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Statement on Standards in Personal Financial Planning Services Personal Financial Planning Section Tax. Estate. Retirement. Risk Management. Investments. © 2020 American Institute of CPAs. All rights reserved. AICPA and American Institute of CPAs are trademarks o the American Institute o Certifed Public Accountants and are registered in the United States, European Union and other countries. The Globe Design is a trademark owned by the Association o International Certifed Proessional Accountants and is licensed to the AICPA. 22929-378 For information about the procedure for requesting permission to make copies of any part of this work, please e-mail copyright@aicpa.org with your request. Otherwise, requests should be written and mailed to the Permissions Department, AICPA, 220 Leigh Farm Road, Durham, NC 27707-8110. Statement on Standards in Personal Financial Planning Services (To supersede the Statement on Responsibilities in Personal Financial Planning Practice [AICPA, Professional Standards, PFP Sec. 100]) Revised, January 2015, to reect conorming changes necessary due to the issuance o the revised AICPA Code of Professional Conduct, effective December 15, 2014. Acknowledgments Responsibilities in Personal Financial Planning Services Task Force Clark Blackman II, Past Chair–PFP Executive Committee and Past Chair–Task Force Dirk Edwards, Past Chair–PFP Executive Committee and Chair–Task Force Richard Fohn, Past Chair–PFP Executive Committee Charles Kowal, Past Member–PFP Executive Committee Personal Financial Planning Services Standards Advisory Task Force Dirk Edwards, Chair Nancy Hyde, Past Member–Tax Practice Responsibilities Committee Anthony King, Past Member–PCPS Executive Committee David McIntee, Past Member–PCPS Executive Committee William Pirolli, Past Chair–PCPS Executive Committee Thomas Purcell, Tax Practice Responsibilities Committee Norma Schrock, Chair–Tax Practice Responsibilities Committee AICPA staff Anthony Pugliese, Senior Vice President and Chie Operating Ofcer Michael Buddendeck, General Counsel Edward Karl, Vice President, Taxation James Metzler, Vice President, Small Firm Interests; Public Practice and Global Alliances Jeannette Koger, Vice President, Member Specialization & Credentialing Andrea Millar, Senior Technical Manager, Personal Financial Planning Sarah Bradley, Technical Manager, Personal Financial Planning 1 2 Foreword 3 Statement on Standards in Personal Financial Planning Services 3 Scope 3 Applicability 4 Objective 4 Authority o statement 4 Defnitions 5 Requirements 5 General professional responsibilities 6 Responsibilities of members in PFP engagements 7 Planning the PFP engagement 8 Obtaining and analyzing information 8 Developing and communicating recommendations 9 Implementation engagements 9 Monitoring and updating engagements 10 Working with other service providers 10 Using advice provided by other service providers 11 Application material Contents 2 Foreword The Personal Financial Planning Executive Committee (PFP EC) has issued Statement on Standards in Personal Financial Planning Services No. 1 (the standard) to provide guidance to members and a framework for delivering PFP services with the highest levels of integrity, professionalism, objectivity, and competence so that a CPA nancial planner can serve the best interests o his or her clients and the public. The PFP EC is the senior committee of the AICPA designated to promulgate enforceable standards of PFP practice. 1 The standard applies to all members providing PFP services regardless of the jurisdictions in which they practice. Interpretations of the standard may be issued by the PFP EC as guidance to assist in understanding and applying the standard. The PFP EC interpretations are recommendations on the application of the standard. The standard and its interpretations are intended to complement other laws, regulations, and professional standards of PFP practice. The standard is written in as simple and objective a manner as possible. However, by their nature, practice standards provide for an appropriate range of behaviors and need to be interpreted to address a broad range of personal and professional situations. Accordingly, enforcement of these rules, as part of the AICPA’s Code of Professional Conduct “General Standards Rules” (AICPA, Professional Standards, ET sec. 1.300.001 and 2.300.001), and “Compliance with Standards Rules” (AICPA, Professional Standards, ET sec. 1.310.001 and 2.310.001) as well as paragraphs

. 1.300.001 and 2.300.001), and “Compliance with Standards Rules” (AICPA, Professional Standards, ET sec. 1.310.001 and 2.310.001) as well as paragraphs .02-.05 of the “Application of the AICPA Code” (AICPA, Professional Standards, and ET sec. 0.200.020), will be undertaken on a case-by-case basis. 1. Per AICPA Bylaw Section 360R, Implementing Resolutions Under Section 3.6 Committees, the Personal Financial Planning Executive Committee (PFP EC) is an AICPA senior committee. The PFP EC is designated as a body that may promulgate technical standards under “General Standards Rules” (AICPA, Professional Standards, ET sec. 1.300.001 and 2.300.001)and “Compliance with Standards Rules” (AICPA, Professional Standards, ET sec.1.310.001 and 2.310.001). 3 1. Reference The CPA’s Guide to Investment Advisory Business Models published by AICPA. Statement on Standards in Personal Financial Planning Services Scope 1. The Statement on Standards in Personal Financial Planning Services No. 1 (the standard) addresses the responsibilities of AICPA members (members) who are described in paragraph 4 that follows. The standard applies when personal nancial planning (PFP) services are provided, even if part of another engagement. 2. The standard establishes the applicable standards for members with regard to PFP engagements. (Ref: par. A1) Nature of PFP services 3. PFP is the process of identifying personal nancial goals and resources, designing nancial strategies, and making personalized recommendations (Ref: par. 12) (whether written or oral) that, when implemented, assist the client in achieving these goals. This process may include implementation of recommendations or monitoring or updating the engagement. PFP services encompass one or more of the following activities: a. Cash ow planning b. Risk management and insurance planning c. Retirement planning d. Investment planning e. Estate, gift, and wealth transfer planning f. Elder planning g. Charitable planning h. Education planning i. Tax planning Applicability 4. The standard applies when a member provides PFP services as dened in paragraph 12, and (Ref: par. A2) a. represents to the public or clients that the member provides PFP services, b. engages in activities that would require registration as an investment adviser under federal or state law1, or c. sells a product as a result of an engagement. 5. The standard does not supersede other applicable AICPA professional standards, such as (Ref: par. A2-A3, A11) a. the Statement on Standards for Accounting and Review Services (SSARS) No. 6, Reporting on Personal Financial Statements Included in Written Personal Financial Plans (AICPA, Professional Standards, AR sec. 600) with regard to the compilation o personal nancial statements; b. the Statements on Standards for Tax Services (SSTSs) with regard to tax services; and c. the Statement on Standards for Valuation Services (SSVS) No. 1, Valuation of a Business, Business Ownership Interest, Security, or Intangible Asset (AICPA, Professional Standards, VS sec. 100) with regard to valuation services. 4 Objective 6. The standard provides authoritative guidance and establishes enforceable standards for members who provide PFP services to assist them in ullling their proessional responsibilities. Authority of the statement 7. The standard contains requirements designed to enable the member to meet the stated objective. It also includes related guidance in the form of application and other explanatory material that provides context relevant to a proper understanding o the standard and denitions. 8. The requirements of the standard are expressed using the word should. If a standard provides that a member “should” perform an action, then unless prevailing facts and circumstances dictate otherwise, this action is required. If a standard provides that a procedure or action is one that the member “should consider,” the consideration of the procedure or action is required, whereas carrying out the speci

unless prevailing facts and circumstances dictate otherwise, this action is required. If a standard provides that a procedure or action is one that the member “should consider,” the consideration of the procedure or action is required, whereas carrying out the specied procedure or action is not. The professional requirements of the standard are to be understood and applied in the context of the explanatory material that provides guidance for their application. 9. The “Application” section and other explanatory material provide further explanation of the requirements and guidance for carrying them out. 10. The words may, might, and could, among others, are used to describe actions and procedures that are recommended but not required. Although such guidance does not, in itself, impose a requirement, it is relevant to the proper application of the requirements. 11. The standard includes, under the heading “Denitions,” a description o the meanings attributed to certain terms for purposes of the standard. These are provided to assist with the consistent application and interpretation of the standard and are not intended to override denitions that may be established or other purposes, whether by law or regulation. 12. For purposes of the standard, the following terms have the meanings attributed: Personal fnancial planning services. The process o identiying personal nancial goals and resources, designing nancial strategies, and making personalized recommendations that, when implemented, assist the client in achieving these goals. (Ref: par. 3) Personal fnancial planning engagement. An engagement in which a member provides PFP services and the standard applies. (Ref: par. 3-4) Implementation engagement. A PFP engagement that involves assisting the client in taking action on recommendations developed during the PFP engagement. Monitoring engagement. A PFP engagement that involves tracking and communicating the client’s progress in achieving established PFP goals. Updating engagement. A PFP engagement that involves revising the client’s existing nancial plan and nancial planning recommendations as the member and client agree upon. Personalized recommendation. Financial advice directing a client to take action based on the client's personal nancial inormation disclosed to the member. (Ref: par. 3) Denitions 5 16. The member should consider applicable interpretive publications when providing PFP services. (Ref: par. A5) Independence and PFP services 17. If PFP services are performed for a client for which the member or member’s rm also performs an “attest engagement” (AICPA, Professional Standards, ET sec. 0.400.04), the member should meet the requirements of the “Nonattest Services” subtopic (AICPA, Professional Standards, ET sec. 1.295) under the “Independence Rule” (AICPA, Professional Standards, ET sec. 1.200.001), so as not to impair the member’s independence with respect to the client. Requirements General professional responsibilities 13. The member should read the entire standard, including its application and other explanatory material, to understand its objective and apply its requirements properly. 14. The proper application of the requirements established by the standard is expected to provide a sufcient basis or the achievement o the objective. However, because circumstances vary widely and all such circumstances cannot be anticipated, the member should consider whether, due to the existence of particular matters or circumstances, procedures in addition to those required by the standard are needed to meet the stated objective. 15. The member must comply with each requirement of the standard unless, a. in the circumstances of the engagement, the requirement is not relevant because it is conditional, and the condition does not exist. b. the member judges it necessary to depart from a requirement. In such circumstances, the member should perform alternative procedures to achieve the intent of that requirement and document the justication for that departure. 6 Responsibilities of members in PFP engagements 18. The member should comply with relevant ethical requirements. (Ref: par. A7) 19. The member should possess a level of knowledge of PFP principles and theory, and a level of skill in the application of such principles, that will enable him or her to (Ref: par. A

