Interpretation 101-3 breaking news.

• Position: PRACTICE ALERT!

The AICPA's Professional Ethics Executive Committee recently adopted revisions to Interpretation 101-3--Performance of Nonattest Services to provide clarification on the applicability and intent of the rule and ensure its continued effectiveness in promoting independence when a member renders nonattest services to an attest client.

The revisions to the interpretations do not relax the rules or change their meaning. The committee believed these changes were necessary and appropriate after it became evident, based on feedback from a significant number of members, that a number of the interpretation's requirements warranted further clarification.

Competency Requirement

The committee agreed to replace the term "competence" with the words "suitable skill, knowledge, and/or experience" throughout the interpretation. In addition, the committee agreed to replace the term (client) "employee" with "individual" to clarify that the person designated by the client to oversee the service could be the owner of the company or an individual outside the company such as an outsourced bookkeeper or controller.

The committee recognized that members may have needed more clarity as to its intent with respect to the degree of "competence" the individual designated by the client to oversee the nonattest service is expected to possess. Specifically, some mistakenly ascribed a higher standard to this term than intended by the committee and believed that the client was expected to possess the same level of competence as the member. This clearly was not the intent as explained in the committee's guidance, AICPA Interpretation 101-3, Performance of Nonattest Services--Requirement to Document Understanding With an Attest Client (www.aicpa.org/download/ethics/Int._101-3_documentation_guidance.pdf, released Nov. 22, 2004). That guidance, which many members have found helpful to their understanding, specifically defined client competence to mean that the individual designated by the client to oversee the nonattest service should possess suitable skill, knowledge, and/or experience to enable him or her to understand the nature, objective and scope of the nonattest service.

Documentation Requirement

The interpretation has been revised to reflect that a failure to document the understanding with the client would not be considered to impair a member's independence provided such understanding had been established; but rather, would be considered a failure to comply with an...