Will All the Pieces Fit?

• Author: HARDEN, STUART
• Position: Accounting and auditing rules - Brief Article

Following the flurry of independence rule activity? In February, the SEC issued its new rules on auditor independence. Next came the AICPA's omnibus proposal of changes to the Professional Ethics Division's interpretations and rulings, which offers an "engagement team-focused" approach. Almost simultaneously, the General Accounting Office issued proposed changes to the accountant independence rules for all engagements done in accordance with Government Auditing Standards. Then, amidst all of this positioning, the Independence Standards Board was disbanded. Since the proposals and rules vary significantly--can one set of standards emerge?

WHAT ARE THE DIFFERENCES?

* The proposed GAO rules and SEC rules both consider independence impaired if the accountant provides bookkeeping services. And, under the SEC rules, if the accountant prepares the client's financial statements. The AICPA rules permit these services as long as the accountant does not perform management functions or make management decisions.

* The proposed GAO rules and SEC rules both consider independence impaired if the accountant provides appraisal and valuation services and it is likely that the results would have a material effect on the audited financial statements. Exceptions are made for employee benefit plan liability determinations and tax-related valuations. The AICPA rules do not consider independence impaired as long as management approves all significant assumptions and can make informed judgments on the services' results.

* The proposed GAO rules and SEC rules both consider independence impaired if the accountant provides certain actuarial services. The more restrictive GAO rules consider independence impaired if the services involve amounts that are material to the financial statements. The SEC rules refer solely to the determination of insurance company policy reserves. Under the AICPA rules, independence isn't impaired as long as management approves assumptions and can make informed judgments about the results.

* The proposed GAO rules and SEC rules both consider independence impaired if the accountant performs human resource services such as conducting key employee searches, conducting formal testing, undertaking reference checks, negotiating on the client's behalf or making hiring decisions. The AICPA rules permit the accountant to recommend job specifications, perform screening activities and advise in hiring decisions.

* The SEC rules are more restrictive than...