(Ref: par. A7) 19. The member should possess a level of knowledge of PFP principles and theory, and a level of skill in the application of such principles, that will enable him or her to (Ref: par. A8) a. Identify client goals and objectives; b. Gather and analyze relevant information; c. Consider and apply appropriate planning approaches and methods; and d. Use proessional judgment when developing nancial recommendations. 20. The member should evaluate whether any conicts o interest exist with regard to the engagement as ollows: (Ref: par. A9-A10) a. I the member determines conicts o interest exist, the member should determine whether the engagement can be performed objectively. b. If the member determines the engagement can be performed objectively, the member should disclose all known conicts o interest and obtain consent as required under the “Conicts o Interest” interpretations (AICPA, Professional Standards, ET sec. 1.110.010 and 2.110.010) under the “Integrity and Objectivity Rule” (AICPA, Professional Standards, ET sec. 1.100.001 and 2.100.001). c. If the member determines that the engagement cannot be performed objectively, the engagement should be terminated. 21. The member should comply with applicable federal, state, and other laws and regulations. The member should comply with professional standards applicable to the PFP engagement unless superseded by laws or regulations. When there is a conict between the standard and laws or regulations, the laws or regulations will prevail unless less stringent than the standard. (Ref: par. A11-A12) 22. Prior to beginning the engagement, and throughout the engagement as circumstances dictate, the member should disclose in writing all compensation the member and the member’s rm or afliates will receive or services rendered or products sold (Ref: par. A6, A13). The disclosure should include a. the method of compensation, including the impact of indirect compensation; b. the amount of compensation; c. the time period over which compensation will be received; and d. the compensation, including noncash benets, received by the member or reerrals to other providers. 23. If compensation alternatives are offered, the member should disclose the differences in these alternatives in writing. 7 Planning the PFP engagement (Ref: par. A14-A15) 24. The member should document and communicate to the client the scope and nature of services to be provided and disclose the member’s agreed upon compensation for such services. This communication should be documented in the le and include descriptions o the ollowing when applicable to the engagement: a. Engagement objectives b. Scope of services to be provided c. Roles and responsibilities of the member, client, and other service providers d. Timing of the engagement e. Scope limitations and other constraints f. Conicts o interest (Ref: par. 20) g. Responsibility, or lack thereof, for helping the client implement planning decisions h. Responsibility, or lack thereof, for monitoring the client’s progress in achieving goals i. Responsibility, or lack thereof, for updating the plan and proposing new action 25. The member should evaluate the appropriateness of the original engagement as the engagement proceeds and document and communicate needed changes to the client. 26. If the member is aware of a service needed to complete the engagement and does not, or will not, provide that service, the member should limit the scope of the engagement accordingly and recommend that the client engage another service provider for that service in writing. 27. I the client declines to engage another service provider or services identied in paragraph 26, the member should consider whether this limitation impairs the ability to provide PFP services: a. If the member determines that the ability to meet the standards established by the standard is impaired, the member should terminate the engagement in writing. b. If the member determines that the ability to meet the standards established by the standard is not impaired, the member should communicate in writing that this limitation could affect the conclusions

established by the standard is impaired, the member should terminate the engagement in writing. b. If the member determines that the ability to meet the standards established by the standard is not impaired, the member should communicate in writing that this limitation could affect the conclusions and recommendations developed in the engagement. 8 Obtaining and analyzing information 28. The member should use professional judgment when obtaining and analyzing relevant information necessary to develop recommendations based on the stated engagement objectives. 29. I the member is unable to collect sufcient relevant inormation to establish a reasonable basis or recommendations, the engagement scope may be restricted to those matters or which sufcient inormation is available. This scope limitation should be communicated to the client in writing, including that this limitation should be taken into account in the assessment of conclusions and recommendations developed. (Ref: par. A16) 30. I sufcient inormation does not exist to proceed as agreed, the member should terminate or modiy the engagement through mutual agreement with the client. This engagement modication or termination should be communicated in writing. 31. When analyzing information obtained while performing the engagement, the member should a. evaluate the reasonableness o estimates and assumptions that are signicant to the plan; b. use assumptions that are appropriate and consistent with each other; and c. consider the interrelationship of various PFP activities (Ref: par. 3). Developing and communicating recommendations (Ref: par. A16-A20) 32. The member should establish a reasonable basis for PFP recommendations. 33. The member should develop recommendations derived from analyses of relevant information, client goals, and the client’s overall nancial circumstances. Even when an engagement addresses a limited number o personal nancial goals, the member should consider the client’s overall known nancial circumstances. 34. The nature and extent of analyses and other procedures performed when establishing a basis for recommendations are affected by the scope and objectives of the engagement and should be documented. 35. The member should communicate to the client the assumptions and estimates that are signicant to the recommendations. This should be documented and include the following: a. A summary of the client’s goals b. Signicant assumptions c. Estimates d. Recommendations e. A description of limitations on the work performed f. The recommendations in the engagement should contain qualications to the recommendations i the eects o certain planning areas on the client’s overall nancial picture were not considered 9 Implementation engagements (Ref: par. A21-A24) 36. The member should document his or her understanding of the implementation engagement, including the roles and responsibilities of the member, the client, and other service providers. This documentation should include the following: a. A summary of the planning decisions being implemented b. A summary of recommended actions to be taken c. A description of limitations on the work performed in the implementation engagement 37. The member should communicate in writing the level of responsibility, if any, for the following: a. Selecting and acquiring products b. Selecting service providers c. Establishing selection criteria d. Coordinating or reviewing the delivery of services or products by other service providers 38. A member who is engaged to establish selection criteria should a. identify those criteria that are required to accomplish the client’s objectives, subject to any constraints that result from the client’s circumstances or as identied by the client. b. assist the client in evaluating the relative importance of criteria so that available alternatives can be compared. 39. A member who is engaged to participate in recommending products should a. gather information that establishes a reasonable basis for determining whether a product meets the selection criteria. b. communicate this evaluation in writing, along with product recommendations. c. disclose in writing any compensation received for recommending products. 40. A member who is engaged to assist the client in taking action on planning decisions developed in a PFP engagement in which the member did not participate should obtain an understanding of the planning decisions made. 41. All other relevant guidance under the standard relating to providing PFP services should be followed in an implementation engagement. Monitoring and

planning decisions developed in a PFP engagement in which the member did not participate should obtain an understanding of the planning decisions made. 41. All other relevant guidance under the standard relating to providing PFP services should be followed in an implementation engagement. Monitoring and updating engagements (Ref: par. A25-A28) 42. In a monitoring engagement, the member should document the nature and extent of the member’s services, including a. the frequency and time period of measuring the client’s progress toward reaching the stated goals. b. utilization of monitoring criteria that are appropriate to, and consistent with, the criteria used to establish the goals being monitored. c. the criteria that are important to the achievement o the nancial planning goals being monitored. d. the member’s evaluation of progress toward achieving the client’s nancial planning goals, including whether the client’s existing nancial plan and specic nancial planning recommendations should be updated. 43. In an updating engagement, the member should document the nature and extent of the member’s services, including a. the determination of whether the goals, objectives, information, and assumptions used as a basis for existing planning recommendations are still valid. b. the evaluation of the impact of revising recommendations on the client’s ability to achieve other nancial planning goals. 10 44. All other relevant guidance under the standard relating to providing PFP services should be followed in a monitoring or an updating engagement. Working with other service providers 45. When referring another service provider to a client, the member should a. consider the proessional qualications o another service provider before referring the client to that service provider; b. disclose, in writing, any compensation received for making such referrals; and c. communicate, in writing, the extent to which the member will or will not evaluate the work performed by the service provider. Using advice provided by other service providers 46. When the member uses the advice of another service provider when carrying out the PFP engagement, the member should understand the impact of the service provider’s advice. 47. If the member has evaluated the advice of the other service provider, and a. if the member concurs with the other service provider’s advice, the member need not communicate this concurrence to the client because concurrence is implied by its use, or b. if the member does not concur with the other service provider’s advice, the member should communicate this non-concurrence to the client in writing. 11 Scope A1. The “Compliance with Standards Rules” (AICPA, Professional Standards, ET sec. 1.310.001 and 2.310.001) requires an AICPA member who performs a PFP engagement to comply with standards promulgated by the Personal Financial Planning Executive Committee (PFP EC). The PFP EC develops and issues standards in the form of statements through a process that includes deliberation in meetings open to the public, public exposure o statements, and a ormal vote. The standards are codied in AICPA Professional Standards. (Ref: par. 2) Applicability (Re: par. 3-5) A2. If any of the activities listed in paragraph 3 are provided as part of a PFP engagement, the activity is covered by the standard and should be considered in conjunction with the requirements set forth in the “Applicability” section (Ref: par. 4). In addition, depending on the nature of the service, other standards may apply (Ref: par. 5). For example, any personal income tax services provided as part of a PFP engagement are covered by the standard and are subject to the SSTSs. A3. Examples of activities not covered by the standard include the following: (Ref: par. 3-5) a. Tax advice: Advising a client regarding his or her income tax matters or gift and estate tax matters when PFP services as dened in paragraph 3 are not provided. These services are, however, subject to the SSTSs. b. Valuation services: Any engagement that would be considered a valuation service under SSVS No. 1 when PFP services as de

