Description of Concern

Transcription

1 Numeric Citation Issue of Concern Editorial Description of Concern Modernized the Preface especially to accommodate for members in business and part 3 members 0.100, and many other places "practice of public accounting." There are about a half dozen states that still use the term "practice of public accounting" or "practice of public accountancy" in their statutes. While this term is no longer used in the UAA, it is still used in a very general way in some states. Is it possible for the AICPA to use a variation of the terms seen in the IESBA Code of Ethics for Professional Accountants: "Member in Public Practice" rather than the current term "Member in the Practice of Public Accountancy." This will require a change in the definitions of a "firm" and "practice of public accountancy" but the IESBA Code provides a clear roadmap for how to do this. Such a change would be very helpful for some state boards of accountancy Name of Topic The title of this topic is inconsistent between the Preliminary Codificaiton Framework and the Draft Content. Recommend the title in the Preliminary Codification Framework be revised to read "Strucuture of the Code of Professional Conduct" Structure of Code Structure of Code Rename this title "Structure and Content of the Code of Professional Conduct". Add a subheader called "Principles and Rules of Conduct" to the top of the item and move of here. I think that the first paragraph of the extant Code provides a better introduction. Explaining the structure is helpful but should go after the section on applicability, rules and interpretations and compliance.

2 Other The first paragraph of the Preface seems to be repetitive, it should be condensed. I would propose the following: Editorial Editorial The Code of Professional Conduct of the American Institute of Certified Public Accountants (AICPA Code) consists of this preface, which applies to all members. The term member, when used in part 1 of the AICPA Code, applies to and means a member in the practice of public accounting; when used in part 2 of the AICPA Code, applies to and means a member in business; and when used in part 3 of the AICPA Code, applies to and means all other members. And apply the more restrictive provisions? This wording is too loose; embellish on this statement. What should members do once they consult all applicable parts of the Code? Suggest some editorial revisions to the words and that the full ET reference either be included or ET be defined. There should be a hyperlink for Definitions Cross References Editorial Suggest we add an example when a defined term does not appear in italics Editorial Suggest some editorial revisions to the words Editorial Rename this title "Application of the AICPA Code". suggestion Editorial Delete prior reference: Introduction since same as Other "The principles provide the framework for the rules that govern the performance of professional services by members." Does the use of "professional services" this adequately cover members in business and industry, educators, and other members? Other If the Preface applies to all members, references such as this, to professional services (as currently defined), will not scope in all members bound by the Code Other Suggest the phrase "as with all standards in an open society" be deleted Other The phrase "as with all standards in an open society" - is this needed? Can it be modernized? Sounds like the cold war.

3 Structure of Code Editorial The paragraph on compliance doesn't fit well into this section could it be included in an introduction or under a separate heading? Switch the order of.03 and.04. Suggest the PCAOB be added. Run on sentence we had to read this several times to be clear on the meaning. Here and throughout the codified Code, an effort should be made to avoid lengthy, complex paragraphs and runon sentences as they detract from the reader's ability to comprehend the meaning of the guidance. Consideration should be given to breaking up these paragraphs and sentences into shorter sentences. We have revised a few of these paragraphs/sentences in the Code to demonstrate. Delete prior reference: Introduction since same as Editorial Other Is the wording of this paragraph sufficiently comprehensive? (e.g. DOL, GAO, or other international organization? Paragraph on other guidance belongs after the paragraph on interpretations based on the heading Editorial Editorial Editorial Editorial Editorial Editorial Editorial PEEC should be written since first occurrence of its name Not sure if last sentence is necessary regarding 1/12/1988 date Is the last sentence still necessary and if so, is PEEC the appropriate senior committee or is there another senior committee that can revise the Code? If there isn't, is there a reason why PEEC isn't used instead of the general phrase "appropriate senior committee"? Paragraphs that follow were initially adopted on January 12, 1988, and subsequently revised on XX XX, Suggested editorial revisions. Don't members have to adhear to the principles and interpretations and not just the rules? What is the term "section" referring to? Paragraphs.05 to.10? Topic 0.200? Or all of Part 0? It's not clear. This should be aligned with the standard language used in the Code to refer to parts, topics, subtopics, etc. Also, suggest some editorial revisions Editorial Last word should be changed from herein to therein Other Is the term "professional services" broad enough to scope in all category of members?

