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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)
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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
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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