Exposure draft of new, revised ethics interpretations on Independence issued.

• Position: Member news

Last month the Professional Ethics Executive Committee issued an omnibus exposure draft that proposes one new and one revised interpretation under Rule 101, Independence. Based on comments received to the PEEC's Sept. 15, 2005, omnibus exposure draft containing proposed guidance regarding independence and the use of indemnification and limitation of liability provisions and the performance of forensic accounting services, the PEEC agreed to revise and re-expose such guidance, which is included in this latest exposure draft.

The first proposal would provide guidance to members on the impact that certain indemnification and limitation of liability provisions may have on a member's independence when included in engagement letters or other agreements entered into with a client. Under the proposal, certain types of indemnification and limitation of liability provisions in connection with an attest engagement are considered to pose an unacceptable threat to a member's independence because they may result in a member's performance of insufficient attest procedures in reliance on the belief that the member is protected through the indemnification or limitation of liability provision. However, this threat could be sufficiently mitigated, provided the limitation of liability or indemnification agreement was contingent on the member's attest services being performed in compliance with professional standards. Accordingly, the PEEC is proposing ethics guidance that adopts an underlying principle whereby independence would be considered to be impaired if a member entered into an agreement with a client that included an indemnification or limitation of liability provision regarding a member's exposure to actual damages, unless such provision was contingent on the member's attest services being performed in compliance with professional...