in paragraph 3 are not provided. These services are, however, subject to the SSTSs. b. Valuation services: Any engagement that would be considered a valuation service under SSVS No. 1 when PFP services as dened in paragraph 3 are not provided. These services are, however, subject to SSVS No. 1. c. Business succession planning i. Planning to prepare for a vacancy in a key position resulting from a sudden departure, disability, or death and no advice is given to an individual. ii. Planning to prepare or the sale to another rm and no advice is given to an individual. d. Educational discussions or presentations covering PFP i. A workshop presented to a group of company employees on a PFP activity (Ref: par. 3) that does not include personalized recommendations. ii. A discussion with an individual that covers one or more PFP activities (Ref: par. 3) that does not result in a personalized recommendation. e. Mechanical computations i. Computation of the current income tax deduction for a client’s contribution of assets to a charitable remainder trust. ii. Computation of the current yield on a client’s investment portfolio. iii. Computation of the gift tax on a transfer of an asset. Application material 12 A4. A member may identify and create an analysis of historical spending and income activity for a client as a purely mechanical computation, which would not be considered PFP services. However, extension of this analysis to future periods based on the judgment of the member that entails the use of assumptions and personalized recommendations regarding investing would be considered PFP services. General proessional responsibilities A5. Interpretive publications are not standards on PFP practice. Interpretive publications are recommendations on the application o the standard in specic circumstances. An interpretive publication is issued under the authority of the PFP EC after all members have been provided an opportunity to consider and comment on whether the interpretive publication is consistent with the standard. (Ref: par. 16) Responsibilities o members in PFP engagements (Re: par. 18-23) A6. The member is required to comply with the “Commissions and Referral Fees Rule” (AICPA, Professional Standards, ET sec. 1.520.001). (Ref: par. 22) A7. The member is subject to relevant ethical requirements relating to PFP engagements (Ref: par. 18). Ethical requirements consist of the AICPA Code of Professional Conduct, rules of state boards of accountancy from which the member holds a license, and applicable regulatory agencies that are more stringent. The AICPA Code of Professional Conduct establishes the fundamental principles of professional ethics, which include the following: a. Responsibilities b. The public interest c. Integrity d. Objectivity and independence e. Due care f. Scope and nature of services A8. The “General Standards Rules” (AICPA, Professional Standards, ET sec. 1.300.001 and 2.300.001) explains that professional competence means that a member shall “undertake only those professional services that the member or the member’s rm can reasonably expect to be completed with proessional competence.” (Ref: par. 19) A9. The “Objectivity and Independence Principle” (AICPA, Professional Standards, ET sec. 0.300.050) states that objectivity is a state of mind. The principle of objectivity imposes the obligation to be impartial, intellectually honest, and ree rom conicts o interest. (Ref: par. 20) A10. The member is required to comply with AICPA’s Code o Proessional Conduct “Conicts o Interest” interpretations (AICPA, Professional Standards, ET sec. 1.110.010 and 2.110.010). (Ref: par. 20) 13 A11. Laws, regulations, and professional standards applicable to engagements to perform PFP services include, but are not necessarily limited to, the following: (Ref: par. 21, A5) a. Investment Advisers Act of 1940; see Securities and Exchange Commission Interpretive Release IA-1092 b.

to perform PFP services include, but are not necessarily limited to, the following: (Ref: par. 21, A5) a. Investment Advisers Act of 1940; see Securities and Exchange Commission Interpretive Release IA-1092 b. Treasury Department Circular No. 230 c. State boards of accountancy d. AICPA Code of Professional Conduct e. Statements on Standards for Tax Services (SSTSs) f. Statement on Standards for Valuation Services (SSVS) No. 1 g. Statement on Standards for Consulting Services No. 1 h. Statements on Standards for Accounting and Review Services (SSARS) No. 6 i. Maintaining adequate data protection safeguards regarding a client’s nonpublic personal information j. Maintaining client condentiality in accordance with the applicable rules o proessional conduct and federal and state laws and regulations A12. Compliance with the AICPA Code of Professional Conduct depends primarily on the member’s understanding and voluntary actions, secondarily on reinforcement by peers and public opinion, and ultimately on disciplinary proceedings, when necessary, against members who fail to comply with the rules. (Ref: par. 21) A13. The member is not required to follow a standard format when communicating or documenting communication. Planning the engagement (Re: par. 24-27) A14. An understanding of the client may include understanding matters such as the client’s family situation, commitment to the planning process, current cash ow and assets available, personal preerences, and relationships with other professionals. This understanding may be obtained through comprehensive information gathering or may result from knowledge gained during a long-term relationship with the client. A15. Additional services that require understanding and agreement by the client include the following: a. Implementing plan recommendations b. Monitoring the client's progress in achieving goals c. Updating recommendations 14 Developing and communicating recommendations (Re: par. 32-35) A16. Developing a reasonable basis for recommendations involves the following (Ref: par. 29): a. Collecting relevant quantitative and qualitative information. The nature and amount of information will depend on the scope and complexity of the engagement. This information may include, but is not limited to i. the client’s goals, existing nancial situation, and available resources; ii. nonnancial actors, such as client attitudes, risk tolerance, amily considerations, age, health, and life expectancy; iii. external actors, such as estimates o ination, taxes, economic conditions, legislative activity, investment markets, and interest rates; and iv. reasonable estimates, projections, and assumptions furnished by the client, provided by other service providers, or developed by the member. b. Analyzing the client’s current situation as it relates to the client’s goals and objectives and identifying strengths and weaknesses o the existing nancial situation c. Formulating, evaluating, and recommending appropriate strategies for achieving the client’s goals after due consideration of appropriate alternatives. A17. The member’s knowledge and experience also contribute to the basis for recommendations. A18. PFP recommendations are suggested actions developed to help the client achieve personal nancial goals. A19. Recommendations are based on analyses and other procedures conducted prior to, and in preparation for, developing suggested actions. A20. The member should help the client prioritize recommended tasks that are essential to enabling the client to act on planning decisions. 15 Implementation engagements (Re: par. 36-41) A21. Implementation may include such activities as assisting the client in selecting other advisors, restructuring debt, obtaining new or updated estate documents, establishing cash reserves, preparing budgets, and selecting and acquiring specic investments and insurance products. A22. In those situations in which the member may be unctioning in a duciary or agency relationship, state law will control. A23. The member may be engaged to assist the client in taking action on planning decisions, which may include the member doing one or more of the following: a. Taking responsibility for the selection and acquisition of products1 b. Taking responsibility for the selection of service providers c. Establishing selection criteria d. Coord

action on planning decisions, which may include the member doing one or more of the following: a. Taking responsibility for the selection and acquisition of products1 b. Taking responsibility for the selection of service providers c. Establishing selection criteria d. Coordinating or reviewing the delivery of services or products by other service providers A24. Implementation is typically completed when products are acquired or services are rendered based on the recommendations developed during the PFP engagement. Monitoring and updating engagements (Re: par. 42-44) A25. A member may be engaged to assist the client in tracking progress in achieving established PFP goals or revising an existing personal nancial plan, or both. A26. The member may be specically engaged by a client to provide monitoring services, updating services, or both. The member would typically have informed the client during a PFP engagement, in which planning recommendations are developed, that monitoring and updating are important elements o the nancial planning process and that the member is not responsible or undertaking these services except by specic agreement with the client. A27. Monitoring and updating engagements are typically undertaken after implementation of actions and recommendations developed during a PFP engagement. Monitoring and updating engagements may be either separate or combined engagements. A28. Monitoring engagements vary in complexity, scope, and the nature and extent of assistance to be provided by the member. In other words, the member may undertake some or all of the monitoring services, coordinate or review monitoring services performed by other service providers, or monitor progress toward goals in a nancial plan developed by other service providers. 1. Members advising clients on the selection or acquisition of products (such as investments or insurance policies) should determine whether they meet the qualications and licensing requirements established by applicable ederal and state laws.

