Ep. 13: PPP. Ethics. Agent. — How to untangle it all

April 20, 2020

Though the first round of Paycheck Protection Program funding is spent, Congress is working to ensure small businesses get what they need during the shutdown. In this episode, Toni Lee-Andrews, director of the AICPA Professional Ethics Division, talks about the PPP and ethics with Ellen Goria, our associate director, and Iryna Klepcha, an independence and behavioral manager who has been on our hotline fielding your questions. Listen as they untangle some of the complications that can arise when you help your attest clients with this federal program.

What you’ll hear in this episode

  • The Professional Ethics Executive Committee's (PEEC's) position on questions related to the PPP:
    • What can I do for my clients?
    • How far can I go?
    • What do I need to document?
    • What about the agent fee?
  • Key parts of the application that require management responsibility.
  • Providing services to an applicant that is an attest client.
  • Definitions in the Code of Federal Regulations, do they apply?
  • How to avoid performing the function of an agent while receiving the PPP agent fee.
  • Obtaining a PPP loan from a lender who is an attest client.
  • Providing services to a lender who is an attest client.
  • How to approach staff augmentation arrangements.
  • When to refer to the Conceptual Framework for Independence and Nonattest Services subtopic of the AICPA Code of Professional Conduct.
  • How professional judgment applies.
  • The forgiveness component of the PPP loan.

Listen to this episode:

Resources mentioned in this episode

If you have questions about the substantive content of this episode, please call the ethics hotline at 888.777.7077 (option 2, then option 3) or email ethics@aicpa.org.

If you’d like to suggest topics for future episodes, please email ethicallyspeaking@aicpa.org.


Toni Lee-Andrews: Ellen, Iryna, thanks for joining me in this podcast today. You know, members have been struggling with guidance and the impact of accepting PPP agent fees, talking about independence and how these applications and the small business loans are affecting members, how they're affecting their clients. And you know internally we've been working to get the right guidance out and trying to think through the process. How we can better help you through the process? And not only that, at the beginning, but thinking forward through the application process to the forgiveness on the other end.

In fact, we've all been trying to get this podcast together for a couple of weeks now. We've been meeting internally, we have had a couple of closed sessions of the Professional Ethics Executive Committee. And here we are today recording the podcast and have heard that the money is gone.

So we know that these transactions have taken place you've been helping your clients. We wanted to get some guidance out and talk with you about what's going on and the difficulties that maybe you've encountered. In talking about that we hope to hit on several topics of interest today. And I've mentioned how we got here but Ellen, Iryna, let's get into some of the questions that we've been hearing from our members and what their concerns are.

Ellen Goria: Thanks, Toni. This is Ellen. And I think one of the main questions that we've been hearing from our members is “what can I do? I know my clients need my help; they need the funding from the PPP program to keep things going. And, and what can I do?” That's probably the biggest question that I've heard. Iryna, what about you. What's like the big question that you would say you've heard?

Iryna Klepcha: So one of the most frequent frequently asked questions relates to the agent fee structure and because the agent fees for completion of the PPP loan depends on the loan approval and also on the amount of the loan approved. So the practitioners are asking whether this would be considered a contract contingent fee and whether it would impair their independence.

Ellen Goria: Toni, what about you, have you. Is there one question that kind of sticks out to you that's been asked a lot?

Toni Lee-Andrews: Yeah, you know, we've heard a lot of discussion and a lot of questions about what can I do when I assist my client with the PPP loan application?  How far can I go? What can I do and as it relates to nonattest services, what do I need to look out for. What do I need to document? How much can I do?

Ellen Goria: Okay, great. So why don't we start with that about how much can I do. And let's take it from the lens of you are you having an attest client. So a client that you would like to maintain your independence with respect to and your client would like to apply for a loan under the PPP, what kinds of things could you do? PEEC (Professional Ethics Executive Committee) has as Toni alluded to has met a couple of times and When we get into the crux of it, it comes down to. If it's not an attest service, you still do have to comply with the provisions of the Nonattest Services subtopic [of the AICPA Code of Professional Conduct]. So, what about the assisting and are there certain kinds of specific services Iryna that folks have indicated that their clients have asked for?

Iryna Klepcha: Not really, usually they were asking about whether they can prepare the application on their behalf and whether they can sign the application and be the authorized representative. And then just indicating that some of the practitioners were indicating that they're planning to assist with the application, meaning that they would gather some information it needs to guide the client. What information is needed and how to get there.

Ellen Goria: Okay cool, that really brings up a bunch of the key points that PEEC got into. Toni, why don't you give us a sense for in the PPP application what are the key pieces of information that end up having to go into the application or onto perhaps would be a better way to describe it on to the application.