4 Other Does the definition of "professional services" include members in industry? b Editorial Do not have link to Compliance with Standards and Accounting Principles rules - not sure how to handle since it goes to 2 sections? c & d Editorial After the term "ethics" add in "and independence requirements" to be consistent with the phrase as it is used later in the paragrah Other The Principles of Professional Conduct should be reviewed to make sure that it appropriately covers members in business Other The term "responsibilities to the public" is vague. CPAs have a responsibility to certain users of the financial statements, but not "the public." Logically, "the public" is simply a collection of persons and a collection cannot have a single, defined "public interest." Other Both terms add nothing to the paragraph. However they do detract from the message of professionalism by implying that, regardless of the profession's best efforts, the "confidence" of the "public" can trump good work, and that if the whole "collective" doesn't pull together the CPE profession is somehow diminished Editorial Sugeest "sensitive professional judgments" be deleted since they don't kn Other The phase "improve the art of accounting" as well as other lanugage in topic seems to lean heavily towards members in the practice of public accounting Other Terms such as "the public interest," "public trust," "serving the public," etc. are not definable and thus are invalid concepts. This acts as a detriment to the profession and expands the scope of CPA responsibilities well beyond logic and reason. The adherence to professional standards and objective reality gives rise to certain specific responsibilities to "non-clients." Vague terms such as "collective wellbeing" and "faith the public reposes" are open-ended and imply that the responsibility of the CPA is not only essentially unlimited in scope but undefinable. Wellbeing applies only to individuals and it is not a collective concept. Further, the profession's excellence is based on rigorous standards and quality performance; whether one person or another has "faith" in the profession is totally irrelevant.

5 Other I have read many of the sections of the Ethics Principles in the past and the new revised format highlights the key elements which puts the reader on better notice. The example I would cite would be to Integrity and.04. Each of the elements were contained in the prior Code, they now are highlighted in the current presentation. This same comment applies throughout my reading of the Revised Code Other Since the public trust cannot be defined it cannot derive from anything. Integrity is the consistent application of philosophical principles so the principles must be valid. Since the public trust cannot be defined, personal gain has no relation to this invalid concept. The concepts of "right" and "just" imply a standard, but the standard is not defined here Other The term "public responsibility" should be replaced with a reference to specific non-clients. Responsibility is a term applicable only to individuals. Therefore, a CPA has no "responsibility" to "the public" as an undifferentiated mass since the nature of this "responsibility" cannot be determined rationally &.04 Editorial &.04 &.05 Editorial Editorial This language should be conformed to be consistent with the Conceptual Framework - i.e., independence of mind, in appearance. Also, to be consistent with other areas in the Code should just use the phrase "attestion standards" instead of "auditing and other attestation standards". Shouldn't the term "member in public accounting" and other such references, be to members in the practice of public accounting, as defined? They suggest a number of editorial revisions in this paragrah from identifying what kinds of members (e.g., members in business v. public practice) and replacing audit with attest and gaap with all relevent professional standards Other The term "responsibility to the public" should be replaced with a reference to specific non-clients Other As noted above, at times, this section seems to focus heavily on members in the practice of public accounting, probably a function of when it was written. Are PEEC and staff sure that the language throughout appropriately reflects the requirements that other members are obligated to comply with?

6 Editorial Remove the term "personal" Other There is no "public interest principle" that can be defined rationally. The real issue is that professional services should be performed in accordance with the professional standards; this stands on its own without reference to invalid concepts Editorial Change to "member in the practice of public accounting" Editorial Suggest edit and suggest the last sentence "No hardand-fast rules can be developed to help members reach these judgments, but they must be satisfied that they are meeting the spirit of the principles in this regard" be deleted since it is inconsistent with b Editorial Suggest revision to this bullet "determine, in their individual judgments, whether the scope and nature of other services provided to an attest audit client would create a conflict of interest impair independence in the performance of the attest audit function for that client" becuase it is not in line with Other The "public interest," "public trust," etc., are not listed in the Definitions section. Since these terms cannot be defined, none of them should be used as if they had a specific meaning anywhere in the Code Other Should there be a mention here about derivations? For example, member's, client's, etc. will be called out just as member and client will. Also, change 2012 to 201x. Also, The placement of this guidance seems to suggest that this a matter of great importance to members but, is it? Perhaps this is better placed at the end of 0.400?. In our comment below, we were referring to the use of possessive nouns (e.g., client's), rather than the proposed wording (e.g., decision of the client), and explaining at the beginning of Topic 400 that, for purposes of the codification, derivations carry the same meaning as the original defined term (e.g., client). Using derivations would, in our view, help to make the codified language less wordy and cumbersome Cross References j Editorial The link for financial statement attest client is not functioning properly. Replace "and they are" with "which is".