As of June 1, 2013 Code of Professional Conduct and Bylaws Reprinted from AICPA Professional Standards 10794-355 As of June 1, 2013 Code of Professional Conduct and Bylaws Reprinted from AICPA Professional Standards Code of Professional Conduct and Bylaws (as of June 1, 2013) is reprinted from AICPA Professional Standards. Copyright © 2013 by American Institute of Certied Public Accountants, Inc. New York, NY 10036-8775 All rights reserved. For information about the procedure for requesting permission to make copies of any part of this work, please e-mail copyright@aicpa.org with your request. Otherwise, requests should be written and mailed to the Permissions Department, AICPA, 220 Leigh Farm Road, Durham, NC 27707-8110. 1 2 3 4 5 6 7 8 9 0 PE 1 9 8 7 6 5 4 3 ISBN: 978-1-94023-516-5 Table of Contents Section Page CODE OF PROFESSIONAL CONDUCT ET . . . Code of Professional Conduct—Introduction ................. 2815 ET 50 Principles of Professional Conduct........................... 2817 51—Preamble 52—Article I—Responsibilities 53—Article II—The Public Interest 54—Article III—Integrity 55—Article IV—Objectivity and Independence 56—Article V—Due Care 57—Article VI—Scope and Nature of Services ET 90 Rules: Applicability and Denitions.......................... 2833 91—Applicability 92—Denitions ET 100 Independence, Integrity, and Objectivity..................... 2845 100-1—Conceptual Framework for AICPA Independence Standards 101—Independence Rule 101—Independence Interpretations Under Rule 101—Independence 102—Integrity and Objectivity Rule 102—Integrity and Objectivity Interpretations Under Rule 102—Integrity and Objectivity 191—Ethics Rulings on Independence, Integrity, and Objectivity ET 200 General Standards—Accounting Principles .................. 2933 201—General Standards Rule 201—General standards Interpretations Under Rule 201—General Standards 202—Compliance With Standards Rule 202—Compliance with standards Interpretation under Rule 202— Compliance With Standards 203—Accounting Principles Rule 203—Accounting Principles Interpretations under Rule 203— Accounting Principles 291—Ethics Rulings on General and Technical Standards Contents ... How to Use This Volume .................... 1 ................ iii Table of Contents Section Page ET 300 Responsibilities to Clients ................................... 2947 301—Condential Client Information Rule 301—Condential client information Interpretations under Rule 301— Condential Client Information 302—Contingent Fees Rule 302—Contingent fees Interpretation under Rule 302—Contingent Fees 391—Ethics Rulings on Responsibilities to Clients ET 400 Responsibilities to Colleagues ............................... 2961 ET 500 Other Responsibilities and Practices ......................... 2963 501—Acts Discreditable Rule 501—Acts discreditable Interpretations under Rule 501—Acts Discreditable 502—Advertising and Other Forms of Solicitation Rule 502—Advertising and other forms of solicitation Interpretations under Rule 502—Advertising and Other Forms of Solicitation 503—Commissions and Referral Fees Rule 503—Commissions and referral fees Interpretation under Rule 503—Commissions and Referral Fees 504—[Deleted] 505—Form of Organization and Name Rule 505—Form of organization and name Interpretations under Rule 505—Form of Organization and Name 591—Ethics Rulings on Other Responsibilities and Practices ET . . . Appendixes ................................................ ET . . . Rules Compliance Guide.................................... ET . . . Topical Index ............................................... 3019 BYLAWS BL . . . Denitions.................................................. 3033 BL 100 Name and Purpose ......................................... 3035 101—Name and Purpose BL 200 Admission to, and Retention of, Membership and Association............................................. 3039 210—2.1 Members 220—2.2 Requirements for Admission to Membership Contents iv 3003 3011 Table of Contents Section Page BL 200 Admission to, and Retention of, Membership and Association—continued 220R—Implementing Resolution Under Section 2.2 Requirements for Admission to Membership 230—2.3 Requirements for Retention

3 3011 Table of Contents Section Page BL 200 Admission to, and Retention of, Membership and Association—continued 220R—Implementing Resolution Under Section 2.2 Requirements for Admission to Membership 230—2.3 Requirements for Retention of Membership 230R—Implementing Resolutions Under Section 2.3 Requirements for Retention of Membership 240—2.4 Certicate of Membership 250—2.5 Right of Members to Describe Themselves as Such 260—2.6 International Associates 260R—Implementing Resolution Under Section 2.6 International Associates BL 300 Organization and Procedure................................ 3059 310—3.1 General 320—3.2 Membership 320R—Implementing Resolution Under Section 3.2 Membership 330—3.3 Council 340—3.4 Board of Directors 340R—Implementing Resolution Under Section 3.4 Board of Directors 350—3.5 Ofcers Elected by Council 350R—Implementing Resolution Under Section 3.5 Ofcers Elected by Council 360—3.6 Committees 360R—Implementing Resolutions Under Section 3.6 Committees BL 400 Financial Management and Controls ........................ 3083 401—Financial Management and Controls 401R—Implementing Resolution Under Article 4 Financial Management and Controls 410—4.1 Audit 420—4.2 Committee on Audit 430—4.3 Execution of Instruments on Behalf of the Institute 440—4.4 Indemnication 450—4.5 Dues 460—4.6 Fiscal Year 460R—Implementing Resolution Under Section 4.6 Fiscal Year Contents v Table of Contents Section Page BL 500 Meetings of the Institute and the Council..................... 3103 501—Meetings of the Institute and the Council 510—5.1 Meetings of the Institute 520—5.2 Meetings of Council 530—5.3 General Provisions Governing Meetings BL 600 Election of Council, Board of Directors, and Ofcers of the Institute........................................... 3113 601—Election of Council, Board of Directors, and Ofcers of the Institute 610—6.1 Members of Council Directly Elected by Members of the Institute 610R—Implementing Resolution Under Section 6.1 Members of Council Directly Elected by Members of the Institute 620—6.2 Selection of Members of Council to Represent State Societies 630—6.3 Election of Members-at-Large of Council, Board of Directors, Chairman of the Board, and Vice Chairman of the Board 640—6.4 Forfeiture of Ofce for Nonattendance 650—6.5 Vacancies 650R—Implementing Resolution Under Section 6.5 Vacancies 660—6.6 Election Meeting of Council 670—6.7 Term Limit BL 700 Termination of Membership and Disciplinary Sanctions ...... 3137 701—Termination of Membership and Disciplinary Sanctions 710—7.1 Resignation of Membership 710R—Implementing Resolution Under Section 7.1 Resignation of Membership 720—7.2 Termination of Membership for Nonpayment of Financial Obligation or for Failure to Comply With Membership-Retention Requirements 720R—Implementing Resolution Under Section 7.2 Termination of Membership for Nonpayment of Financial Obligation or for Failure to Comply With Membership-Retention Requirements 730—7.3 Disciplinary Action Without a Hearing Contents vi Table of Contents Section Page BL 700 Termination of Membership and Disciplinary Sanctions—continued 730R—Implementing Resolution Under Section 7.3 Disciplinary Action Without a Hearing 740—7.4 Disciplining of Member by Trial Board 740R—Implementing Resolution Under Section 7.4 Disciplining of Member by Trial Board 750—7.5 Reinstatement 750R—Implementing Resolution Under Section 7.5 Reinstatement 760—7.6 Publication of Disciplinary Action 760R—Implementing Resolution Under Section 7.6 Publication of Disciplinary Action 770—7.7 Disciplinary Sections Not to Be Applied Retroactively BL 800 Amendments ............................................... 3169 801—Amendments 810—8.1 Proposals to Amend the Bylaws 820—8.2 Proposals to Amend the Code of Professional

Not to Be Applied Retroactively BL 800 Amendments ............................................... 3169 801—Amendments 810—8.1 Proposals to Amend the Bylaws 820—8.2 Proposals to Amend the Code of Professional Conduct 830—8.3 Submission to Council via Board of Directors 840—8.4 Submission to Membership by Mail Ballot BL 900 General .................................................... 3181 911—AICPA Mission Statement 921—A Description of the Professional Practice of Certied Public Accountants BL . . . Topical Index ............................................... 3187 Contents vii 1 HOW TO USE THIS VOLUME Scope of This Volume… This volume, which is a reprint of the Code of Professional Conduct and Bylaws sections of volume 2 of the paperback edition of AICPA Professional Standards, contains Principles of Professional Conduct, Rules of Conduct, Interpretations of Rules of Conduct, and Ethics Rulings, as well as the AICPA Bylaws and related Implementing Resolutions of Council. How This Volume Is Arranged… The contents of this volume are arranged as follows: Code of Professional Conduct Introduction Principles of Professional Conduct Rules: Applicability and Denitions Independence, Integrity, and Objectivity General Standards—Accounting Principles Responsibilities to Clients Responsibilities to Colleagues Other Responsibilities and Practices Appendixes Rules Compliance Guide Bylaws Denitions Name and Purpose Admission to, and Retention of, Membership and Association Organization and Procedure Financial Management and Controls Meetings of the Institute and the Council Election of Council, Board of Directors, and Ofcers of the Institute Termination of Membership and Disciplinary Sanctions Amendments General How to Use This Volume… The arrangement of material in this volume is indicated in the general table of contents at the front of the volume. CODE OF PROFESSIONAL CONDUCT The Rules of Conduct, Interpretations of Rules of Conduct, and Ethics Rulings related to the same subject have been assembled within the major divisions of the Code of Professional Conduct part of the volume. For example, Rule 101—Independence, ET section 101, is followed by the rst Ethics Inter- pretation under Rule 101, ET section 101-1, Interpretation of Rule 101. Ethics Rulings for this section appear in ET section 191. A topical index is provided for this division and is identied as ET Topical Index. 2 BYLAWS The Bylaws of the AICPA and the related Implementing Resolutions of Council are assembled within the major divisions by section numbers. For example, BL Section 230, Requirements for Retention of Membership, is followed by BL section 230R, Implementing Resolutions Under Section 2.3 Requirements for Retention of Membership. In BL section 900, General, the following sections are included: •� � AICPA� Mission� Statement •� � A� Description� o� the� Proessional� Practice� o� Certifed� Public� Accountants A topical index is provided for this division and is identied as BL Topical Index. 2815 CODE OF PROFESSIONAL CONDUCT As Adopted January 12, 1988, unless otherwise indicated. INTRODUCTION Composition, Applicability, and Compliance The Code of Professional Conduct of the American Institute of Certied Pub- lic Accountants consists of two sections—(1) the Principles and (2) the Rules. The Principles provide the framework for the Rules, which govern the per- formance of professional services by members. The Council of the American Institute of Certied Public Accountants is authorized to designate bodies to promulgate technical standards under the Rules, and the bylaws require ad- herence to those Rules and standards. The Code of Professional Conduct was adopted by the membership to pro- vide guidance and rules to all members—those in public practice, in industry, in government, and in education—in the performance of their professional re- sponsibilities. Compliance with the Code of Professional Conduct, as with all standards in an open society, depends primarily on members' understanding and voluntary actions, secondarily on reinforcement by peers and public opinion, and ulti- mately on disciplinary proceedings, when necessary, against members who fail to comply with the Rules. Other Guidance Interpret

