Ep. 20: PPP forgiveness engagements — Ethics Qs&As

September 4, 2020

Listen as Toni Lee-Andrews, Director of the Professional Ethics Division, Jim Brackens, Vice-President of Ethics and Practice Quality, and Bob Dohrer, Chief Auditor on the Audit and Attest Standards team talk through several recent questions from the ethics hotline.

Resources mentioned in this episode:

Our next meeting of the Professional Ethics Executive Committee is November 17. We'd love you to join us. Go to www.aicpa.org/PEECmeeting and register to attend.

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.


Intro: Welcome to Ethically Speaking, the podcast of the AICPA Professional Ethics Division. This is the second of two episodes on PPP forgiveness engagements. You can find a link to the first one at AICPA.org/ethicallyspeaking on this episode’s show notes page. We've been getting some interesting questions on forgiveness on the ethics hotline and Toni Lee-Andrews, Director of the ethics division, talks about these with Jim Brackens, Vice President of Ethics and Practice Quality, and Bob Dohrer,  Chief Auditor of the AICPA Audit and Attest Standards team.

Toni Lee-Andrews: Well, welcome everyone. This is our follow up episode talking about PPP forgiveness engagements and ethical implications of such. In our first episode, which I hope you all listen to, I welcomed Jim Bob to join me and you'll have to listen to that to see what that means. So today I'm going to welcome Bob and Jim back to our follow up episode.

Bob Dohrer: Thanks, Toni, and certainly look forward to drilling down a little deeper on what we started discussing on the last episode, so thanks for having me.

Jim Brackens: Thanks, Toni. I agree. And for those who are listening, they will discover that I that my memory is going and I had the wrong show that I was relating to. So that's all I'm gonna say.

Toni Lee-Andrews: Well, we're going to talk about some actually some really specific questions that we've received on the hotline and we're receiving more questions daily as things are changing and rules are changing with regard to PPP loan forgiveness. So I'm really glad that Bob and Jim are joining me to go over some of these.

So first, if a firm develops a spreadsheet to assist the client with monitoring the potential loan forgiveness would this impair independence? And along with this question, they said that the number directly affects the financial statements and seems similar to them as doing evaluation for a business combination or stock option calculations.

Bob Dohrer: Yeah, you know, maybe, Toni, I just maybe respond, a little bit to this one and really what where I'd start with this is an auditor or a CPA providing a spreadsheet template to a client for different purposes is not unusual. This is not something that hasn't been done before. Actually, I think it's, it's quite common. For example, if you think of financial statement preparation, there may be tax provision templates that are provided by an auditor. The key to me is in that situation is that the input the numbers, that sort of thing are actually coming from the client and they're taking responsibility for that, the spreadsheet seems to be more of a tool that would be used. So I wouldn't see that as being a particular problem and something that actually isn't that uncommon. But I know Jim, if you have any thoughts specifically with regard the independence implications there.

Jim Brackens: Well, Bob, the only thing. And I can't tell from the question if they're if they were referring to a spreadsheet that they developed for the client to use and that becomes an integral part of developing the financial statements. So how impacting it, it could be an issue. But, as you said, if it's a spreadsheet they’re using for their own use to then assist the client and then you go through all of the general requirements, then I would agree with you. It's just the input. So if they're going over the results with the client, the client accepts responsibility, etc. Then I wouldn't see a problem either. Right.

Toni Lee-Andrews: I agree and talking about consulting services and other types of services in our first episode we discuss the differences between the two and some considerations there. And one of our questions also related to agreed upon procedures.

It was an agreed upon procedures engagement for a bank on forgiveness information that submitted to the bank from PPP loan borrowers. And in this case, there was a partner who was not on the engagement, but the partner’s brother is the CFO of the bank and the firm went through that bank for a PPP.

Jim Brackens: Let me handle that one Bob.

Bob Dohrer: Yeah. Take it, take it away.

Jim Brackens: I'm actually going answer this two different ways. I mean, frankly, just the way it's presented, you don't have to worry about the brother. You're looking at the bank and if the if the firm went to the bank for a PPP loan that they’re not independent. I mean, you know, that's so if you're doing, you would not be able to do an AUP know with respect to that because of that relationship. On the other hand, the brother. If you set that loan aside, I'm assuming you didn't have that part of the equation. If you just had the loan officer’s brother or the partner’s brother as a CFO of the of the bank, technically that's not an issue because the brother is not as we did with default would define an immediate family member.

I would, however, be cautious because that that falls into where we'd say you'd probably you'd want to use our conceptual framework and look at, you know, different threats and safeguards, you would need to apply. Because that looks a little funny, frankly, you know, it could be, you could raise some questions.