7 Editorial Believe the definition of attest client should be reconsidered because no other independence rule set requires independence of the engaging party. If it stays, recommends the "or" be replaced with "and, if different, the person or entity" Definitions The SSARS considers compilations to be attest engagements irrespective of whether or not the accountant's independence is impaired. Can the definition be modified to address this inconsistency between the two sets of standards? For example : An attest engagement is an engagement that requires independence, as defined in the professional standards of the AICPA, or in the case of a compilation performed by an accountant who is not independent, requires disclosure in the accountant's report of that fact Definitions Attest - Can we provide a definition of attest rather than a general reference to where the definition can be found? It is not clear where a comprehensive definition of attest can be found. The UAA has a definition but I know that that will hopefully chang to incorporate the new SOC reporting Editorial Recommend the phrase "defined in the professional standards of the AICPA" be replaced with "set forth in the AICPA Statements on Auditing Standards, Statements on Standards for Accounting and Review Services, and Statements on Standards for Attestation Engagements (AICPA, Professional Standards AU, AR, AT)" Definitions The meaning of Beneficially owned has changed: Prior reference states that A financial interest is beneficially owned when an individual or entity is not the record owner of the interest New reference states that A financial interest is beneficially owned when an individual or entity, regardless of whether it is the record owner of the interest

8 Definitions Item a. in the definition of client is unclear. Because entities engaged in the practice of public accounting are excluded from the term employer which is in turn excluded from status as a client, it appears to follow that members employed by CPA firms or governmental audit entities should be considering their employers to be clients. I am not certain that is what was anticipated or that that interpretation would work as it pertains to independence.ny's definition of client is: "A client is any person or entity that directly engages a member or a member s firm to perform professional services, or a person or entity with respect to which professional services are performed, other than the member s employer, student or the public." Their code can be found at f Definitions They recommend the phrase "or a" be replaced by "and if different the". Also recommend the term "paragraph" be replaced by "definition". Also, with respect to the item a. recommend this item apply not just to entities engaged in the practice of public accounting but persons as well Definitions Suggest edits to the defintion Definitions If the definition of an attest engagement is modified as suggested above, this definition can be modified to eliminate "when the member's compilation report does not disclose a lack of independence." The service should define whether or not a client is an attest client, not the fact as to whether or not the accountant is independent Definitions The use of the word Firm throughout the Code is not clear. Does the word Firm mean Client Firm? Does the word Firm mean Industry Employer Firm? Does the word Firm mean Any Company? I would like to see the word Firm have meaning specifically to CPA firms, and I would like to see industry employers and other companies like staffing firms and non-cpa consulting firms included as separate definitions. At the very minimum I would like to see incorporated a single paragraph definition of exactly what Firm means with all of its different meanings. It is confusing to CPAs and the public in the single use of the word Firm to mean CPA Firm, Industry Employer, Staffing Firm, noncpa Consulting Firm.

9 editorial.01 I believe it would be helpful and better suggestion understood. if shown as plural, although technically there is one Rule. Firm. A firm is a form of organization permitted by law or regulation whose characteristics conform to resolutions of the Council of the AICPA and that is engaged in the practice of public accounting. A firm includes the individual partners thereof, except for purposes of applying the Independence rule. For purposes of applying the Independence rules, a firm includes a network firm when the engagement is either a financial statement audit or review engagement, and the audit or review report is not restricted, as defined by professional standards. [Prior reference: paragraph.11 of ET section 92] Editorial Suggest that the phrase "as defined by professional standards" be replaced by "as set forth in the AICPA Statements on Auditing Standards and Statements on Standards for Accounting and Review Services (AICPA, Professional Standards AU, AR)" & definition of professional services and definition of holding out The definition of professional services includes all services performed by a member while holding out as a CPA. Many members in large firms perform services of licensed CPAs, but do not use CPA on their cards and do not indicate that they are CPAs other than they have a CPA license. Is it clear a member is performing professional services and holding out by the act of holding a CPA license even if they hold out in no other way? Editorial Suggest this definition be removed since the term only appears once Definitions Suggest the definiton be moved out of the definition section and into since the term only appears in this interpreation Editorial Given the rise of SSAE engagements, particularly the relocation of SAS 70 to SSAE 16, the phrase "the subject matter of the attest engagement" is very useful. Consideration should be given to employing this phrase in other parts of the Code (e.g., Interpretation Subtopic 1.295), rather than solely relying on "audit-centric" language Definitions Suggest the phrase "the term" be added to the defintion Editorial Suggest a(n) be used so that the "a" and "an" can be eliminated before each term.