open society, depends primarily on members' understanding and voluntary actions, secondarily on reinforcement by peers and public opinion, and ulti- mately on disciplinary proceedings, when necessary, against members who fail to comply with the Rules. Other Guidance Interpretations of Rules of Conduct consist of interpretations which have been adopted, after exposure to state societies, state boards, practice units and other interested parties, by the professional ethics division's executive commit- tee to provide guidelines as to the scope and application of the Rules but are not intended to limit such scope or application. A member who departs from such guidelines shall have the burden of justifying such departure in any disci- plinary hearing. Interpretations which existed before the adoption of the Code of Professional Conduct on January 12, 1988, will remain in effect until further action is deemed necessary by the appropriate senior technical committee. Ethics Rulings consist of formal rulings made by the professional ethics division's executive committee after exposure to state societies, state boards, practice units and other interested parties. These rulings summarize the ap- plication of Rules of Conduct and Interpretations to a particular set of factual circumstances. Members who depart from such rulings in similar circumstances will be requested to justify such departures. Ethics Rulings which existed be- fore the adoption of the Code of Professional Conduct on January 12, 1988, will remain in effect until further action is deemed necessary by the appropriate senior technical committee. Introduction 2816 Code of Professional Conduct Publication of an Interpretation or Ethics Ruling in The Journal of Accoun- tancy constitutes notice to members. Hence, the effective date of the pronounce- ment is the last day of the month in which the pronouncement is published in The Journal of Accountancy. The professional ethics division will take into con- sideration the time that would have been reasonable for the member to comply with the pronouncement. A member should also consult, if applicable, the ethical standards of his or her state CPA society, state board of accountancy, the Securities and Exchange Commission, and any other governmental agency, which may regulate his or her client's business or use his or her report to evaluate the client's compliance with applicable laws and related regulations. Introduction Table of Contents 2817 ET Section 50 PRINCIPLES OF PROFESSIONAL CONDUCT TABLE OF CONTENTS Section Paragraph 51 Preamble .......................................................... .01-.02 52 Article I—Responsibilities........................................... .01 53 Article II—The Public Interest ....................................... .01-.04 54 Article III—Integrity................................................. .01-.04 55 Article IV—Objectivity and Independence .......................... .01-.04 56 Article V—Due Care ............................................... .01-.05 57 Article VI—Scope and Nature of Services [Revised]................. .01-.03 Contents Preamble 2819 ET Section 51 Preamble .01 Membership in the American Institute of Certied Public Accountants is voluntary. By accepting membership, a certied public accountant assumes an obligation of self-discipline above and beyond the requirements of laws and regulations. .02 These Principles of the Code of Professional Conduct of the American Institute of Certied Public Accountants express the profession's recognition of its responsibilities to the public, to clients, and to colleagues. They guide members in the performance of their professional responsibilities and express the basic tenets of ethical and professional conduct. The Principles call for an unswerving commitment to honorable behavior, even at the sacrice of personal advantage. ET §51.02 Article I---Responsibilities 2821 ET Section 52 Article I—Responsibilities In carrying out their responsibilities as professionals, members should exercise sensitive professional and moral judgments in all their activities. .01 As professionals, certied public accountants perform an essential role in society. Consistent with that role, members of the American Institute of Cer- tied Public Accountants have responsibilities to all those who use their pro- fessional services. Members also have a continuing responsibility to cooperate with each other to improve the art of accounting, maintain the public's con- dence, and carry out the profession's special responsibilities for self-governance. The collective efforts of all members are required to maintain and enhance the traditions of the profession. ET §52.01 Article II---The Public Interest 28

�- dence, and carry out the profession's special responsibilities for self-governance. The collective efforts of all members are required to maintain and enhance the traditions of the profession. ET §52.01 Article II---The Public Interest 2823 ET Section 53 Article II—The Public Interest Members should accept the obligation to act in a way that will serve the public interest, honor the public trust, and demonstrate commitment to professionalism. .01 A distinguishing mark of a profession is acceptance of its responsibil- ity to the public. The accounting profession's public consists of clients, credit grantors, governments, employers, investors, the business and nancial com- munity, and others who rely on the objectivity and integrity of certied public accountants to maintain the orderly functioning of commerce. This reliance im- poses a public interest responsibility on certied public accountants. The public interest is dened as the collective well-being of the community of people and institutions the profession serves. .02 In discharging their professional responsibilities, members may en- counter conicting pressures from among each of those groups. In resolving those conicts, members should act with integrity, guided by the precept that when members fulll their responsibility to the public, clients' and employers' interests are best served. .03 Those who rely on certied public accountants expect them to dis- charge their responsibilities with integrity, objectivity, due professional care, and a genuine interest in serving the public. They are expected to provide qual- ity services, enter into fee arrangements, and offer a range of services—all in a manner that demonstrates a level of professionalism consistent with these Principles of the Code of Professional Conduct. .04 All who accept membership in the American Institute of Certied Public Accountants commit themselves to honor the public trust. In return for the faith that the public reposes in them, members should seek continually to demonstrate their dedication to professional excellence. ET §53.04 Article III---Integrity 2825 ET Section 54 Article III—Integrity To maintain and broaden public condence, members should perform all professional responsibilities with the highest sense of integrity. .01 Integrity is an element of character fundamental to professional recog- nition. It is the quality from which the public trust derives and the benchmark against which a member must ultimately test all decisions. .02 Integrity requires a member to be, among other things, honest and candid within the constraints of client condentiality. Service and the public trust should not be subordinated to personal gain and advantage. Integrity can accommodate the inadvertent error and the honest difference of opinion; it cannot accommodate deceit or subordination of principle. .03 Integrity is measured in terms of what is right and just. In the absence of specic rules, standards, or guidance, or in the face of conicting opinions, a member should test decisions and deeds by asking: "Am I doing what a person of integrity would do? Have I retained my integrity?" Integrity requires a mem- ber to observe both the form and the spirit of technical and ethical standards; circumvention of those standards constitutes subordination of judgment. .04 Integrity also requires a member to observe the principles of objectivity and independence and of due care. ET §54.04 Article IV---Objectivity and Independence 2827 ET Section 55 Article IV—Objectivity and Independence A member should maintain objectivity and be free of conicts of interest in discharging professional responsibilities. A member in public practice should be independent in fact and appearance when providing auditing and other attestation services. .01 Objectivity is a state of mind, a quality that lends value to a member's services. It is a distinguishing feature of the profession. The principle of objec- tivity imposes the obligation to be impartial, intellectually honest, and free of conicts of interest. Independence precludes relationships that may appear to impair a member's objectivity in rendering attestation services. .02 Members often serve multiple interests in many different capacities and must demonstrate their objectivity in varying circumstances. Members in public practice render attest, tax, and management advisory services. Other members prepare nancial statements