Toni Lee-Andrews: I’ll go on to the next question. I want to make sure that we've got time to cover some of this, because this is sort of a multi-faceted question and cover several things I think are very important.

And in this case, there's an attest client that has asked the firm to prepare their schedule a worksheet calculations for the wage reduction and the full-time equivalent employee calculations. And the first question is, am I correct that my firm's independence will not be impaired under 1.295 of the Code of Professional Conduct if the CEO, CFO oversees the services and reviews the work. And is there anything else that needs to be considered for inclusion in the engagement letter?

Bob Dohrer: Maybe I'll address and asked Jim to chime in. Also, but I think specifically with respect to the, the last episode that we had where we talked about the requirements when your independence is required and you provided a nonattest service would would apply here. So those four basic requirements should be there and maybe Jim can expand on those, I would like to just touch briefly because the engagement letter was mentioned and one of the aspects that we have got some questions about more generally is with the pandemic and different forms of federal stimulus funding and things like that. Are there any special or specific arrangements that should be made. And I think, you know, if you look at our standards and apply them. Generally, you would say, well, there's nothing really specific to address here, however, I do think that many firms are looking at this very closely and I think it's good advice to set expectations and the best way to do that is in an engagement letter.

Perhaps teeing up that you know, you will ask management to provide some specific representations regarding things like their self-certification on the loan application if a forgiveness application was filed. You know representations about the accuracy and completeness of bad information and those sorts of things. And I think setting that up in the engagement letter is certainly maybe a best practice or something to think very seriously about. I don't know if there's any code type things to…

Jim Brackens: What I was going to point out, first off, I was like you. This question came in, obviously I think from an email and this person had been very diligent and researched the code. And actually, they knew the specific section. I'm glad that people are doing that. It makes us feel like what we're doing is worthwhile.

Jim Brackens: What I would point out, I think from the context of the engagement letter, I think, well, I guess, want to caution, we have seen in the peer review side in particular, members that think that just because someone represents that they had a suitable skill, knowledge, experience that's not a substitute. You know, for, for the for the evaluation by the member but you referred to our last webcast. But I do think the person who asked this question does understand because they were they were referencing, yes they do know our general standards.

Keep repeating evaluate the client has the ability to take responsibility, the client actually has to take responsibility, but I wanted to point that out, if that's what they were thinking in terms of engagement, your advice was very good practical advice.

Toni Lee-Andrews: They also asked when they were mentioning preparing the schedule 8 worksheet calculations, is that considered preparing a source document or is it the calculation of source document because it's calculating forgiveness, which is going to be again in the financial statement. If it is a source document. Any other independence concerns with that?

Jim Brackens: I mean, actually, I think I'll just answer that one simply. This is not as for the calculation is not a source document the inputs, you know, the payroll information. And so those are source documents.

Bob Dohrer: Yeah, Jim. I had people put it to me another way, which is, well, it's kind of like a tax return, right, you fill out a form and you get a refund kind of thing. The source documents supporting the tax return are canceled checks and payroll records and things like that so totally agree.

Toni Lee-Andrews: And then I think we may have time for just one more question. And this question and the person was in touch with their peer review firm and they have a partner who wants to sing and write a song with them. This person sings writes funny songs and actually has a YouTube video out about PPP and PPP loan forgiveness. So the question is, if I do this, will I be independent?

Jim Brackens: And this I'll take this from the peer review side. Absolutely. That's not an independence issue.

And for those who have not heard, we actually Toni and I, Bob. All of us know who this individual is it's, I'm going to say that Steve Zelin. So if you if you google Steve Zelin, “Get down with PPP,” you can hear this video, the guy does a lot of videos. He is a CPA and he's absolutely hilarious.

Bob Dohrer: And I just have to add. You know that when I saw this question, this was the one independence ethics question that I thought, even I couldn't mess up but you jumped in, in front of me. It's a hilarious song really really kind of fun to listen to.

Toni Lee-Andrews: Well, great questions. Again, if any of you have questions, please let us know. We're here to answer them. Bob and Jim, thank you very much for joining me.

Jim Brackens: Thank you.

Toni Lee-Andrews: If you have questions about the technical content of this episode call 888.777.7077 option two then option three. If you have ideas for future episodes, as I mentioned, send us an email at ethicallyspeaking@aicpa.org.  You can find links to the resources mentioned in this episode on the show notes page. While you're there, don't forget to hit the subscribe link so you won't miss future episodes. Thanks again.