The past year has provided numerous examples of CPAs providing critical assistance to their clients, both from an attest and non-attest perspective. From assisting with Paycheck Protection Program (PPP) loan applications to helping with new accounting standard assessment and even staff augmentation services, CPAs have repeatedly gone above and beyond for their clients. However, when providing these services, CPAs need to be mindful of their responsibilities to the profession and assure that they are complying with all ethical and independence requirements which are detailed in the AICPA Code of Professional Conduct (Code). This is critically important now as these responsibilities under the Code are in the process of changing. CPAs must demonstrate the due care to stay on top of these changes.
The PPP loan application process, and related applications for forgiveness, can be very complex, presenting an excellent opportunity for companies’ external accountants to assist their attest clients with the form’s completion. However, CPAs must assess the independence implications of such assistance, which are different, given the level of services provided. For instance, if the CPA is providing consulting services related to the loan forgiveness application process, the CPA must comply with Code Section 1.295, assuring that the CPA is not fulfilling the role of management when performing the engagement. However, if the CPA is performing an Agreed-Upon-Procedures (AUP) engagement for the client, the independence requirements are different, depending on the CPA-client relationship. In all instances, the CPA must be independent of the client, while when performing the AUP engagement for an advisory or tax advisory or preparation client, the CPA must also comply with Code Section 1.297.010, concerning independence requirements related to attest engagements. It is best to scope the project before agreeing to it, ensuring that the client understands any independence restrictions under which the CPA operates.
Many CPA firms enter into staff augmentation arrangements with their clients, whereby the CPA or firm provides human resource capital as a service to clients. Under these arrangements, also referred to as loaned staff arrangements, the client is responsible for directing and supervising the activities of the staff being loaned to it, with the CPA firm billing the client for the services provided. In order to converge the U.S Ethics requirements related to staff augmentation engagements with those promulgated by the International Ethics Standards Board for Accountants (IESBA), the AICPA’s Professional Ethics Executive Committee (PEEC) issued a new ethics interpretation which added Code section 1.275.007, Staff Augmentation Arrangements, and amended several other Code sections. The new interpretation lists safeguards which must all be present in order for a CPA or firm to provide staff augmentation services to an attest client and will be effective November 30, 2021. As these service arrangements are common, especially as companies recover from COVID-19 staffing challenges, CPAs will need to communicate with clients the potential impact of adopting this new ethics interpretation.
Also, effective January 1, 2022 (deferred one year, with early adoption permitted), the PEEC amended Code Section 1.295.145, renaming it Information Systems Services. The updated guidance attempts to clarify the existing guidance on such services found in Code Section 1.295.145 regarding commercial off-the-shelf (COTS) systems and what constitutes installing and configuring a COTS system, which is an allowable non-attest service, as opposed to designing, developing, or customizing such systems, which would be an unallowable non-attest service. Given this distinction, the adoption of this new interpretation may create new service opportunities for CPA firms, given the increased flexibility added by the new interpretation.
Lastly, the CPA’s responsibility to report noncompliance with laws and regulations (NOCLAR) beyond client and governance personnel has always been a touchy subject. In order to comply with recently issued IESBA standards related to reporting NOCLAR, as well as to add clarity on the topic, the PEEC is re-exposing for comment the proposed ET Sections 1.170.010 , for those in public practice and 2.170.010, for CPAs in business, requirements for CPAs to respond to NOCLAR. The proposed interpretation creates differing responsibilities for reporting NOCLAR for CPAs performing financial statement attest services, including notification of the NOCLAR to an authority when required by law or regulation and when providing other services. Notification requirements are less for a NOCLAR when the CPA is performing a non-attest service, either for an attest client or a non-attest client, as well as for a CPA in business. As this interpretation may increase a CPAs reporting requirements related to NOCLAR, it is important that all CPAs thoroughly understand any new responsibilities under the proposed interpretation, as well as any legal implications.
A CPA’s ethical commitment is a key distinguishing attribute of the profession. Knowledge and implementation of these new requirements is key for CPAs to maintain the public’s perception of their technical, as well as ethical expertise.
Rich is the Vice President of Financial Accounting and Auditing Content at Surgent CPE, which is based in Radnor, PA. He is a CPA and has 30 years of experience in the accounting and auditing fields. He has worked in both the client service setting as well as in internal capacities as a facilitator of accounting and auditing courses. He was an assurance senior manager with PwC, in the Philadelphia office, spending time in both the assurance practice as well as with PwC’s Capital Markets and Accounting Advisory Services group, where he advised clients on the implementation of new accounting pronouncements as well as on issues related to public offerings. Rich also worked in PECO Energy’s Merger and Acquisition group, where he performed financial due diligence that supported PECO’s acquisition activity in the energy sector. He has experience in the manufacturing, health care, energy, and pharmaceutical industries.
Prior to joining Surgent, Rich also worked at PwC for more than 10 years as a course developer and facilitator, creating and leading training courses on such topics as revenue recognition, stock-based compensation, equity instruments, and performing integrated audits under the Sarbanes-Oxley legislation. He also designed and delivered courses on instructor development and facilitation skills to senior PwC internal course instructors.
In 2015 he joined Surgent as Sr. Director, Accounting & Financial Reporting Content. In this and his current role, he researches and develops the technical content for Surgent’s Accounting and Financial Reporting curriculum as well as serves as a facilitator for a variety of Surgent courses.