rendering attestation services. .02 Members often serve multiple interests in many different capacities and must demonstrate their objectivity in varying circumstances. Members in public practice render attest, tax, and management advisory services. Other members prepare nancial statements in the employment of others, perform internal auditing services, and serve in nancial and management capacities in industry, education, and government. They also educate and train those who aspire to admission into the profession. Regardless of service or capacity, members should protect the integrity of their work, maintain objectivity, and avoid any subordination of their judgment. .03 For a member in public practice, the maintenance of objectivity and independence requires a continuing assessment of client relationships and pub- lic responsibility. Such a member who provides auditing and other attestation services should be independent in fact and appearance. In providing all other services, a member should maintain objectivity and avoid conicts of interest. .04 Although members not in public practice cannot maintain the appear- ance of independence, they nevertheless have the responsibility to maintain objectivity in rendering professional services. Members employed by others to prepare nancial statements or to perform auditing, tax, or consulting services are charged with the same responsibility for objectivity as members in pub- lic practice and must be scrupulous in their application of generally accepted accounting principles and candid in all their dealings with members in public practice. ET §55.04 Article V---Due Care 2829 ET Section 56 Article V—Due Care A member should observe the profession's technical and ethical standards, strive continually to improve competence and the quality of services, and discharge professional responsibility to the best of the member's ability. .01 The quest for excellence is the essence of due care. Due care requires a member to discharge professional responsibilities with competence and dili- gence. It imposes the obligation to perform professional services to the best of a member's ability with concern for the best interest of those for whom the ser- vices are performed and consistent with the profession's responsibility to the public. .02 Competence is derived from a synthesis of education and experience. It begins with a mastery of the common body of knowledge required for designa- tion as a certied public accountant. The maintenance of competence requires a commitment to learning and professional improvement that must continue throughout a member's professional life. It is a member's individual respon- sibility. In all engagements and in all responsibilities, each member should undertake to achieve a level of competence that will assure that the quality of the member's services meets the high level of professionalism required by these Principles. .03 Competence represents the attainment and maintenance of a level of understanding and knowledge that enables a member to render services with facility and acumen. It also establishes the limitations of a member's capabili- ties by dictating that consultation or referral may be required when a profes- sional engagement exceeds the personal competence of a member or a member's rm. Each member is responsible for assessing his or her own competence—of evaluating whether education, experience, and judgment are adequate for the responsibility to be assumed. .04 Members should be diligent in discharging responsibilities to clients, employers, and the public. Diligence imposes the responsibility to render ser- vices promptly and carefully, to be thorough, and to observe applicable technical and ethical standards. .05 Due care requires a member to plan and supervise adequately any professional activity for which he or she is responsible. ET §56.05 Article VI---Scope and Nature of Services 2831 ET Section 57 Article VI—Scope and Nature of Services A member in public practice should observe the Principles of the Code of Professional Conduct in determining the scope and nature of services to be provided. .01 The public interest aspect of certied public accountants' services re- quires that such services be consistent with acceptable professional behavior for certied public accountants. Integrity requires that service and the public trust not be subordinated to personal gain and advantage. Objectivity and inde- pendence require that members be free from conicts of interest in discharging professional responsibilities. Due care requires that services be provided with competence and diligence. .02 Each of these Principles should be considered by members in deter- mining whether or not to provide specic services

��icts of interest in discharging professional responsibilities. Due care requires that services be provided with competence and diligence. .02 Each of these Principles should be considered by members in deter- mining whether or not to provide specic services in individual circumstances. In some instances, they may represent an overall constraint on the nonaudit services that might be offered to a specic client. No hard-and-fast rules can be developed to help members reach these judgments, but they must be satised that they are meeting the spirit of the Principles in this regard. .03 In order to accomplish this, members should • Practice in rms that have in place internal quality-control proce- dures to ensure that services are competently delivered and adequately supervised. • Determine, in their individual judgments, whether the scope and na- ture of other services provided to an audit client would create a conict of interest in the performance of the audit function for that client. • Assess, in their individual judgments, whether an activity is consistent with their role as professionals. [Revised May 15, 2000.] ET §57.03 Table of Contents 2833 ET Section 90 RULES: APPLICABILITY AND DEFINITIONS TABLE OF CONTENTS Section Paragraph 91 Applicability [Revised] ............................................. .01-.02 92 Denitions [Revised] ............................................... .01-.32 Contents Applicability 2835 ET Section 91 Applicability As adopted January 12, 1988, unless otherwise indicated .01 The bylaws of the AICPA require that members adhere to the rules of the Code of Professional Conduct. Members must be prepared to justify depar- tures from these rules. .02 Interpretation addressing the applicability of the AICPA Code of Profes- sional Conduct. For purposes of the applicability section of the code, a member is a member, an associated member, or an international associate of the AICPA [sec. 92 par. .21]. 1. The rules of conduct that follow apply to all professional services performed except a. when the wording of the rule indicates otherwise. b. that a member who is practicing outside the United States will not be subject to discipline for departing from any of the rules stated herein as long as the member's conduct is in ac- cord with the rules of the organized accounting profession in the country in which he or she is practicing. However, when a member's name is associated with nancial statements un- der circumstances that would entitle the reader to assume that U.S. practices were followed, the member must comply with the requirements of Rules 202, Compliance With Standards [sec. 202 par. .01], and 203, Accounting Principles [sec. 203 par. .01]. c. a member who is a member of a group engagement team (see the claried SAS Special Considerations—Audits of Group Fi- nancial Statements [Including the Work of Component Audi- tors]) will not be subject to discipline if a foreign component auditor (accountant) departed from any of the ethics require- ments stated herein with respect to the audit or review of group nancial statements or other attest engagement, as long as the foreign component auditor's (accountant's) conduct, at a min- imum, is in accord with the ethics and independence require- ments set forth in the International Ethics Standards Board for Accountants' (IESBA's) Code of Ethics for Professional Ac- countants, and the members of the group engagement team are in compliance with the rules stated herein. d. a member who is a member of a network rm (as dened in paragraph .24 of section 92, Denitions) will not be subject to discipline if a rm within the network (as dened in para- graph .23 of section 92) that is located outside the United States (foreign network rm) departed from any of the ethics require- ments stated herein, as long as the foreign network rm's conduct, at a minimum, is in accord with the ethics and ET §91.02 2836 Rules: Applicability and Definitions

from any of the ethics require- ments stated herein, as long as the foreign network rm's conduct, at a minimum, is in accord with the ethics and ET §91.02 2836 Rules: Applicability and Definitions independence requirements set forth in the IESBA's Code of Ethics for Professional Accountants. 2. A member shall not knowingly permit a person, whom the mem- ber has the authority or capacity to control, to carry out on his or her behalf, either with or without compensation, acts that, if carried out by the member, would place the member in violation of the rules. Further, a member may be held responsible for the acts of all persons associated with him or her in public practice whom the member has the authority or capacity to control. 3. A member (as dened in paragraph .21 of section 92) or a covered member (as dened in paragraph .07 of section 92) may be con- sidered to have his or her independence impaired, with respect to a client, as the result of the actions or relationships of certain persons or entities, as described in Rule 101, Independence [sec. 101 par. .01], and its interpretations and rulings, whom the mem- ber or covered member does not have the authority or capacity to control. Therefore, nothing in this section should lead one to conclude that the member's or covered member's independence is not impaired solely because of his or her inability to control the actions or relationships of such persons or entities. [Revised September 2011, effective November 30, 2011. Paragraph added Au- gust 1989, effective November 30, 1989. Revised December 1998. Revised July 2002 to reect conforming changes necessary due to the revision of Interpreta- tion 101-1. Revised March 2013, revisions effective May 31, 2013.] ET §91.02 Definitions 2837 ET Section 92 Denitions As adopted, January 12, 1988, unless otherwise indicated [Pursuant to its authority under the bylaws (BL § 3.6.2.2) to interpret the Code of Professional Conduct, the Professional Ethics Executive Committee has issued the following denitions of terms appearing in the code effective November 30, 1989.] .01 Attest engagement. An attest engagement is an engagement that requires independence as dened in AICPA Professional Standards. [Revised November 2001.] .02 Attest engagement team. The attest engagement team consists of individuals participating in the attest engagement, including those who per- form concurring and second partner reviews. The attest engagement team in- cludes all employees and contractors retained by the rm who participate in the attest engagement, irrespective of their functional classication (for example, audit, tax, or management consulting services). The attest engagement team excludes specialists as discussed in AU-C section 620], Using the Work of an Au- ditor's Specialist, and individuals who perform only routine clerical functions, such as word processing and photocopying. [Revised November 2001. Revised May 2013, revisions effective June 30, 2013.] .03 Client. A client is any person or entity, other than the member's em- ployer, that engages a member or member's rm to perform professional ser- vices or a person or entity with respect to which professional services are per- formed. For purposes of this paragraph, the term employer does not include the following: a. Entities engaged in public practice. b. Federal, state, and local governments or component units thereof pro- vided the member performing professional services with respect to those entities is i. directly elected by voters of the government or component unit thereof with respect to which professional services are per- formed; ii. an individual who is (1) appointed by a legislative body and (2) subject to removal by a legislative body; or iii. appointed by someone other than the legislative body, so long as the appointment is conrmed by the legislative body and removal is subject to oversight or approval by the legislative body. [Revised December 1998. Revised March 2013, revisions effective May 31, 2013.] ET §92.03 2838 Rules: Applicability and Definitions .04 Close relative. A close relative is a parent, sibling, or nondependent child. [Revised November

