The most significant change to the content in the revised AICPA Code is the incorporation of two conceptual frameworks, one for members in public practice and one for members in business. The conceptual framework approach included in these two frameworks is a way of identifying, evaluating and addressing threats to compliance with the rules resulting from a specific relationship or circumstance that is not otherwise addressed in the code. In addition to the flowchart below, you may find the Conceptual Framework Power Point presentation a useful training tool.
Under the conceptual framework approach, users follow the following steps:
- Step 1 Identify threats to compliance with the rules. If no threats, then proceed with service. If threats are identified, then must proceed to Step 2.
- Step 2 Evaluate the significance of the threats to determine whether the threats are at an acceptable level. If threats are at an acceptable level, then proceed with service. If threats are not at an acceptable level, then must proceed to Step 3.
- Step 3 Identify safeguards that can be applied. Safeguards can be existing safeguards or new safeguards.
- Step 4 Evaluate the safeguards to determine if they eliminate or reduce threats to an acceptable level. Where you conclude that threats are at an acceptable level after applying safeguards, proceed with service. In some cases, an identified threat may be so significant that no safeguards will eliminate it or reduce it to an acceptable level, or you may be unable to implement effective safeguards. Under such circumstances, providing the specific professional services would compromise your compliance with the rules, and you would need to determine whether to decline or discontinue the professional services or resign from the engagement.
The AICPA Professional Ethics Division has developed these toolkits to help you apply the conceptual framework approach. They include a worksheet to aid you with documenting assessments to comply with the documentation requirements of the Independence Rule.