Professional ethics executive committee revises independence rules on nonattest services.

• Position: Professional Ethics Committee

Independence rules that apply to members who provide nonattest services to attest clients were recently revised by the Professional Ethics Executive Committee. The revised rules underscore the committee's longstanding position prohibiting members from performing management functions or making management decisions on behalf of their attest clients. Some of the existing rules were clarified and others were significantly tightened, adding two new general provisions: one requires a member to document his or her understanding of certain aspects of the engagement prior to performing nonattest services, and the other requires compliance with more restrictive nonattest services independence rules of other regulatory bodies to which the client is subject.

The revised rules reinforce and clarify the general requirements that must be met for a member to maintain independence when the member (or his or her firm) also provides nonattest services to an attest client. As mentioned, the member cannot perform management functions or make management decisions for the client. Accordingly, the member must be satisfied--prior to beginning the nonattest services engagement--that the client is both willing and able to perform all management functions related to the engagement. Specifically, the client must:

* Assign a competent individual to be responsible for overseeing the services.

* Set the scope of the services.

* Evaluate and accept responsibility for the results of the services.

* Establish and maintain internal controls over the services.

Having assessed the client's willingness and ability to perform these duties, the member must also document his or her understanding with the client, a new requirement under the rules. Such documentation must include a description of the services, the engagement objectives, any limitations of the engagement, the member's responsibilities, and the client's agreement to accept its responsibilities.

Members also now will be required to comply with more restrictive nonattest services independence rules of other authoritative regulatory bodies (e.g., state boards of accountancy and the Securities and Exchange Commission)--in addition...