December 1998. Revised March 2013, revisions effective May 31, 2013.] ET §92.03 2838 Rules: Applicability and Definitions .04 Close relative. A close relative is a parent, sibling, or nondependent child. [Revised November 2001.] .05 Condential client information. Condential client information is any information obtained from the client that is not available to the pub- lic. Information that is available to the public includes, but is not limited to, information • in a book, periodical, newspaper, or similar publication; • in a client document that has been released by the client to the public or that has otherwise become a matter of public knowledge; • on publicly accessible websites, databases, online discussion fo- rums, or other electronic media by which members of the public can access the information; • released or disclosed by the client or other third parties in media interviews, speeches, testimony in a public forum, presentations made at seminars or trade association meetings, panel discus- sions, earnings press release calls, investor calls, analyst sessions, investor conference presentations, or a similar public forum; • maintained by, or led with, regulatory or governmental bodies that is available to the public; or • obtained from other public sources. Unless the particular client information is available to the public, such infor- mation should be considered condential client information. Members are advised that federal, state, or local statutes, rules, or regulations concerning condentiality of client information may be more restrictive than the requirements contained in the Code of Professional Conduct. [Effective November 30, 2011.] .06 Council. The council of the AICPA. [Paragraph renumbered September 2011.] .07 Covered member. A covered member is a. an individual on the attest engagement team; b. an individual in a position to inuence the attest engagement; c. a partner, partner equivalent, or manager who provides nonattest ser- vices to the attest client beginning once he or she provides 10 hours of nonattest services to the client within any scal year and ending on the later of the date (i) the rm signs the report on the nancial state- ments for the scal year during which those services were provided or (ii) he or she no longer expects to provide 10 or more hours of nonattest services to the attest client on a recurring basis; d. a partner or partner equivalent in the ofce in which the lead attest engagement partner or partner equivalent primarily practices in con- nection with the attest engagement; e. the rm, including the rm's employee benet plans; or f. an entity whose operating, nancial, or accounting policies can be con- trolled (as dened in Financial Accounting Standards Board [FASB] Accounting Standards Codication [ASC] 810, Consolidation) by any of the individuals or entities described in (a)–(e) or by two or more such individuals or entities if they act together. ET §92.04 Definitions 2839 [Revised November 2001. Revised March 2011, by the Professional Ethics Ex- ecutive Committee, effective May 31, 2011. Paragraph renumbered September 2011. Revised March 2013, revisions effective for engagements covering periods beginning on or after December 15, 2014.] [.08] Enterprise. [Paragraph renumbered September 2011. Revised November 2001.] .09 Financial institution. A nancial institution is considered to be an entity that, as part of its normal business operations, makes loans or extends credit to the general public. In addition, for automobile leases addressed under Interpretation 101-5, "Loans From Financial Institution Clients" under Rule 101, Independence [sec. 101 par. .07], an entity would be considered a nancial institution if it leases automobiles to the general public. [Revised November 2002 and September 2003. Paragraph renumbered Septem- ber 2011.] .10 Financial statements. A presentation of nancial data, including accompanying notes, if any, intended to communicate an entity's economic

. [Revised November 2002 and September 2003. Paragraph renumbered Septem- ber 2011.] .10 Financial statements. A presentation of nancial data, including accompanying notes, if any, intended to communicate an entity's economic re- sources obligations, or both, at a point in time or the changes therein for a period of time, in accordance with generally accepted accounting principles or a comprehensive basis of accounting other than generally accepted accounting principles. Incidental nancial data to support recommendations to a client or in docu- ments for which the reporting is governed by Statements on Standards for Attestation Engagements and tax returns and supporting schedules do not, for this purpose, constitute nancial statements. The statement, afdavit, or sig- nature of preparers required on tax returns neither constitutes an opinion on nancial statements nor requires a disclaimer of such opinion. [Paragraph renumbered September 2011.] .11 Firm. A rm is a form of organization permitted by law or regulation whose characteristics conform to resolutions of the council of the AICPA and that is engaged in public practice. Firm includes the individual partners thereof except for purposes of applying Rule 101 [sec. 101 par. .01]. For purposes of applying Rule 101, rm includes a network rm when the engagement is either a nancial statement audit or review engagement, and the audit or review report is not restricted, as dened by professional standards. [Revised November 2001. Revised May 2010, effective for engagements covering periods beginning on or after July 1, 2011. Paragraph renumbered September 2011. Revised March 2013, revisions effective May 31, 2013.] [.12] Holding out. [Deleted March 2013, effective May 31, 2013.] .13 Immediate family. Immediate family is a spouse, spousal equivalent, or dependent (whether or not related). [Revised November 2001. Paragraph renumbered September 2011.] .14 Individual in a position to inuence the attest engagement. An individual in a position to inuence the attest engagement is one who— a. evaluates the performance or recommends the compensation of the attest engagement partner; b. directly supervises or manages the attest engagement partner, includ- ing all successively senior levels above that individual through the rm's chief executive; c. consults with the attest engagement team regarding technical or industry-related issues specic to the attest engagement; or ET §92.14 2840 Rules: Applicability and Definitions d. participates in or oversees, at all successively senior levels, quality control activities, including internal monitoring, with respect to the specic attest engagement. [Revised November 2001. Paragraph renumbered September 2011.] .15 Institute. The American Institute of Certied Public Accountants. [Paragraph renumbered September 2011.] .16 Interpretations of rules of conduct. Pronouncements issued by the division of professional ethics to provide guidelines concerning the scope and application of the rules of conduct. [Paragraph renumbered September 2011.] .17 Joint closely held investment. A joint closely held investment is an investment in an entity or property by the member and the client (or the client's ofcers or directors, or any owner who has the ability to exercise signicant inuence over the client) that enables them to control (as dened in FASB ASC 810) the entity or property. [Revised November 2001. Revised March 2011, by the Professional Ethics Ex- ecutive Committee, effective May 31, 2011. Paragraph renumbered September 2011.] .18 Key position. A key position is a position in which an individual a. has primary responsibility for signicant accounting functions that support material components of the nancial statements; b. has primary responsibility for the preparation of the nancial state- ments; or c. has the ability to exercise inuence over the contents of the nancial statements, including when the individual is a member of the board of directors or similar governing body, chief executive of

ments; or c. has the ability to exercise inuence over the contents of the nancial statements, including when the individual is a member of the board of directors or similar governing body, chief executive ofcer, president, chief nancial ofcer, chief operating ofcer, general counsel, chief ac- counting ofcer, controller, director of internal audit, director of nan- cial reporting, treasurer, or any equivalent position. For purposes of attest engagements not involving a client's nancial statements, a key position is one in which an individual is primarily responsible for, or able to inuence, the subject matter of the attest engagement, as previously described. [Revised November 2001. Paragraph renumbered September 2011.] .19 Loan. A loan is a nancial transaction, the characteristics of which generally include, but are not limited to, an agreement that provides for re- payment terms and a rate of interest. A loan includes, but is not limited to, a guarantee of a loan, a letter of credit, a line of credit, or a loan commitment. [Revised November 2001. Paragraph renumbered September 2011.] .20 Manager. A manager is a professional employee of the rm who has responsibility for the planning and supervision of engagements for specied clients. [Revised November 2001. Paragraph renumbered September 2011. Revised March 2013, effective May 31, 2013.] .21 Member. A member, associate member, or international associate of the AICPA. [Paragraph renumbered September 2011.] .22 Member in business. A member employed or engaged on a contrac- tual or volunteer basis in an executive, a staff, a governance, an advisory, or ET §92.15 Definitions 2841 an administrative capacity in such areas as industry, the public sector, educa- tion, the not-for-prot sector, or regulatory or professional bodies. This does not include a member while engaged in public practice. [Effective November 30, 2011. Revised March 2013, effective May 31, 2013.] .23 Network. For purposes of Interpretation No. 101-17, "Networks and network rms," of Rule 101 [sec. 101 par. .19], a network is an association of entities that includes one or more rms that (a) cooperate for the purpose of enhancing the rms' capabilities to provide professional services and (b) share one or more of the following characteristics: 1. The use of a common brand name (including common initials) as part of the rm name 2. Common control (as dened in FASB ASC 810) among the rms through ownership, management, or other means 3. Prots or costs, excluding the following: a. Costs of operating the association b. Costs of developing audit methodologies, manuals, and train- ing courses c. Other costs that are immaterial to the rm 4. Common business strategy that involves ongoing collaboration amongst the rms whereby the rms are responsible for imple- menting the association's strategy and are held accountable for performance pursuant to that strategy 5. Signicant part of professional resources 6. Common quality control policies and procedures that rms are required to implement and that are monitored by the association A network may comprise a subset of entities within an association if only that subset of entities cooperates and shares one or more of the characteristics set forth in the preceding list. [Paragraph added May 2010, effective for engagements covering periods begin- ning on or after July 1, 2011. Revised March 2011, by the Professional Ethics Executive Committee, effective May 31, 2011. Paragraph renumbered Sept- ember 2011.] .24 Network rm. A network rm is a rm or other entity that belongs to a network, as dened in paragraph .23. This includes any entity (including another rm) that the network