10 Editorial This is true in a number of situations, not just with respect to financial institutions and broker-dealers. The statement could therefore be misleading. As the Code already addresses this concern, globally, in , we suggest that this paragraph be deleted and Definition of partner The defintion of partner on p. 31 includs proprietors and shareholders who may not be parties to a partnership agreement, whereas only members who are parties to a firm's partnership agreement should hold temselves out as partners on page 153. Are these two definitions consistent with each other? Do they need examples for clarity? Definitions The definition of the practice of public accounting is much broader in NY and would pull in individuals that the AICPA Code would not consider to be in the practice of public accounting. Because of the differing uses of the term, it is particularly important that the AICPA code definition of the practice of public accounting be very clear. I believe the current language is difficult to interpret because the definition refers to work performed for a client, and the definition of client appears to include a CPA firm within the term client with regard to the members it employs. Moreover, there seems to be some circularity in that the definition of the practice of public accounting refers to work performed for a client and the definition of a client refers to entities engaged in the practice of public accounting. Their definition can be found at: Language The paragraph refers to "litigation support services", but the professsional literature has migrated to the more expansive definition of "forensic accounting". The current use of "litigation support services" is no longer supported by the underlying structure of the AICPA (the Forensic and Valuation Services Executive Committee) nor by the literature that is being disseminated by that group editorial suggestion Editorial I believe we should add "applicable" before "authoritative regulatory bodies" in item (c), so that it is understood need to pay attention if only applies to engagement in particular. Public Interest Entity - prior reference should be ET section not 101-1

11 Definitions Safeguards - Safeguards do not necessarily eliminate a threat or reduce a threat to an acceptable level. It depends on the nature of the threat and the effectiveness of the safeguard. I think that the definition should be reworked, or you could just remove the words "to an acceptable level" Editorial Editorial Editorial Editorial bullet 18 Editorial bullets 1, Editorial 2 and Editorial Editorial Editorial Safeguards - prior reference should be ET section not Source Documents - prior reference should be ET section 101 not Suggest some editorial changes. Suggest some editorial changes. Suggest wording change. Suggest wording changes to the titles of the interpretations. Suggest the first paragrah be presented before as a lead in. Suggest wording change. Suggest the term "standards" be replaced by "interpreretations".

12 Editorial Editorial Editorial Members in government My concern (also shared by my colleagues at GAO) is without specifically referring to members in government, we do not recognize what part of the restructured code we fall into. As you mention in the cover letter for the pilot testers, there are three parts divided by the member s practice. Part 1 is applicable to members in the practice of public accounting. I can argue that GAO, Federal IGs, and many state and local governments are very similar to public accounting in what they do, but we are also employees of the government. Part 2 is applicable to members in business. Some may argue that CPAs that are in internal audit functions or are in financial management functions in the government may be in Part 2. Part 3 is applicable to all other members such as those who are retired or unemployed. A literal reading of this criteria would place all CPAs in government under part 3. This is not logical since I think there should be government members that fall under the other 2 parts. Without explanation of the applicable part to the range of members in government, the codification is difficult to apply to these members. Since I also serve on GPAC, I need to point out that about 12,000 members are employed in government. Without a clear guidance on which part of the codification applies to these members, it is very difficult to use. Change the term "member" in the first sentence to "members". Introduction of Part I - do not think we want to list discussion as.01 b/c it might be confusing with Conceptual Framework which is I think the codification could provide more examples of members in government and when members in government would fall under "members in public practice (my term)" vs. members in business. Existing interpretations just need more examples so that it is clear to members in governement, particularly for members who work for eleted governmental auditors.

13 Other The intro paragraph to Part 1 identifies members in the practice of public accounting as the people to whom the Part 1 applies. Many government auditors perform work that this part would apply to but they are not "in the practice of public accounting" in accordance with the definition ( ): "The practice of public accounting consists of the performance for a client by a member or member s firm, while holding out as a CPA or CPAs, the professional services of accounting, tax, personal financial planning, litigation support services, and those professional services for which standards are promulgated by bodies designated by Council." Other I'm not sure where the best place is to address this is but I'm unclear as to the applicablity of the Code to auditors performing GAAS audits but are not members - a description that fits many government auditors. AU-C 200 indicates that "The auditor should comply with relevant ethical requirements relating to financial statement audit engagements" and references par..a15.a20, which in turn says that "The auditor is subject to relevant ethical requirements relating to financial statement audit engagements. Ethical requirements consist of the AICPA Code of Professional Conduct together with rules of state boards of accountancy and applicable regulatory agencies that are more restrictive." Does that mean that the Code is incorporated into the SAS by reference for everyone, not just members? And if it is, does that mean that non-members can disregard the code because it only applies to "members" and still audit in accordance with the SAS? Conceptual Framework Editorial /.05 Editorial After reading the information here that appears to be properly located in the guidance, I am not sure the guidance needs to be repeated on page 54 in section addressing the conceptual framework and the listing of threats and safeguards. This just appears to be redundant. Should we not include in this section that the member needs to document their analysis if they use the conceptual framework? Why not include these definitions in (Definitions), as with the term "Safeguards" below, as these terms are used throughout the Code?

