DOL AICPA Independence Rule Comparison

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					                       DOL and AICPA Independence Rule Comparison

Note: The Center has prepared the following summary to assist members in understanding some of the more common
independence rules that affect auditors of employee benefit plans. Information about the DOL rules is excerpted from 29 CFR
2509.75-9, Interpretive bulletin relating to guidelines on independence of accountant retained by Employee Benefit Plan.
Information about the AICPA’s independence rules is based on AICPA Rule 101, Independence, its interpretations, and rulings.
AICPA guidance regarding client affiliates (Interpretation 101-18, Application of the Independence Rules to Affiliates [ET section
101.20]) is effective for engagements covering periods beginning on or after January 1, 2014, although early implementation is
permitted. Where AICPA staff was not able to identify any specific DOL rules addressing certain topics, members should contact
the DOL to determine its position. Marcus Aron (DOL) can be reached at 202-693-8371.



                   DOL                                           AICPA                                    Comments
Definition of a Firm "Member"                   Definition of a Firm "Member"                Definition of a Firm "Member"
DOL independence guidance defines the           AICPA independence rules related to          In some respects, the independence
term "member" to include all partners (or       financial relationships use an               rules of the AICPA incorporate a more
partner equivalents) or shareholder             "engagement team-focused" approach           expansive definition of "member" than
employees in the firm and all professional      whereby only covered members (i.e.           that of the DOL since immediate family
employees participating in the audit or         managers/partners who provide more           and close family members of the
located in an office of the firm                than 10 hours of nonattest services to       covered member are also subject to
participating in a significant portion of the   the plan, partners in the same office as     certain financial relationship
audit.                                          the attest engagement partner, and           restrictions.
                                                those individuals who participate in the
                                                audit or can otherwise influence the         On the other hand, AICPA
                                                engagement team and, as a result, the        independence rules include a less
                                                outcome of the audit) would be subject       expansive definition of "member" as it
                                                to the financial relationship restrictions   relates to those individuals who are not
                                                set forth in the independence rules.         “covered members”, such as
                                                                                             managerial level and professional staff
                                                [See ET section 92.07 and 92.14 for          who reside in the office but who do not
                                                definitions of covered member and an         participate on the audit engagement
                                                individual in a position to influence the    and provide no more than minimal
                                                attest engagement, respectively).            nonaudit services to the client; and




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                     DOL and AICPA Independence Rule Comparison
                  DOL                                          AICPA                                     Comments
                                                                                            certain partners who reside in a
                                                                                            separate office and who do not
                                                                                            participate in the attest engagement
                                                                                            and provide no more than minimal
                                                                                            nonattest services to the client.
Immediate Family and Close Relatives          Immediate Family and Close                    Immediate Family and Close
AICPA staff could not identify any specific   Relatives                                     Relatives
DOL rules addressing application of the       For AICPA guidance, see the Application       Since AICPA staff was not able to
independence rules to immediate family        of the Independence Rules to a Covered        identify any specific DOL rules
members or close relatives.                   Member’s Immediate Family and                 addressing immediate family members
                                              Application of the Independence Rules to      or close relatives, members should
                                              Close Relatives sections of Interpretation    contact the DOL to determine its
                                              101-1, Interpretation of Rule 101 [ET         position.
                                              section 101.02].
Affiliates of a Plan                          Affiliates of a Plan                          Affiliates of a Plan
DOL independence guidance extends its         The AICPA independence rules would            While both the DOL and AICPA extend
independence rules to sponsors of a plan.     consider the plan sponsor of a single         certain provisions to the sponsor of a
Per the Act, the sponsor is the entity (or    employer employee benefit plan or union       single employer plan, the DOL is more
entities in case there is more than one)      or participating employer that has            restrictive with respect to multiple and
who established or maintains the plan,        significant influence over a multiple or      multiemployer plans since the DOL
such as the employer or employee              multiemployer employee benefit plan to        does not limit its guidance to only
organization. In the case of a plan           be an affiliate of the plan. The term         those entities that have significant
established or maintained by two or more      significant influence is as used in           influence over such plans.
employers or jointly by one or more           Financial Accounting Standards Board
employers and one or more employee            Accounting Standards Codification 323-        In addition, the DOL rule is more
organizations, the association, committee,    10-15.                                        restrictive because the DOL would
joint board of trustees, or other similar                                                   prohibit maintaining financial records
group of representatives of the parties       Once an entity is deemed to be an             for these entities even if the results of
who establish or maintain the plan.           affiliate, the independence rules             these nonattest services will not be
                                              applicable to the plan would also be          subject to financial statement attest
                                              applicable to the plan’s affiliates, except   procedures.




