State Board Report

April 2010

The two discussion papers developed by the NASBA Ethics and Strategic Professional Issues Committee have been posted on www.nasba.org : “Audit Fees and Engagement Profitability: A Threats and Safeguards Approach to Strengthen Compliance with Standards of Ethical Behavior” and “Proposed Uniform Definition of Independence.” The NASBA Board of Directors approved both papers at their last meeting, in October. Committee Chair Gaylen Hansen underscored that these documents should not be onsidered to be “authoritative,” but as issues to be discussed by the State Boards.

“Whether fees or profits associated with an attest engagement are unusually large or small is not, by itself, an ethics violation,” that paper states. “However, such conditions may indicate a risk of unethical behavior.” The paper looks at relevant threats and appropriate safeguards in such situations, considers potential peer review solutions, discusses anti‐trust considerations, and makes recommendations for interested parties.

The paper on a uniform definition of independence has put forward the following as a standard for consideration by the Uniform Accountancy Act Committee:

“Independence is comprised of both of the following:

“Independence of mind – The state of mind that permits the performance of an attest service without being affected by influences that compromise professional judgment, thereby allowing an individual to act with integrity and exercise objectivity and professional skepticism.

“Independence in appearance – The avoidance of facts and circumstances that would cause an informed third party, having knowledge of all relevant information, to reasonably conclude that the integrity, objectivity, or professional skepticism of a firm or an attest engagement team member had been compromised.”

NASBA UAA Committee Chair Carlos Johnson reports the uniform definition of independence is on the committee’s agenda for discussion.

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