14 Editorial Editorial Editorial Conceptual Framework Editorial Threats. Relationships or circumstances that could compromise a member s compliance with the rules. Suggest the term "perform" replace the term "apply" in this sentence "Members should apply three main steps in applying the conceptual framework approach": Bold font for headings: a. Identify threats b. Evaluate the significance of a threat c. Identify and apply safeguards In paragraph 10 of page 41, it might be useful to add something to address a member or firm actively promoting client products or services. For example, if CPA firm has attest client that develops software and the CPAs within the CPA firm ask their other clients to consider using that particular software or if CPA firm has an attest client that owns/operates several auto dealerships and the CPAs within the CPA firm ask their other clients to consider using those dealerships for leasing automobiles. Consistency in writing style of examples for instance b - "a firm acts " but c - A firm underwriting." Throughout section but this is just one example Editorial Why address independence threats here if Topic has its own Conceptual Framework? It will only confuse matters for members to comingle the discussion of ethics and independence threats. Given the existence of a Conceptual Framework devoted exclusively to independence matters, shouldn't this framework focus on the threats to compliance with the other ethics rules of the Code and the appropriate safeguards to apply? Language The paragraph refers to "litigation support services", but the professsional literature has migrated to the more expansive definition of "forensic accounting". The current use of "litigation support services" is no longer supported by the underlying structure of the AICPA (the Forensic and Valuation Services Executive Committee) nor by the literature that is being disseminated by that group. The term litigation support is no longer the apporpriate reference to this area of practice

15 Structure of Code ,.13,.14,.20a & b,.21f, 22h, m,n, r,s,v and y. Conceptual Framework Conceptual Framework Approach - Advocacy threat - Includes consideration of independence. Since there is a separate conceptual framework for independence is this needed here? Do you want to include an example of an independence threat in the broad concepual framework? Other Self review threat is proposed to include a" member s immediate family or close relative" and "d. The member s immediate family is employed by, or associated with, the client in a key position. " I don t see work that my spouse performs as a self-review threat but rather a familiarity threat. This doesn't seem to belong here and looks like a change from the extant and I didn t agree with it Drafting Convention editorial suggestion editorial suggestion y Conceptual Framework Editorial c. Drafting Convention /.03 Editorial This sentence is redundant - "In addition, threats may be sufficiently mitigated through the application of other safeguards not specifically identified herein.".pwc suggests that a period replace the semicolon and the "t" be capatalized. A governance structure, such as an active audit committee,that is desinged to ensure appropriate decision making, oversight, and communications regarding a firm's services. Awkward sentence structure. In the listing, why wouldn't item 'y' apply to any member of the attest engagement team? Eliminate the phrase "or legal standards, or both." The law is not a "standard," since standards can only be established rationally and objectively and not politically. Also, placing a requirement for CPAs to adhere to "legal standards" presumes CPAs should be experts in the law. Reference to "internal procedures" is not clear. The accountancy boards require compliance with the professional standards, not expertise in "rules and law." There are other references in this section that refer to potential legal issues without using the "legal standards" phrase or implying expertise in the law Other Is this reference to another "organization that employs the member" relevant in Part 1 of the Code? If it relevant, why? Perhaps it would be worth explaining here.

16 Drafting Convention Drafting Convention Editorial Editorial "will in all likelihood be a violation of one or more rules" - Not sure that this is true. Can we rephrase this? Change to "may"? In the example in paragrahp.01, if the member doesn't report the fraud, no violation has occurred. First 2 sentences are akward. Integrity & Objectivity Rule not linked to rule Suggest the term "has a relatinship with" be replaced by "is associated with" and replace "relationship" with "association". Also, note that the phrase "the client or other appropriate parties may view as impairing the member s objectivity" Vs. the "reasonable and informed third party" standard established in the definition of "acceptable level" in Threats to objectivity are supposed to be measured against what a reasonable and informed third party with knowledge of all the relevant information would view as acceptable or not acceptable b Editorial Change "who" to "that" l Editorial Suggest that the term "entity" be changed to "company" to be consistent with item k editorial suggestion I believe you should state, director of an entity, such as a bank editorial suggestion I believe the extant ER 85 was more informative, and understandable as to why the rulings contained the conclusions about not accepting a bank director position, since such a position puts individuals is questionable situations dealing with the public, which is not necessarily true with dealing in any directors position. I think the concept is lost with a change to "director" Terminology Reference is made to "fiduciary duties" but it is not a defined term in the Code. Have you considered incorporating a definition? I am very much aware that it is a legal concept, but it may provide the member some awareness by making it a defined term in the Code Editorial Suggest the phrase "the term" be added after the phrase "For purposes of this interpretation," Editorial Do not have link to Integrity and Objectivity rule Name of Interpretation Title - Can we remove the word "knowing"?

