Management Memo Outsourcing by eni29908

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									Non authoritative Guidance Subgroup: Codification Project                                                                                                                                                                    Appendix 1A- Nonauthoritative (Delete)

Nonattest Services Frequently Asked Questions -Non-Authoritative (delete)



                                                            Addressed in
                          Topic                                Code          Staff/Subgroup's Comments                                        Answers to FAQs                                                            Excerpt from 101-3

Management Functions (1)


                                                                                                                                                                                                The following are some general activities that would impair a member's
                                                                                                                   A management function generally would include doing or having the
                                                                                                                                                                                                independence:
                                                                                                                   authority to do the following:
                                                                                                                   • Make decisions on behalf of the client
                                                                                                                                                                                                Authorizing, executing or consummating a transaction, or otherwise
                                                                                                                   • Authorize, execute, or consummate client transactions
                                                                                                                                                                                                exercising authority on behalf of a client or having the authority to do
                                                                                                                   • Supervise, hire, or terminate client employees
                                                                                                                                                                                                so
                                                                                                                   • Oversee or manage any aspect of the client’s business
1. The first general requirement under Interpretation No.                                                                                                                                       Preparing source documents, fn 8 in electronic or other form,
                                                                            The answer provided for this FAQ is    • Set policy for the client
101-3 states that the member should not perform                                                                                                                                                 evidencing the occurrence of a transaction
                                                                            addressed in the Interpretation under • Have access to or custody of client assets
                                                                                                                                                                                                Having custody of client assets
management functions or make management decisions for                       General Activities , General           • Sign or cosign client checks
                                                                 YES                                                                                                                            Supervising client employees in the performance of their normal
the attest client. What are some examples of management                     Requirements and the 101-3 chart;      • Taking responsibility for the management of a client’s project
                                                                                                                                                                                                recurring activities
functions for purposes of Interpretation No. 101-3?                         101-3 task force is proposing deletion • Establish or maintain internal controls for the client
                                                                                                                                                                                                Determining which recommendations of the member should be
                                                                            included in Codification
                                                                                                                                                                                                implemented
                                                                                                                   Note: The preceding list is not intended to be all-inclusive.
                                                                                                                                                                                                Reporting to the board of directors on behalf of management
                                                                                                                   Providing advice, research materials, and recommendations to assist
                                                                                                                                                                                                Serving as a client's stock transfer or escrow agent, registrar, general
                                                                                                                   the client’s management in performing its functions and making
                                                                                                                                                                                                counsel or its equivalent
                                                                                                                   decisions would not constitute the performance of a management
                                                                                                                                                                                                Establishing or maintaining internal controls, including performing
                                                                                                                   function.
                                                                                                                                                                                                ongoing monitoring activities fn9 for a client



Documentation Requirement ( 8)
                                                                                                                                                                                                Before a member or his or her firm ("member") performs nonattest
                                                                                                                                                                                                services (for example, tax or consulting services) for an attest client, fn
                                                                                                                                                                                                5 the member should determine that the requirements described in
                                                                                                                    The documentation requirement applies to any nonattest services (for
                                                                                                                                                                                                this interpretation have been met. In cases where the requirements
                                                                                                                    example, bookkeeping, tax, or consulting services) performed by the
                                                                                                                                                                                                have not been met during the period of the professional engagement
                                                                                                                    member for an attest client. For purposes of this rule, an attest client is
                                                                                                                                                                                                or the period covered by the financial statements, the member's
                                                                                                                    any client for which the member performs any service for which
                                                                                                                                                                                                independence would be impaired.
                                                                                                                    independence is required. Accordingly, for purposes of this rule, a
                                                                                                                    client for which a member performs a compilation would only be
                                                                            This topic is addressed under the                                                                                   fn 5 A member who performs a compilation engagement for a client
3. What clients are affected by the documentation                                                                   considered an attest client if the member’s compilation report does
                                                                 YES        general requirements of the                                                                                         should modify the compilation report to indicate a lack of
requirement?                                                                                                        not disclose a lack of independence.
                                                                            interpretation as well as footnote 5.                                                                               independence if the member does not meet all of the conditions set
                                                                                                                                                                                                out in this interpretation when providing a nonattest service to that
                                                                                                                    Other regulators may have more restrictive rules regarding
                                                                                                                                                                                                client (see Statement on Standards for Accounting and Review Services
                                                                                                                    independence when performing nonattest services for an attest client.
                                                                                                                                                                                                No. 1, Compilation and Review of Financial Statements [AR section
                                                                                                                    Accordingly, the member should be aware of and comply with all rules
                                                                                                                                                                                                100.19]). [Footnote added, effective December 31, 2003, by the
                                                                                                                    and regulations applicable to specific clients.
                                                                                                                                                                                                Professional Ethics Executive Committee. Footnote renumbered by the
                                                                                                                                                                                                revision of interpretation 101-1, April 2006.]



