Independence standards--putting it all together.

• Author: McCrone, Linda
• Position: Independence Issues

Do you provide services for your audit, review or compilation clients that impair your independence? Separation of nonattest services from attest services no longer applies just to audit clients. All CPAs are subject to new rules following a major revision of AICPA Ethics Interpretation 101-3, Performance of Nonattest Services, which took effect Dec. 31, 2003. The new requirements do not apply to arrangements in existence Dec. 31, 2003 and completed by Dec. 31, 2004. Additionally, the revision includes a documentation requirement that is not effective until Dec. 31, 2004.

Again, CPAs who perform compilations, reviews, audits and other attest services need to be familiar with the revisions to Interpretation 101-3. This also applies to non-AICPA members since California Code of Regulations, Sec. 65, says that a licensee shall be independent in performance of services in accordance with professional standards. The AICPA Code of Professional Conduct, www.aicpa.org/about/code/index.html, dictates conduct in California even to those who are not AICPA members.

Avoiding making management decisions for a client remains the mainstay of this rule, but the recent changes help define and document the CPA's role in nonattest services so as not to impair independence. It is important to note that a CPA can still provide advice, research material and recommendations for clients.

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CHANGES IN INTERPRETATION 101-3

The client must agree to perform the following functions in connection with the engagement to perform nonattest services:

* Make all management decisions and perform all management functions;

* Designate a competent employee to oversee the services;

* Evaluate the adequacy and results of the services performed;

* Accept responsibility for the results of the services; and

* Establish and maintain internal controls, including monitoring ongoing activities.

The CPA must be satisfied that the client will be able to meet all of these criteria, otherwise independence is impaired. The designated employee could be the business owner. In fact, for some smaller clients, a bookkeeper may not be sufficiently knowledgeable and the business owner would be the best choice. An alternative for some CPA firms is to simply state they are not independent for all or part of their compilation practice.

Before beginning nonattest services, the CPA should establish and document the engagement's objectives; services to be performed; client's acceptance...