17 editorial suggestion Editorial Drafting Convention Drafting Convention Editorial Editorial Editorial Can we add a colon after "knowingly"? A member would have knowingly misrepresented facts be in violation of the Integrity and Objectivity rule if the member knowingly a - c - Do not seem like safeguards as the first paragraph indicate' a. Change reference to generic reference and add reference to QC standards (which cover more than just audits). I think the last paragraph should be labeled d. Consistent with the comment above about the categories of threats, the safeguards identified in the conceptual framework seem to align better with independence than in this context. If the conceptual framework is intended to be used throughout the entire Code of Conduct, threats and safeguards that are context-specific may need to be developed in order for members to apply the framework consistently. This seems to be the only interpretation that is analyzed in this document that attempts to apply the threats and safeguards approach. Why is that, as only having it in one place might be confusing as to which safeguards apply - if no specific safeguards are identified in other interpretations, and the general safeguards are more independence-oriented, then are members to conclude there no safeguards attached to these other interpretations? Step 4 of the extant (Interpretation 102-4) requires that "The member should at all times be cognizant of his or her obligations under interpretation [ET section ]." Interpretation addresses "Obligations of a member to his or her employer's external accountant" and, accordingly, its omission from the proposed interpretation, which applies to members in public practice, is appropriate.

18 Editorial The major difference between the proposed interpretation and the extant (interpretation 102-4) is the characterization of certain "steps" in the extant as "safeguards" in the proposed; however, referring to these matters as "steps" seems clearer than (and therefore preferable to) referring to them as "safeguards." Furthermore, the meaning of the reference in par. 01 to "self-interest, familiarity and undue influence threats" is not clear Other Should this be broadened to include a member not subordinating his/her judgment to the client? This would make sense and can be easily incorporated (e.g. When a member and his or her supervisor or client have a disagreement a Editorial The member should refer to the consider guidance in AU a Cross References Editorial Editorial Drafting Convention Editorial A comment is hung on the phrase "what the auditor should do" that says "Interpretation suggests that a member is preparing, or assisting in the preparation of a financial statement. This language introduces the notion of the member also being the auditor. That being the case, shouldn't there be a cross reference somewhere to Subtopic (i.e., Interpretation 101-3)?" Do not have link to Integrity and Objectivity rule Suggest that "tax and consulting" be replaced by "nonattest". The paragraphs throughout the draft that include references to the Code of Professional Conduct are a bit circular and it is not clear what value they add. Suggest the phrase "Code of Professional Conduct" be replaced by the defined phrase "AICPA Code."

19 Other The independence interpretations are not logically consistent with the conceptual framework for evaluating independence. The independence interpretations are essentially political "rules" whereas the logical and consistent application of the conceptual framework in some cases would lead to an interpretation different from an "official" AICPA independence interpretation. This is the same problem as the "legal standards" issue vs. the "professional standards." In effect, this section says to act rationally (apply the conceptual framework) unless there is an AICPA interpretation covering the situation, and if so just follow the rule regardless of its applicability to the particular situation between the firm and the client. I would reverse the priority of the conceptual framework and interpretations and note that AICPA interpretations provide guidance in certain situations unless a better, more rational result is obtained by using the conceptual framework. I respect a rational, objectively supported explanation for a particular situation (i.e., "professional judgment") more than the fact that at some time in the past a majority of committee members voted in favor of a particular rule Editorial Editorial Suggest that instead of saying "standards promulgated by bodies" that we cite those standards. "in violation of the Independence Rule Vs. "independence would be impaired" elsewhere in Topic 200. This is not consistent with the standard language, although it is much clearer (the more commonly used verbiage in the codified Code sounds, unfortunately, too much like techno-speak that is not helpful to the uninitiated). In any case, whatever standard language is ultimately landed upon, it should be used consistently throughout the Code, especially in Topic 200. Currently, we find there to be a lack of consistency in the verbiage that the Code uses to express the notion that independence is impaired (or, conversely, that it is not impaired).