                                                                                                                                                                                         General requirements 2 and 3 above do not apply to certain routine
                                                                                                                    The documentation requirement does not apply to routine activities
                                                                            The interpretation states that the                                                                           activities performed by the member such as providing advice and
4. Are any activities excluded from the documentation                                                               performed by the member, such as providing advice and responding to
                                                                 NO         documentation requirement is not                                                                             responding to the client's questions as part of the normal client-
requirement?                                                                                                        the client’s technical questions as part of the normal client-member
                                                                            necessary.                                                                                                   member relationship.
                                                                                                                    relationship. See FAQ No. 1 under the heading “Routine Activities.”




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Non authoritative Guidance Subgroup: Codification Project                                                                                                                                                              Appendix 1A- Nonauthoritative (Delete)

Nonattest Services Frequently Asked Questions -Non-Authoritative (delete)



                                                            Addressed in
                            Topic                              Code          Staff/Subgroup's Comments                                      Answers to FAQs                                                         Excerpt from 101-3
                                                                                                                                                                                          fn 6 A failure to prepare the required documentation would not impair
                                                                                                                                                                                          independence, but would be considered a violation of Rule 202,
                                                                                                                   No. A failure to prepare the required documentation would not impair Compliance With Standards [Rule 202.01], provided that the member
5. Would independence be impaired when a member fails                                                              the member’s independence provided the understanding with the          did establish the understanding with the client. [Footnote added,
                                                                            The information for this FAQ can be
to document the understanding with the client?                                                                     client had been established. However, the failure to document the      effective December 31, 2003, by the Professional Ethics Executive
                                                                 Yes        found in footnote 6 of the
                                                                                                                   understanding with the client would be considered a violation of Rule Committee. Footnote revised, January 2005, by the Professional Ethics
                                                                            interpretation.
                                                                                                                   202, Compliance With Standards (AICPA, Professional Standards, vol. 2, Executive Committee. Footnote renumbered by the revision of
                                                                                                                   ET sec. 202 par. .01).                                                 interpretation 101-1, April 2006.]




6. A member provides only nonattest services to a client
                                                                                                                                                                                            fn 7 However, upon the acceptance of an attest engagement, the
for the year ending December 31, 2004. In 2005, the                                                                                                                                         member should prepare written documentation demonstrating his or
member is asked to perform an audit of the client’s year-                                                          No. The documentation requirement does not apply to nonattest
                                                                                                                                                                                            her compliance with the other general requirements during the period
end 2004 financial statements. Would the member be in                                                              services performed prior to the client becoming an attest client.
                                                                                                                                                                                            covered by the financial statements, including the requirement to
                                                                            The information for this FAQ can be    However, upon the acceptance of an attest engagement, the member
violation of the third general requirement under                                                                                                                                            establish an understanding with the client. [Footnote added, effective
                                                                 YES        found in footnote 7 of the             should prepare written documentation demonstrating his or her
Interpretation No. 101-3 because the firm did not comply                                                                                                                                    October 31, 2004, by the Professional Ethics Executive Committee.
                                                                            interpretation.                        compliance with the other general requirements of Interpretation No.
with the documentation requirement with respect to the                                                                                                                                      Footnote renumbered by the revision of interpretation 101-1, April
                                                                                                                   101-3 during the period covered by the financial statements, including
nonattest services performed in 2004?                                                                                                                                                       2006.]
                                                                                                                   the requirement to establish an understanding with the client.