Toni Lee-Andrews: We’ve discussed the application itself and talked about the payroll calculation and what a member might need to do to assist their client and coming up with that number. And we talked about that in PEEC, the other day and PEEC believes that members can advise and assist their client, especially with understanding the information that's required to be submitted, as well as determining the amounts to be included on the application and Iryna you mentioned preparing the application. PEECs position is that members can advise and can help the client determine those amounts to be included, but the member should not prepare the application itself or sign the application form. And that's because that would constitute performing management responsibilities on behalf of the client.

Ellen Goria: So that's an interesting, interesting point. Toni, so it's not really akin to kind of completing a tax return form. Right, it's, you know, so how we prepare a tax return for our attest client, send it off to them for them to review and approve. It's a slightly different stance, when it comes to the preparing of these PPP loan applications. Right.

Toni Lee-Andrews: It really is. It's, it's based on you know the services that you actually perform. And again, I go back to the simply advising or assisting the attest client. And understanding the information gathering and the lending application process. Those aren't performing management responsibilities but Ellen, you know, we have received the question about, well, why can't I prepare the form? And we've had some discussions about that. Can you elaborate on those discussions that we've had?

Ellen Goria: Sure, it gets kind of into some techie guidance. But when it comes down to it there are some definitions in the code of federal regulations that would indicate when you are preparing that and that would constitute doing business with the SBA and so out of an abundance of caution we don't want you to kind of inadvertently get yourself tangled up into that because of an agency relationship that would be caused within the constraints of those definitions.

And you know, we have been looking daily to see if there's any statement saying that those definitions shouldn't be applied in these situations. I personally haven't seen any so I don't know if folks have looked at our ethics statements that we've put out but we have indicated on them that, you know, these are moving targets Toni kind of how you explained it. You know, the application has changed.

There's been different FAQs which have been super helpful and stuff. So we continue to look to see if there's anything that would clarify that you could actually prepare without becoming an agent and haven't found anything yet. But, by all means, you know, it's, it's something we are monitoring.

Toni Lee-Andrews: Absolutely. Absolutely. And I think when people... The other day, we talked about the preparing of the form. And we also talked about, as I mentioned, you know, an abundance of caution that you don't appear that you're performing an agent function because an agent function would take you right back to those management responsibilities.

Something else that we were talking about in terms of the appearance of an agent, is the fees aspect of this and Iryna I think you mentioned that. And we talked about that. A fee paid by a lender is being referred to as an agent fee, but we don't believe that that should be an impediment to allowing the member to fulfill the intent of the CARES Act. So let's talk a little bit about fees and really considering substance over form, whether the fee paid by lenders is a contingent fee.

Iryna Klepcha: PEEC’s position is that the agent fee would not be considered a contingency and therefore the independence would not be impaired and it's not prohibited to accept the fee based on this based on the fee structure.

Ellen Goria: Alright, thanks, that's absolutely the PEEC’s statement now with respect to whether or not that would trigger an agent relationship, just because

Toni Lee-Andrews: The fee. Right.

Ellen Goria: Yes, because they received the fee. One of the things we looked at was this I think it was a statement to the lender. So kind of like some guidance for the lender and in there it described that that fee structure that Iryna was talking about, we don't consider to be a contingency fee. But we also because that form explains that the fee will come from the lender and be paid to the agent and that the agent cannot charge the applicant, so, aka your attest client, a fee. We wanted to make sure that folks understood. Just because you might receive the fee, even though you didn't sign the application as an agent that it doesn't trigger a management responsibility. So the focus being on what in substance, are you actually doing for the attest client.

So, you know, just if you accept the fee and you didn't sign the form, it's not going to end up being an independence issue for you, down the road when perhaps you will not perhaps as your client if you wanted to continue to say provide audit services to your audit client after the fact.

Iryna Klepcha: And that's a very good point because we received some questions. Whether things would look different if you receive the fee from the attest client versus from the lender. So that's very good point.

Ellen Goria: And you know what, I think with respect to that point, there may be other services outside of the PPP that you need your attest clients asking for during this time. And so outside of the realm of the PPP program, you know, status quo, if you want to provide those nonattest services you, by all means, can charge for those services if you want. If it doesn't fall into the PPP program, then there's no limitations on, you know, billing your client.

Toni Lee-Andrews: Absolutely. Ellen that that's a great point. I'd like to talk a little bit more about assisting that attest client as a nonattest service. And I also want to touch on before we get into maybe some reminders for our listeners about nonattest services is a couple of times we've mentioned signing the application and in looking at the application itself. The majority of the certifications and authorizations contained in that section of the loan application or management responsibilities. Right?