20 Editorial Is "significant threat" a defined term? Should it be? What does it mean vs. a threat at an acceptable level? It is not a term used in the Conceptual Framework of the current Code. Perhaps the codified Code should use the standard "acceptable level" language to discuss threats - i.e., a threat that is not at an acceptable level Other Agree with placement for definitions, terms for conceptual framew Drafting Convention Editorial Editorial Editorial Editorial The last sentence is confusing as it appears to reference to itself. Maybe it just needs to be reworded. "When making that evaluation, a member should apply this interpretation that describes a the threats and safeguards approach as outlined in this interpretation to analyzing independence matters." Add prior reference: "Other Considerations" section of paragraph.02 of ET section 101 delete the words, "In addition" and just start the sentence with "A". Changed the last word from "developed" to "based". In certain circumstances,there are circumstances in which the AICPA Code specifies that no safeguards can reduce an independence threat to an acceptable level, and as such, this interpretation should may not be used to overcome a prohibition or requirement specifically contained in an independence interpretation. For example, a covered member may not own even an immaterial direct financial interest in an attest client because there is no safeguard to reduce the self-interest threat to an acceptable level Editorial Drafting Convention Editorial Drafting Convention add to the last sentence of the paragraph "under the applicable interpretation". 1st sentence - remove reference to the AICPA Code. For purposes of clarity, it might be helpful to the reader to state "the obvious" here; that is, that the member cannot therefore perform an attest service (i.e., audit, review, attestation). Threats - Can we move the last 2 sentences to the end of ? "Threats might not involve violations of existing interpretations or rulings. For example, the circumstance described in paragraph.15(b) of this framework is permissible in limited instances under current independence interpretations."

21 Editorial Editorial Editorial "and the effectiveness of those safeguards as described in paragraph.20". - Note Paragraph.20 does not describe the safeguards, it describes determining the effectiveness of them. Suggest changing the wording to "of the safeguards applied (as described in paragraph.20 of this interpretation) The use of these terms (acceptable level, impair & threats) is not limited to the Conceptual Framework, but appear throughout the Code. Therefore, because of the broader applicability, they should be included in (Definitions) Other Threats- I believe this paragraph needs to be simplified, especially since it involves general concepts. Also, because of the extensive content of the document, I don't think it is advisable to refer to other paragraphs for additional understanding of the content. It is frustrating to the reader/user. "Threats might not involve violations of existing interpretations or rulings" is confusing. Are you trying to say, "not all threats result in a impairment to independence"? Editorial Editorial Editorial editorial suggestion I think you should prior reference: "Other Considerations" section of paragraph.02 of ET section 101 should read considered a violation of the Compliance with Standards rule (ET reference) not the Independence rule (no ET reference needed) Suggest changing the wording to ".08 When the member applies safeguards to eliminates or reduces significant threats to an acceptable level through the application of safeguards, as described in paragraph.06(c) of the Conceptual Framework for Members in the Practice of Public Accounting, the member should document the identified threats and the safeguards that are applied. A ffailure to prepare the required documentation would be considered a violation of the Compliance With Standards rule (AICPA, Professional Standards, ET ), not the Independence rule (AICPA, Professional Standards, ET ), provided that the member can demonstrate that safeguards were applied that eliminated or reduced significant threats to an acceptable level. Perhaps add: "not a threat to independence" to emphasize that failure to document does not result in a violation of the independene standard.

22 Structure of Code The reference to.06c of the Conceptual Framework for Members in the Practice of Public Accounting is confusing as there is separate guidance for threats and safeguards in the independence sections ( ). Having the threats and safeguards for members in public accounting is confusing Editorial Editorial c Editorial Editorial Editorial Do not have link to Conceptual Framework for Independence interpretation Add ":" after For example Suggest adding the word "other" before public forum and delete the a Add ":" after For example Comment related to the phrase "nonattest services performed, or services previously performed or supervised by the member" - How are "nonattest service performed" and "service previously performed by the member" different? What different services are these two clauses intended to address? Suggest adding words "objectively" after? Not",and before "evaluate "instead of appropriately editorial suggestion Other Self-review threat - member's immediate family or close relative? I think that this belongs under familiarity ediorial comment Editorial suggest removing " counteract" replace with "ameliorate" or "diminish", or "neutralize" No punctuation in these bullets, and in many similar paragraphs throughout the Code. Others, however, like paragraph.19 above, include punctuation. Appropriate punctuation should be added here and throughout the Code.

