AICPA Professional Ethics Executive Committee (PEEC) announced new and amended interpretations last week

The guidelines cover a wide range of topics, including:

• NOCLAR (noncompliance with laws and regulations) for both corporate and public practice members;
• The impact of various loans, especially student loans, on independence;
• An acquisition or other transaction that results in the formation of a new affiliate that requires autonomy;
• Unpaid client fees constitute a threat to independence; and
• When members assist customers with the application of accounting standards, they face self-review and management participation risks.

The revised guideline, when taken as a whole, clarifies CPA responsibilities, ensures compliance with SEC rules, and encourages convergence with the International Ethics Standards Board for Accountants' recommendations (IESBA).

The NOCLAR interpretation is a global collaboration that aims to:

NOCLAR is defined as purposeful or unintentional actions of omission or commission by a client or those charged with governance, management, or other personnel working for or under the direction of a client that are contrary to current laws or regulations.

Members in business, members who provide financial statement audit or review services, and members who provide services other than financial statement audit or review services all receive different instructions.

Communication throughout a group audit engagement, determining whether withdrawal from an engagement is necessary, and documentation are all covered in detail.

The interpretation is set to take effect on June 30, 2023, although it could be adopted sooner.

Loans

• The adjustments to Loans, Acquisitions, and Other Transactions are the result of an effort to address the SEC's modified independence rules, which were released in October 2020. PEEC made the following changes:
• Clarification of the term "beneficially owned" (ET0.400.06). When the phrase "beneficial ownership interest" is used, the definition emphasizes that a record owner is included and should be applied.
• Adding student loans to its "Loans and Leases With Lending Institutions" interpretation (ET 1.2600.020).
• Changing the language used to describe the categories of people with whom a covered member's borrowing arrangement could jeopardize compliance with the "Independence Rule." This has an impact on the interpretations of "Conceptual Framework for Independence" (ET 1.2100.010), "Client Affiliates" (ET 1.224.010), "Loans" (ET 1.260.010), and "Loans and Leases With Lending Institutions" (ET 1.260.020).
• Members should include the loans of immediate family members when considering materiality to a covered member under the "Immediate Family Members" interpretation (ET 1.270.10). Members were formerly required to examine just the materiality of financial interests under the AICPA Code of Professional Conduct.

The changes will take effect on December31,2022, but they may be enacted sooner.

Fees that have not been paid

PEEC's standards are becoming more aligned with those of the SEC and the IESBA thanks to the amended "Unpaid Fees" interpretation (ET 1.230.10). Revisions to unpaid fees include:

• Providing a principles-based framework for determining when unpaid fees are likely to jeopardize independence.
• Under the principles-based approach, there are considerations to consider when determining whether challenges to independence are acceptable.
• Providing examples of activities or protections that could help to eliminate or decrease threats to independence to a manageable level. If safeguards are unable to decrease dangers to an acceptable level, the member must end the engagement until the threats can be lowered to a level that is acceptable.

The interpretation is set to take effect on December 31, 2022, but it could be applied sooner.

Implementation of accounting standards

When performing services to help attest clients implement new accounting standards, the accounting standards implementation services interpretation provides practitioners with guidance for avoiding self-review and management participation threats to compliance with the "Independence Rule" (ET1.200.001). Members will find instances of how they can avoid undertaking management obligations in the supply of such services in the interpretation.