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                    DOL and AICPA Independence Rule Comparison
                 DOL                                         AICPA                                      Comments
                                            as provided for in Interpretation 101-18.
                                            One such exception is that prohibited
                                            nonattest services may be provided to an
                                            affiliate of a plan provided that it is
                                            reasonable to conclude that the services
                                            do not create a self-review threat with
                                            respect to the plan because the results of
                                            the nonattest services will not be subject
                                            to financial statement attest procedures.
                                            For any other threats that are created by
                                            the provision of the nonattest services
                                            that are not at an acceptable level, such
                                            threats should be eliminated or reduced
                                            to an acceptable level by the application
                                            of safeguards.

                                            For AICPA guidance addressing other
                                            relationships with an affiliate of a client,
                                            see Interpretation 101-18, Application of
                                            the Independence Rules to Affiliates [ET
                                            section 101.20].
Financial Interests                         Financial Interests                            Financial Interests
DOL rules would consider independence to    The AICPA independence rules would             The DOL’s financial interest restrictions
be impaired with respect to a plan if       consider independence to be impaired           are more restrictive in that they apply
during the period of the professional       with respect to a plan if during the period    to more individuals and for a more
engagement, at the date of the opinion,     of the professional engagement a:              expansive period of time.
or during the period covered by the                 Covered member had or was
financial statements the auditor or other           committed to acquire any direct        That is, under the DOL’s restrictions
"member" of the firm had a direct or                or material indirect financial         the auditor and all other members of
material indirect financial interest in:            interest in the plan or affiliate of   the firm are prohibited from having
     The plan; or                                  the plan or                            certain financial interests whereas the




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                      DOL and AICPA Independence Rule Comparison
                   DOL                                        AICPA                                     Comments
     The plan sponsor                              Partner or professional employee     AICPA’s restrictions mainly apply to
                                                     of the firm or any group of such     covered members. The exception to
                                                     individuals acting together owned    this under the AICPA is when a partner
                                                     more than 5% of:                     or professional employee or any group
                                                         o the plan’s ownership           of such individuals acting together
                                                             interests, or                owns more than 5% of a plan’s
                                                         o an affiliate’s outstanding     ownership interests or of an affiliate’s
                                                             equity securities or other   outstanding equity securities or other
                                                             ownership interests.         ownership interests. In these situations
                                                                                          the AICPA would also prohibit such
                                              See paragraph .02 (A)(1) and (B) of         financial interests.
                                              Interpretation 101-1, Interpretation of
                                              Rule 101 [ET section 101-02]                Also, the AICPA’s financial interest
                                                                                          restrictions apply for a less expansive
                                                                                          period of time in that they only exist
                                                                                          during the period of the professional
                                                                                          engagement. Accordingly, the audit
                                                                                          firm could perform the audit provided
                                                                                          the member disposed of such financial
                                                                                          interest prior to signing the initial audit
                                                                                          engagement letter or commencing
                                                                                          audit procedures, whichever is earlier.
Joint Closely Held Investments                Joint Closely Held Investments              Joint Closely Held Investments
AICPA staff could not identify any specific   For AICPA guidance, see Interpretation      Since AICPA staff was not able to
DOL rules addressing joint closely held       101-1A.3, Interpretation of Rule 101 [ET    identify any specific DOL rules
investments.                                  section 101-02] and Interpretation 101-     addressing joint closely held
                                              18, Application of the Independence         investments, members should contact
                                              Rules to Affiliates [ET section 101.20].    the DOL to determine its position.
Loans                                         Loans                                       Loans
AICPA staff could not identify any specific   For AICPA guidance, see Interpretation      Since AICPA staff was not able to
DOL rules addressing loans.                   101-1A.4, Interpretation of Rule 101 [ET    identify any specific DOL rules




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                      DOL and AICPA Independence Rule Comparison
                   DOL                                   AICPA                                   Comments
                                         section 101-02] and Interpretation 101-      addressing loans, members should
                                         18, Application of the Independence          contact the DOL to determine its
                                         Rules to Affiliates [ET section 101.20].     position.
Simultaneous                             Simultaneous                                 Simultaneous
Employment/Association:                  Employment/Association:                      Employment/Association:
DOL rules would consider                 The AICPA independence rules would           The rules appear consistent.
independence to be impaired with         consider independence to be impaired
respect to a plan if during the period   with respect to a plan if, during the
of professional engagement, at the       period covered by the financial
date of the opinion, or during the       statements or during the period of the
period covered by the financial          professional engagement, any partner or
statements the auditor, his or her       professional employee of the firm was
firm or a member thereof was             simultaneously associated with the plan
connected as a promoter,                 or an affiliate of the plan as a(n):
underwriter, investment advisor,             a. Director, officer, or employee, or
voting trustee, director, officer, or           in any capacity equivalent to that
employee of the plan or of the plan’s           of a member of management;
sponsor.                                     b. Promoter, underwriter, or voting
                                                trustee; or
                                             c. Trustee for any pension or profit-
                                                sharing trust of the sponsor (or
                                                union or participating employer).