Ellen Goria: Correct, yeah.

Toni Lee-Andrews: Okay, I was just gonna say that the signature, you know, required really should be made by the company applying for the loan or the company's authorized representative

Ellen Goria: And I guess one other point just to kind of go back on a comment we made earlier about preparing the actual loan application when you look at the loan application. I want to say all but one number are these assertions attestations. So they're kind of like check offs that the actual client would need to be making.

So it is very different from like a tax return perspective where there's a lot of numbers and stuff like that. Really the main number that have to go into that loan application is that payroll number and we're absolutely saying you can, you know, assist your client with coming up with that number. In fact, we have four different calculators that we've issued on our PPP site to help you actually calculate those numbers so totally you can help them with those numbers. But putting that one number on the form, you know, I think hopefully your client can handle that. Because everything else really are assertions that they're doing. So it is different than preparing a tax return.

Toni Lee-Andrews: Agreed. It really is. What about if you obtain a PPP loan from a lender that’s an existing attest client. How does that affect independence? You know, there's so many twists and turns on this but yeah we've gotten that question that my lender is my existing attest client. So yeah, independence would definitely be impaired there as well.

Iryna Klepcha: We got some questions on the hotline and in we understand the frustration because sometimes some banks require you to have a bank account with them for you to obtain the loan and so it’s easier for the firms to go to their attest client have to have a bank account with them, but unfortunately as Toni mentioned and Ellen mentioned it would impair independence. If you obtained a loan from the attest client.

Ellen Goria: So let's kind of stay on that concept for a while. So now let's say you have a lender and the lender is your attest client. What kinds of services could you perhaps provide to your lender attest client in connection with the PPP loans? I know we've received questions, you know, whether or not they can help their lender attest clients because quite clearly, the lenders must not have perhaps the bandwidth. This must be an unusual time for those lenders. And I imagine the number of requests and the loan applications that they have received. So I would expect that their attest client might reach out to the member and say, hey, can you help me.

Toni Lee-Andrews: Absolutely. I think that happened. I think that if more funding occurs that that's going to come up again because so many businesses have applied for the loan and either have not gotten funds or their loans haven't been processed yet so banks are asking our members to help with the processing of those.

 Iryna. Have you gotten any questions like that [on the hotline]?

Iryna Klepcha: We didn't have any questions on what the practitioners can help how practitioners can help their lender attest clients. So I haven't got any questions.

Ellen Goria: Okay, so let's talk this through, though. I know I have received questions like this and I guess there's two things that I've kind of looked at it. One is, can you provide that service. These are like kind of what I've instructed folks. I said, can you do. What the bank is requesting you to do within the constraints of the nonattest services requirements and if you can then treat it like any other nonattest service and make sure you know that you don't perform management responsibilities. That your client is the one who's doing all of that.

Ellen Goria: Make sure that your client has someone with suitable skill knowledge and experience to oversee the services you're providing so that they can actually accept responsibility for it. And then, of course, document document, document is kind of how we've always said. You know, make sure that everything that needs to be documented, the scope of the engagement, everything is in place and, you know, hopefully, then you should be good to go.

I believe there, there has been one other question that I've gotten that I wanted to touch upon and that has to do with kind of what we have in the division referred to as staff augmentation arrangements. So in that situation, it would involve the client asking you, “Hey listen. I mean, I have one person on staff and I have 500 loan applications. I need, some support internally. What can I do?” As you know, it would be an independence impairment. If you are simultaneously employed with your attest client.

So we do have an exposure draft outstanding related to staff augmentation arrangements. And I guess my biggest thing that I've cautioned folks about is you really can't rely on that exposure draft in evaluating these situations. The exposure draft has not been adopted and in fact there was quite a bit of feedback received on the initial exposure draft that required PEEC to go back. We’re looking at potentially issuing a second exposure draft. So I would not rely on the criteria outlined in that exposure draft at this point. 

My recommendation, though, to folks whose attest clients have come to them asking them, you know, to kind of help them with their bandwidth issues is to look through the conceptual framework for independence, apply the conceptual framework. The conceptual framework for independence doesn't have documentation requirements. So again, document your evaluation of it and go forward from there if threats are in fact at an acceptable level.

Toni, have you, do you have anything that you've also told folks about when you receive this question?

Toni Lee-Andrews: Well, yeah, again, you really have to use professional judgment in thinking about what you can, what you can't do, what you're being asked of your client, whether it's an attest client or not. And we talked about a lot of things today. We talked about nonattest services. We've talked about as you just mentioned, Ellen, something that may seem like a staff augmentation arrangement. We've talked about agency fees and I want to circle back and wrap all of that together in that when we're talking about independence. Independence isn't a concern, just with respect to, let's say, collecting an agent fee or looking at maybe an augmented staff arrangement or assisting the client.