                                                                                                                    Tax services are nonattest services subject to the requirements of
8. A member’s firm does not require its clients to sign                                                             Interpretation No. 101-3. Therefore, the documentation requirement
                                                                                                                    applies when the member provides tax services to a client for which
engagement letters for tax return preparation services.
                                                                            This topic is also addresses in FAQ Nos the member also provides attest services. However, the method of
How does the documentation requirement under                     NO                                                                                                                         See Excerpt of FAQ Nos 2 & 3 of this section
                                                                            2 & 3.                                  documentation is left to the member’s discretion, and, provided it
Interpretation No. 101-3 apply with respect to these                                                                contains all of the required elements, it could be documented in a tax
clients?                                                                                                            organizer or disclosure statement provided to the client, a memo in the
                                                                                                                    tax or attest service working papers, or through other means.




Bookkeeping Services (10)




                                                                                                                    Page 2 of 3
Non authoritative Guidance Subgroup: Codification Project                                                                                                                                                                Appendix 1A- Nonauthoritative (Delete)

Nonattest Services Frequently Asked Questions -Non-Authoritative (delete)



                                                             Addressed in
                           Topic                                Code         Staff/Subgroup's Comments                                       Answers to FAQs                                                         Excerpt from 101-3
                                                                                                                                                                                            Excerpt from 101-3 chart
                                                                                                                                                                                            Bookkeeping
                                                                                                                                                                                             Record transactions for which management has determined or
                                                                                                                                                                                            approved the appropriate account classification, or post coded
                                                                                                                                                                                            transactions to a client's general ledger.
1. A member records journal entries while performing                                                                Yes. In order for the member to maintain his or her independence, the
                                                                                                                                                                                          Prepare financial statements based on information in the trial balance.
monthly bookkeeping services without obtaining client                                                               client must review and approve the journal entries, and the member
                                                                            This topic is addressed in the 101-3
approval. Would independence be impaired?                        YES                                                should be satisfied that management understands the nature of the
                                                                            Chart under Bookkeeping.                                                                                      Post client-approved entries to a client's trial balance.
                                                                                                                    proposed entries and the impact the entries have on the financial
                                                                                                                    statements.
                                                                                                                                                                                          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.



Tax Services (3)
                                                                                                                                                                                            Before a member or his or her firm ("member") performs nonattest
                                                                                                                                                                                            services (for example, tax or consulting services) for an attest client, fn
1. The member performs year-end tax planning and                                                                                                                                            5 the member should determine that the requirements described in
                                                                                                                    Yes. Tax services are considered nonattest services and are therefore
                                                                                                                                                                                            this interpretation have been met. In cases where the requirements
prepares the tax returns for an attest client. Would these                  This topic is addressed in the first    subject to the general requirements of Interpretation No. 101-3,
                                                                 YES                                                                                                                        have not been met during the period of the professional engagement
services be considered nonattest services and therefore                     paragraph of Interpretation 101-3.      including the member’s understanding with the client with respect to
                                                                                                                                                                                            or the period covered by the financial statements, the member's
subject to the requirements of Interpretation No. 101-3?                                                            the tax services that must be documented in writing.
                                                                                                                                                                                            independence would be impaired.



Information, Technology Services (8)

1. Why does interpretation No. 101-3 indicate that                          This will be addressed in the revised   Operating a client's LAN is considered to be a management function
independence would be impaired if a member is operating          NO         101-3 interpretation under "assume      that would violate the general requirements of Interpretation NO. 101- See Attachment 1 of the 101-3 Task Force Agenda
a client's local areal network (LAN) system?                                management responsibilities"            3

2. Would outsourcing the client’s entire network operation
and independently operating the client’s LAN system                         This topic is addressed in the 101-3                                                                            Excerpt from 101-3 Chart (impair independence)
impair independence?                                             YES        Chart under Information Systems-        Yes.                                                                    Operate a client's local area network (LAN) system.
                                                                            design, installation or integration.


5. Would supervising client personnel in the daily
                                                                                                                                                                                        Supervise client personnel in the daily operation of a client's
operation of the client’s information system impair                         This topic is addressed in the 101-3    Yes. In this case, the member would be performing management duties
                                                                                                                                                                                        information system.
independence?                                                    YES        Chart under Information Systems-        (supervising client employees in the performance of their normal
                                                                            design, installation or integration.    recurring activities), which would impair independence.




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