate Threats

Step 3Identify

Safeguards

No Threats Proceed

Threats not Significant Proceed

Existing New

Step 4 EvaluateSafeguards

ThreatsNot Acceptable

Level…Stop

Threats at Acceptable

Proceed

Conceptual Framework - Case Study

Characters• Anthony “Auto” – Owner of Used Car Dealership• Evan – Owner of a CPA Firm (and Thomas’ brother)• Robert – Owner of Auto Supply Store and über mechanic

(childhood friend of Auto and Evan)

Situation• Can Evan perform reviews for Robert’s store?

Polling Question: Conceptual FrameworkWhen using the conceptual framework, if a threat is significant you should:A. Not perform the attest engagementB. Discuss the threat with those charged with

governanceC. Apply safeguards that eliminate or reduce the

threat to an acceptable levelD. Adopt policies and procedures that are

designed to monitor the quality control of the attest engagement

Polling Question: Safeguards

If Evan implemented the same safeguards, could he perform an annual review for Auto’s used-car dealership?

A. YesB. No

Nonauthoritative GuidanceAICPA Ethics Codification

Nonauthoritative Guidance References

Appears in boxed text at the end of the applicable topic, sub-topic or section. For example:

Appraisal, Valuations, and Actuarial Services for Nonfinancial Statement Purposes .06 Threats would be at an acceptable level, if a member provided appraisal, valuation, or actuarial services solely for nonfinancial statement purposes, such as appraisal, valuation, and actuarial services performed for tax planning or tax compliance, estate and gift taxation, and divorce proceedings. Accordingly, independence would not be impaired. [Prior reference: paragraph .05 of ET section 101]

Nonauthoritative answers to FAQs regarding appraisal, valuation, and actuarial services are available at www.aicpa.org/InterestAreas/ProfessionalEthics/Resources/Tools/DownloadableDocuments/NonattestServicesFAQs.pdf

Visual ExampleAICPA Ethics Codification

Four PartsPreface

0.100.000 Overview of the Code of Professional Conduct0.200.000 Structure and Application of the AICPA Code0.300.000 Principles of Professional Conduct0.400.000 Definitions 0.500.000 Nonauthoritative Guidance 0.600.000 New, Revised, and Pending Interpretations and Other

Guidance0.700.000 Deleted Interpretations and Other Guidance

Part 1Part 2Part 3

Part 1 Members In Public Practice - Topics

1.000 INTRODUCTION 1.100 INTEGRITY AND OBJECTIVITY1.200 INDEPENDENCE1.300 GENERAL STANDARDS 1.310 COMPLIANCE WITH STANDARDS1.320 ACCOUNTING PRINCIPLES 1.400 ACTS DISCREDITABLE1.500 FEES AND OTHER TYPES OF REMUNERATION 1.510 CONTINGENT FEES1.520 COMMISSIONS AND REFERRAL FEES1.600 ADVERTISING AND OTHER FORMS OF SOLICITATION 1.700 CONFIDENTIAL INFORMATION1.800 FORM OF ORGANIZATION AND NAME

1.210 Conceptual Framework Approach

1.220 Accounting Firms 1.224 Affiliates, including

Governmental Units 1.226 Reissued Reports1.228 Engagement Contractual Terms1.230 Fees1.240 Financial Interests1.245 Trusts and Estates1.250 Participation in Employee

Benefit Plans1.255 Depository, Brokerage and

Other Accounts 1.257 Insurance Products1.260 Loans, Leases, and Guarantees

1.265 Business Relationships1.270 Family Relationships with Attest

Clients1.275 Current Employment or Association

with an Attest Client1.277 Former Employment or Association

with Attest Client1.279 Considering or Subsequent

Employment or Association with Attest Client1.280 Memberships1.285 Gifts and Entertainment 1.290 Actual or Threatened Litigation1.295 Nonattest Services1.297 Independence Standards for

Engagements Performed in Accordance with SSAEs

Independence Sub-Topics

Financial Interest1.240.010 – Overview of Financial Interests1.240.020 – Unsolicited Financial Interests1.240.030 – Mutual Funds1.240.040 – Retirement, Savings, Compensation, or

Similar Plans1.240.050 – Partnerships1.240.060 – Limited Liability Companies1.240.070 - Section 529 Plans

Loans, Leases and Guarantees1.260.010 - Loans1.260.020 – Loans and Leases with Lending

Institutions1.260.030 – Servicing of a Loan1.260.040 – Leases1.260.050 – Association With an Entity That Has a Loan

to or From an Attest Client

Mapping Content and CitationsAICPA Ethics Codification

Mapping Document…excerpt

http://www.aicpa.org/InterestAreas/ProfessionalEthics/Community/DownloadableDocuments/Mapping.xlsx

AICPA Ethics Codificaiton Mapping As of December 31, 2013Extant Code Citations Title In Code New Citation In Code Title In Codification New 0.100 Overview of the Code of Professional ConductIntroduction Composition, Applicability, and

Compliance0.100.010 Principles and Rules of Conduct

Introduction Other Guidance 0.100.020 Interpretations and Other GuidanceNew 0.200.010 Structure of the AICPA CodeNew 0.200.020.01 Application of the AICPA CodeET section 91 Applicability 0.200.020.02-.05 Application of the AICPA CodeNew 0.200.030 CitationsNew 0.200.040 Transition ProvisionsNew 0.200.050 Drafting ConventionsET section 51 Preamble 0.300.010 PreambleET section 52 Article I - Responsibilities 0.300.020 ResponsibilitiesET section 53 Article II - The Public Interest 0.300.030 The Public InterestET section 54 Article III - Integrity 0.300.040 Integrity

Prior Citations in Exposure Draft1.400.210 Removing Client Files or Proprietary Information From a Firm.01 A member whose employment relationship is terminated would be considered in violation of the Acts Discreditable rule if the member takes or retains (a) originals or copies (in any format) from the firm’s client files or (b) proprietary information without the firm’s permission, unless the member has a contractual arrangement with the firm allowing such action. [Prior reference: paragraphs .381–.382 of ET section 591]

Framework Document…excerptPart 1: Members in Public Practice 000 INTRODUCTION (New Content)

• 000.010 Conceptual Framework for Members in Public Practice (New Content) • 000.020 Ethical Conflicts (New Content)

100 INTEGRITY AND OBJECTIVITY 100.001 “Rule 102” Integrity and Objectivity (ET§102.01)

• 100.005 Application of the Conceptual Framework for Members in Public Practice and the Ethical Conflicts Interpretation (New Content)

110 Conflicts of Interest • 110.010 Conflicts of Interest (ET§102.03, ER93, ET§191.186-.187, ER 99,

ET§191.198-.199, ER110, ET§191.220-.221) • 110.020 Director Positions (ER 85, ET§191.170-.171, Substantive Change

Made)

http://www.aicpa.org/InterestAreas/ProfessionalEthics/Community/DownloadableDocuments/Preliminary%20Framework%20for%20Codification.pdf

Questions

Slide 24