It encompasses so many different things that you really need to step back and look at what services, you're actually performing for the client and if these are nonattest services, you know, this isn't something different, where the nonattest services interpretation wouldn't apply. And I say that because this is just the beginning. In eight weeks, there's going to be clients applying for forgiveness of these loans. And when you think about that you think about okay members are going to be auditing these financial statements. And if you're auditing these transactions. You can't audit your own work. So you know we in the ethics division have had several sessions and and some podcasts on not crossing the line related to independence. So I just, you know, again, caution everyone to think about the services that you're performing. Think about the ethics interpretations that you may need to take another look at. Just reminders to again use that professional judgment and make sure you don't cross the line in any of these aspects.

Iryna Klepcha: Toni, I just wanted to mention that we've already started receiving questions about that forgiveness component of the PPP loan and, for example, receive the question where a firm is interested in developing a spreadsheet, which they would provide to an attest client to assist them with tracking the potential on forgiveness.

And again, I wanted to reiterate the fact that only the member knows what exactly their clients are asking them to provide and if it's a nonattest service for an attest client, they need to look at 1.295 Nonattest Services sub topic [in the AICPA Code of Professional Conduct] and determine whether they're taking any management responsibilities and look what they're what they're doing. Exactly what services, they're providing and whether that would impair their independence and use their professional judgment to determine that.

Ellen Goria: That's an excellent point. Iryna. I think with respect to that question. We actually even looked at the new interpretation that was issued by PEEC. Information System services interpretation and while it's not effective yet early application is permitted. But in there, we talked about designing and developing a financial information system. And one of the questions I received about this, the forgiveness spreadsheet was, “Hey, so if I prepared, have I designed, a financial information system?” And it certainly seemed to me that the member I was speaking to it would qualify as more of a tool, not a financial information system. So it was a discrete calculation. So, you know, tread lightly as you go, but it seems like, for the most part should be fine.

The other thing I found very interesting when I was kind of researching this question was, as we did on the front end we develop these calculators, we are also as an organization, putting together a tool that members could use to help their clients on the backend to process how those payments have been used to help them with the forgiveness. So I would definitely look for that as well.

So you might not have to actually design it yourself. We might have the tool that you could use to either give to your attest client or to help them with it.

Toni Lee-Andrews: So in wrapping up, just a couple of points again to reiterate PEEC’s position is that the CPA can advise and assist their attest client in gathering information for preparation and submission of the loan application without impairing independence and if the lender pays the CPA an agent fee for that service the CPA is not simply by nature of receiving the fee an agent and also the receipt of that fee does not constitute a contingent fee.

Any other thoughts, Ellen and Iryna before we conclude?

Ellen Goria: I think the main point I would like to make for folks, again, is you know familiarize yourself with the nonattest services guidance. Empower yourself if you encounter a situation where it's unclear, where the code does not provide you with the appropriate guidance to go back to the basics of the nonattest services. Would the service that's being requested require me to perform a management responsibility? Does my client have someone with the appropriate skill, knowledge, or experience to oversee the service? Have I documented what the service will be, what the objectives are, and whether the client or I have accepted any management responsibilities? Really go back to the basics of the nonattest services section [of the code]. And if that doesn't get you there. Go to the independence conceptual framework.

Run your scenario through the independence conceptual framework and document as required by the by the framework and, you know, do the best you can. And stay tuned. We are monitoring this and we will do our very best to get more information out to you as things do progress.

Iryna Klepcha: I guess I can only reiterate the fact that members should consult 1.295 Nonattest Services subtopic and when they do make their determination and whether they can provide services or not, just document it. Because documentation is the key.

Toni Lee-Andrews: All good reminders, as I mentioned, PEEC has been meeting regularly and internally, staff are monitoring questions. We have guidance out on our website. We had guidance released regarding these ethical implications on April 1 again on April 3 and our most recent guidance, which was an update on the impact of accepting PPP agent fees on independence, dated April 13

As Ellen mentioned, stay tuned for additional guidance. As we learn more and understand more about this, about the SBA programs and about how we can help members we’ll certainly issue additional guidance.

Thanks to everyone for listening. Ellen, Iryna, thank you very much for your input.

Members and interested parties, click on the subscribe link on this episode's web page and keep an eye on the COVID-19 resource center located at aicpa.org/coronavirus for updates and if you have ethics questions, we've mentioned a lot of questions and answers on this podcast today, you can call us at 888-777-7077 option to then option three or you can email us at ethics@aicpa.org.

Everyone stay safe and well.