                                         See AICPA Interpretation 101-18,
                                         Application of the Independence Rules to
                                         Affiliates [ET section 101.20 of the AICPA
                                         Code of Professional Conduct] and
                                         Interpretation 101-1, Interpretation of
                                         Rule 101 [ET section 101-02].


Former Firm Member Now Associated        Former Firm Member Now                       Former Firm Member Now




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                      DOL and AICPA Independence Rule Comparison
                   DOL                                        AICPA                                    Comments
with Plan or Plan Sponsor                     Associated with Plan or Plan Sponsor        Associated with Plan or Plan
AICPA staff could not identify any specific   For AICPA guidance, see Interpretation      Sponsor
DOL rules addressing such association         101-2, Employment or Association with       Since AICPA staff was not able to
with a plan or a plan sponsor.                Attest Clients [ET section 101.04] and      identify any specific DOL rules
                                              Interpretation 101-18, Application of the   addressing such association with a plan
                                              Independence Rules to Affiliates [ET        or a plan sponsor, members should
                                              section 101.20].                            contact the DOL to determine its
                                                                                          position.
General Guidance On Non-Attest                General Guidance On Non-Attest              General Guidance On Non-Attest
Services                                      Services                                    Services
DOL staff is permitted to give "appropriate   AICPA Interpretation 101-3, Performance     AICPA staff was not able to identify any
consideration to all relevant                 of Nonattest Services [ET section           specific DOL rules that provide further
circumstances, including evidence bearing     101.05] provides guidance and specific      insight into what circumstances the
on all relationships between the              examples of nonattest services that         DOL staff believes are relevant and as
accountant or accounting firm and that of     would and would not impair                  such, members should contact the DOL
the plan sponsor or any affiliate thereof,    independence.                               to determine its position.
and will not confine itself to the            The AICPA requires that certain general
relationships existing in connection with     requirements (i.e., safeguards) be
the filing of annual reports with the         implemented by the firm when the firm
Department of Labor."                         performs non-attest services for an
                                              attest client. For example, the firm must
DOL rules also state that                     establish and document its
independence would not be considered          understanding with the client and be
to be impaired if at or during the            satisfied that client management can
period of the professional                    make an informed judgment on the
engagement, the accountant or his or          results of the non-attest service. In
her firm is retained or engaged on a          addition, the client must designate an
professional basis by the plan sponsor.       individual who can oversee the service
                                              and make all necessary judgments and
                                              management decisions.
                                              Also, Interpretation 101-18, Application




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                  DOL and AICPA Independence Rule Comparison
                DOL                           AICPA                                 Comments
                             of the Independence Rules to Affiliates
                             [ET section 101.20] provides guidance
                             on the performance of nonattest services
                             for an employee benefit plan sponsored
                             by a client as well as performance of
                             nonattest services for an affiliate of an
                             employee benefit plan financial
                             statement attest client). In addition, this
                             interpretation provides that a member or
                             his or her firm may provide prohibited
                             nonattest services to an affiliate of the
                             plan provided that it is reasonable to
                             conclude that the services do not create
                             a self-review threat with respect to the
                             plan because the results of the nonattest
                             services will not be subject financial
                             statement attest procedures. For any
                             other threats that are created by the
                             provision of the nonattest services that
                             are not at an acceptable level, such
                             threats should be eliminated or reduced
                             to an acceptable level by the application
                             of safeguards.

                             See AICPA Interpretation 101-3,
                             Performance of Nonattest Services [ET
                             section 101.05 of the AICPA Code of
                             Professional Conduct] and Interpretation
                             101-18, Application of the Independence
                             Rules to Affiliates [ET section 101.20].
Bookkeeping                  Bookkeeping                                   Bookkeeping




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                     DOL and AICPA Independence Rule Comparison
                  DOL                                         AICPA                                    Comments
DOL rules would consider independence to      Following are examples of bookkeeping        Since the DOL rules do not provide
be impaired if the audit firm or any of its   services the firm could perform that         further clarification as to what
employees maintain the financial records      would not impair his or her                  constitutes maintaining financial
for an employee benefit plan or for the       independence:                                records for an employee benefit plan,
sponsor of the plan.                               Record transactions for which          members should contact the DOL to
                                                     management has determined or          determine its position.
                                                     approved the appropriate account
                                                     classification, or post coded
                                                     transactions to a client’s general
                                                     ledger.
                                                   Prepare financial statements
                                                     based on information in the trial
                                                     balance.
                                                   Post client-approved entries to a
                                                     client’s trial balance.
                                                   Propose standard, adjusting, or
                                                     correcting journal entries or other
                                                     changes affecting the financial
                                                     statements to the client provided
                                                     the client reviews the entries and
                                                     the member is satisfied that
                                                     management understands the
                                                     nature of the proposed entries
                                                     and the impact the entries have
                                                     on the financial statements.