23 Editorial Editorial Editorial Drafting Convention If the safeguards identified apply with respect to independence, then what safeguards are applicable for threats to compliance with the non-independence rules of the Code? For example, what safeguards are there for threats to compliance with the guidance in Topic 1.300? As noted before, it will only confuse matters for the Code to comingle the discussion of ethics and independence threats. Given the existence of this Conceptual Framework devoted exclusively to independence matters, shouldn't the broad framework focus on the threats to compliance with the other ethics rules of the Code and the appropriate safeguards to apply? Related to the Prior Reference ET Section 100-1: The remainder of the discussion from paragraph 20 of the Conceptual Framework in the current Code around safeguards implemented by the attest client and the firm has been omitted here. change the ";" to a "." Sentence wording is off - "Members of the association should consistently apply.." This doesn't mean the same thing as the "members of the association should apply the interpretation in the same manner." They could be consistently different Editorial Editorial may be created by another network firm's interests in and relationships with the attest client. related to the start of the 2nd sentence: Odd transition from what a network firm has to do in the first sentence to what a covered member has to do in the second sentence. Why the difference? All of a sudden, the guidance moves from requirements of the network firm to requirements of the covered member. Add, after the word members (occurs twice) Editorial a Editorial Same comment as above. No appropriate punctuation in these bullets a Editorial Same comment as above. No appropriate punctuation in these bullets Other This interpretation/subtopic is complex and difficult to follow and might benefit from a "Plain English" revision as a long term project Editorial All such structures must be organized in a form that complies with applicable laws, regulations, and the Form of Organization and Name rule

24 Editorial a Editorial Editorial Editorial Editorial Editorial Editorial Editorial editorial suggestion a Editorial Editorial Editorial The following terms are defined subsequently solely for the purpose of applyinguse with this interpretation Related to the term "professional services": Is this the correct term here? Is this intended to mean nonattest services? Related to the word "subsequently" - Can the specific citation be provided? I think the word related is missing in this interpretation are related to the example,. I think that the defining of (the professional services subsidiary [PSS] should be moved to after subsidiaries or divisions earlier in the sentences. It is too confusing after the examples of nonattest professional services Move the word "to clients" after nonattest professional services instead of before it. Also related to "professional services" - Is this term necessary/correct here? Here and throughout Topic 200: This language is cumbersome, too wordy, and redundant. Independence is impaired because, by definition, threats are not at an acceptable level. Does this need to be so wordy? Also, as noted before, it sounds too much like techno-speak that is not helpful to the uninitiated reader. In addition, independence would be impaired because threats cannot be eliminatedare not at an acceptable level and could not be or reduced to an acceptable level is there a definition for "materiality"? Suggest that 1st sentence is long, run-on sentence. Also question whether the phase "comtemplated by" should be prohibited by Independence would be impaired because threats are not at an acceptable level and could not be reduced to an acceptable level by the application of safeguards when Newfirm and its partners and professional employees may not perform attest engagements for PublicCo or any of its subsidiaries or divisions. Related to PwC's rewrite in Isn't this the new standard language being used to denote an outright prohibition? Again, there should be consistency throughout the Code.

25 Editorial Editorial Editorial a Editorial a Editorial c Editorial c Editorial d Editorial Editorial Editorial Name of Section Editorial a Editorial b Editorial Editorial Related to the phase "would be considered to be impaired" - Hasn't the Code moved away from this language (although it is much clearer and direct than the standard language being proposed to replace it)? Related to the phase "would be impaired" - Hasn't the Code moved away from this language (although it is much clearer and direct than the standard language being proposed to replace it)? Add the words "with respect" after the word applicable Add the word "covered" before member's independence Do not have link to Conceptual Framework for Independence interpretation Extend the hyperlink to include the word "interpretation" under (c)-(j) of the definition of affiliate, would put the employeeis in a key position A covered member s immediate family members and close relatives may be employed in a key position at an entity described under (c) (j) of the definition of affiliate if provided they are not in a key position with respect to the financial statement attest client. Comment related to the phrase "apply to engagements performed for a financial statement attest client" - The more precise wording would be to refer to "engagements," as the Code is not binding on the client itself. Add to the title "Entities Included in" It seems like the title here ought to refer to independence matters when we are performing attest engagements for state and local government entities in that the financial statements themselves would not be the issue in the Code. Change reference from Paragraph.04 to Paragraph.05 Again, no punctuation in these bullets. Entities that should be disclosed or actually are disclosed in the financial statement notes? How would the covered member know what entities should be disclosed, but aren't? Delete, and add.