Is Your Firm Independent from Your Association Members?

Source: Practical Accountant

Independence rules may apply to clients of association members, according to a proposal by the AICPA Professional Ethics Committee.

The proposal would affect members of networks, defined as an association of firms that cooperate to enhance capabilities and:

• Use a shared brand in the name of the firm. (If a brand name isn’t used but the firm refers to association membership in its stationery or collateral materials, it should consider characterizing itself as “an independent member of ABC association.” Some firms are abandoning the word “member” and using the phrase “associated with.”)
• Have common control, as defined by GAAP.
• Share costs of audit manuals, training courses, etc. (But if there isn’t a sharing of personnel or client or market information, this provision wouldn’t apply.)
• Collaborate on a common business strategy.
• Employ jointly developed quality control procedures. (If a firm relies on the work of a network member without monitoring its independence, work quality, etc., the independence rules would apply.)

Independence requirements would apply to any client that a network firm controls, is controlled by, or is under common control with.

Independence requirements would apply to audits and reviews, unless the report is restricted to certain users. For compilation engagements, independence rules would apply where a network firm’s client relationship creates unusual exposure.

With respect to non-attest services, the rules are expected to require network members to be aware of other network members’ relationships with clients, but are not expected to significantly affect these services.

The rules would apply to periods beginning on or after December 15, 2009.

From Practical Accountant, October 2007, SourceMedia Inc., One State Street Plaza, 27th Floor, New York, NY 10004, 800-221-1809. For the complete article click here and select the article Dire Ramifications of Firm Network Membership.