                                              Following are examples of bookkeeping
                                              services that would impair the firm’s
                                              independence:
                                                   Determine or change journal
                                                     entries, account codings or




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                     DOL and AICPA Independence Rule Comparison
                  DOL                                     AICPA                                   Comments
                                                 classification for transactions, or
                                                 other accounting records without
                                                 obtaining client approval.
                                              Authorize or approve
                                                 transactions.
                                              Prepare source documents.
                                              Make changes to source
                                                 documents without client
                                                 approval.
Actuarial Services                       Actuarial Services                            Actuarial Services
DOL rules state that the rendering of    AICPA rules would consider                    N/A
services by an actuary associated with   independence to be impaired if a
an accountant or accounting firm         member performs an appraisal,
would not impair independence.           valuation, or actuarial service for an
However, the DOL notes that the          attest client where the results of the
rendering of services to a plan by an    service, individually or in the aggregate,
actuary and accountant employed by       would be material to the financial
the same firm may constitute a           statements and the appraisal, valuation,
"prohibited transaction."                or actuarial service involves a significant
                                         degree of subjectivity.

                                         However, an actuarial valuation of a
                                         client's pension or post-employment
                                         benefit liabilities generally produces
                                         reasonably consistent results because
                                         the valuation does not require a
                                         significant degree of subjectivity.
                                         Therefore, such services would not
                                         impair independence provided all
                                         significant assumptions and matters of
                                         judgment are determined or approved by




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                     DOL and AICPA Independence Rule Comparison
                  DOL                                          AICPA                                      Comments
                                              the client and the client is in a position to
                                              have an informed judgment on, and
                                              accepts responsibility for, the results of
                                              the service.
Benefit Plan Administration                   Benefit Plan Administration                     Benefit Plan Administration
DOL rules would consider independence to      Following are examples of benefit plan          It would appear that the DOL considers
be impaired if the audit firm or any of its   administration services that would not          participant records to be financial
employees maintain the financial records      impair the firm’s independence:                 records of the plan. The DOL has
for an employee benefit plan or for the        Communicate summary plan data to              indicated in its comments at AICPA
sponsor of the plan.                              plan trustee.                               conferences that it does not believe an
                                               Advise client management regarding            accountant who maintains any of the
                                                  the application or impact of                participants’ records is independent.
                                                  provisions of the plan document.
                                               Process transactions (e.g.,
                                                  investment/benefit elections or
                                                  increase/decrease contributions to
                                                  the plan; data entry; participant
                                                  confirmations; and processing of
                                                  distributions and loans) initiated by
                                                  plan participants through the
                                                  member’s electronic medium, such as
                                                  an interactive voice response system
                                                  or Internet connection or other
                                                  media.
                                               Prepare account valuations for plan
                                                  participants using data collected
                                                  through the member’s electronic or
                                                  other media.
                                               Prepare and transmit participant
                                                  statements to plan participants based
                                                  on data collected through the




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                     DOL and AICPA Independence Rule Comparison
                  DOL                                       AICPA                                   Comments
                                               member’s electronic or other
                                               medium.

                                           Following are examples of benefit plan
                                           administration services that would impair
                                           the firm’s independence:

                                              Make policy decisions on behalf of
                                               client management.
                                              When dealing with plan participants,
                                               interpret the plan document on
                                               behalf of management without first
                                               obtaining management’s
                                               concurrence.
                                              Make disbursements on behalf of the
                                               plan.
                                              Have custody of assets of a plan.
                                              Serve a plan as a fiduciary as defined
                                               by ERISA.

                                           For AICPA guidance regarding the
                                           provision of other nonattest services, see
                                           Interpretation 101-3, Performance of
                                           Nonattest Services [ET section 101.05].
Other Nonattest Services                   Other Nonattest Services                     Other Nonattest Services
AICPA staff could not identify DOL rules   For AICPA guidance regarding the             Since AICPA staff was not able to
specifically addressing any other          provision of other nonattest services,       identify any specific DOL rules
nonattest services.                        see Interpretation 101-3,                    addressing other nonattest services,
                                           Performance of Nonattest Services            members should contact the DOL to
                                           [ET section 101.05].                         determine its position.




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