A network rm is a rm or other entity that belongs to a network, as dened in paragraph .23. This includes any entity (including another rm) that the network rm, by itself or through one or more of its owners, controls (as dened in FASB ASC 810), is controlled by, or is under common control with. [Paragraph added May 2010, effective for engagements covering periods begin- ning on or after July 1, 2011. Revised March 2011, by the Professional Ethics Executive Committee, effective May 31, 2011. Paragraph renumbered Septem- ber 2011.] .25 Normal lending procedures, terms, and requirements. Normal lending procedures, terms, and requirements relating to a covered member's loan from a nancial institution are dened as lending procedures, terms, and requirements that are reasonably comparable with those relating to loans of a similar character committed to other borrowers during the period in which the loan to the covered member is committed. Accordingly, in making such comparison and in evaluating whether a loan was made under normal lending procedures, terms, and requirements, the covered member should consider all the circumstances under which the loan was granted, including the following: ET §92.25 2842 Rules: Applicability and Definitions a. The amount of the loan in relation to the value of the collateral pledged as security and the credit standing of the covered member. b. Repayment terms. c. Interest rate, including "points." d. Closing costs. e. General availability of such loans to the public. Related prohibitions that may be more restrictive are prescribed by certain state and federal agencies having regulatory authority over such nancial institu- tions. Broker-dealers, for example, are subject to regulation by the Securities and Exchange Commission. [Revised November 2002. Paragraph renumbered May 2010. Paragraph renum- bered September 2011.] .26 Ofce. An ofce is a reasonably distinct subgroup within a rm, whether constituted by formal organization or informal practice, where per- sonnel who make up the subgroup generally serve the same group of clients or work on the same categories of matters. Substance should govern the ofce classication. For example, the expected regular personnel interactions and as- signed reporting channels of an individual may well be more important than an individual's physical location. [Revised November 2001. Paragraph renumbered May 2010. Paragraph renum- bered September 2011.] .27 Partner. A partner is a proprietor, shareholder, equity or non-equity partner or any individual who assumes the risks and benets of rm ownership or who is otherwise held out by the rm to be the equivalent of any of the aforementioned. [Revised November 2001. Paragraph renumbered May 2010. Paragraph renum- bered September 2011.] .28 Partner equivalent. A partner equivalent is a professional employee who is not a partner of the rm as dened in paragraph .27, but who a. has the authority to bind the rm to conduct an attest engagement without partner approval (for example, the professional employee has the authority to sign or afx the rm's name to an attest engagement letter or contract to conduct an attest engagement without partner approval); or b. has the ultimate responsibility for the conduct of an attest engage- ment, including the authority to sign or afx the rm's name to an attest report or issue, or authorize others to issue, an attest report on behalf of the rm without partner approval. Firms may use different titles to refer to professional employees with this au- thority, although a title is not determinative of a partner equivalent. For pur- poses of this denition, partner approval does not include any partner approvals that are part of the rm's normal approval and quality control review proce- dures applicable to a partner. This denition is solely for the purpose of applying Rule 101 [sec. 101 par. .01

are part of the rm's normal approval and quality control review proce- dures applicable to a partner. This denition is solely for the purpose of applying Rule 101 [sec. 101 par. .01] and its interpretations and rulings and should not be used or relied upon in any other context, including the determination of whether the partner equivalent is an owner of the rm. [Paragraph added March 2013, effective for engagements covering periods be- ginning on or after December 15, 2014.] ET §92.26 Definitions 2843 .29 Period of the professional engagement. The period of the profes- sional engagement begins when a member either signs an initial engagement letter or other agreement to perform attest services or begins to perform an attest engagement for a client, whichever is earlier. The period lasts for the entire duration of the professional relationship (which could cover many peri- ods) and ends with the formal or informal notication, either by the member or the client, of the termination of the professional relationship or by the issuance of a report, whichever is later. Accordingly, the period does not end with the issuance of a report and recommence with the beginning of the following year's attest engagement. [Revised November 2001. Paragraph renumbered May 2010. Paragraph renum- bered September 2011. Paragraph renumbered March 2013.] .30 Public practice. Public practice consists of the performance of pro- fessional services for a client by a member or a member's rm. [Paragraph renumbered May 2010. Revised June 2009. Paragraph renumbered September 2011. Revised and renumbered March 2013, effective May 31, 2013.] .31 Professional services. Professional services include all services per- formed by a member for a client, an employer, or on a volunteer basis, requiring accountancy or related skills, including but not limited to, accounting, audit and other attest services, tax, bookkeeping, management consulting, nancial management, corporate governance, personal nancial planning, business val- uation, litigation support, educational, and those services for which standards are promulgated by bodies designated by council. [Paragraph renumbered May 2010. Paragraph renumbered September 2011. Revised and renumbered March 2013, effective May 31, 2013.] .32 Signicant inuence. The term signicant inuence is as dened in FASB ASC 323-10-15. [Revised November 2001 and June 2009. Paragraph renumbered May 2010. Paragraph renumbered September 2011. Paragraph renumbered March 2013.] ET §92.32 Table of Contents 2845 ET Section 100 INDEPENDENCE, INTEGRITY, AND OBJECTIVITY TABLE OF CONTENTS Section Paragraph 100-1 Conceptual Framework for AICPA Independence Standards Introduction .................................................. .01-.05 Denitions .................................................... .06-.26 101 Independence Rule 101—Independence ..................................... .01 Interpretations under Rule 101—Independence 101-1—Interpretation of Rule 101 [Revised] ............ .02 [101-1]—[Renumbered as Interpretation 101-4] ......... [.03] 101-2—Employment or association with attest clients [Revised] ............................................ .04 101-3—Nonattest Services [Revised] ................... .05 101-4—Honorary directorships and trusteeships of not-for-prot organization [Revised] .................. .06 101-5—Loans from nancial institution clients and related terminology [Revised] ........................ .07 101-6—The effect of actual or threatened litigation on independence [Revised] ............................. .08 [101-7]—[Deleted] ..................................... [.09] 101-8—Effect on Independence of Financial Interests in Nonclients Having Investor or Investee Relationships With a Covered Member’s Client .................... .10 [101-9]—[Deleted] ..................................... [.11] 101-10—The effect on independence of relationships with entities included in the governmental �

hips With a Covered Member’s Client .................... .10 [101-9]—[Deleted] ..................................... [.11] 101-10—The effect on independence of relationships with entities included in the governmental nancial statements [Revised] ................................. .12 101-11—Modied application of Rule 101 for engagements performed in accordance with Statements on Standards for Attestation Engagements ....................................... .13 101-12—Independence and cooperative arrangements with clients ............................ .14 [101-13]—[Deleted] ................................... [.15] 101-14—The effect of alternative practice structures on the applicability of independence rules .............. .16 101-15—Financial relationships ........................ .17 [101-16]—[Reserved] .................................. [.18] 101-17—Networks and network rms .................. .19 101-18—Application of the independence rules to afliates ............................................ .20 Contents 2846 Table of Contents Section Paragraph 101 Independence—continued 101-19—Permitted employment with client educational institution ........................................... .21 102 Integrity and Objectivity Rule 102—Integrity and Objectivity ......................... .01 Interpretations under Rule 102—Integrity and Objectivity 102-1—Knowing Misrepresentations in the Preparation of Financial Statements or Records [Revised] .......... .02 102-2—Conicts of Interest ............................. .03 102-3—Obligations of a Member to His or Her Employer’s External Accountant ...................... .04 102-4—Subordination of Judgment by a Member ....... .05 102-5—Applicability of Rule 102 to Members Performing Educational Services ..................... .06 102-6—Professional Services Involving Client Advocacy ........................................... .07 191 Ethics Rulings on Independence, Integrity, and Objectivity [1.] Acceptance of a Gift [Deleted] ......................... [.001-.002] 2. Association Membership [Revised] ....................... .003-.004 [3.] Member as Signer or Cosigner of Checks [Deleted] ..... [.005-.006] [4.] Payroll Preparation Services [Deleted] .................. [.007-.008] [5.] Member as Bookkeeper [Deleted] ...................... [.009-.010] [6.] Member’s Spouse as Accountant of Client [Deleted] ..... [.011-.012] [7.] Member Providing Contract Services [Deleted] .......... [.013-.014] 8. Member Providing Advisory Services ..................... .015-.016 [9.] Member as Representative of Creditor’s Committee [Deleted] ................................................ [.017-.018] [10.] Member as Legislator [Deleted] ....................... [.019-.020] 11. Member Designated to Serve as Executor or Trustee [Revised] ................................................ .021-.022 [12.] Member as Trustee of Charitable Foundation [Deleted] ................................................ [.023-.024] [13.] Member as Bank Stockholder [Deleted] ................ [.025-.026] 14. Member on Board of Federated Fund-Raising Organization ........................................... .027-.028 [15.] Retired Partner as Director [Deleted] ................... [.029-.030] [16.] Member on Board of Directors of Nonprot Social Club [Deleted] .......................................... [.031-.032] 17. Member of Social Club ................................. .033-.034 [18.] Member as City Council Chairman [Deleted] .......... [.035-.036] [19.] Member on Deferred Compensation Committee [Deleted] ................................................ [.037-.038] 20. Member Serving on Governmental Advisory Unit [Revised] ................................................ .039-.040 21. Member as Director and Auditor of an Entity’s Prot Sharing and Retirement Trust ............................ .041-.042 [22.] Family Relationship, Brother [Deleted] ................. [.043-.044] [23.] Family Relationship, Uncle by Marriage [Deleted] ..... [.045-.046] Contents Table of Contents 28

.041-.042 [22.] Family Relationship, Brother [Deleted] ................. [.043-.044] [23.] Family Relationship, Uncle by Marriage [Deleted] ..... [.045-.046] Contents Table of Contents 2847 Section Paragraph 191 Ethics Rulings on Independence, Integrity, and Objectivity—continued [24.] Family Relationship, Father [Deleted] .................. [.047-.048] [25.] Family Relationship, Son [Deleted] .................... [.049-.050] [26.] Family Relationship, Son [Deleted] .................... [.051-.052] [27.] Family Relationship, Spouse as Trustee [Deleted] ....... [.053-.054] [28.] Cash Account With Brokerage Client [Superseded by ethics ruling No. 59] .................................... [.055-.056] [29.] Member as Bondholder [Deleted] ..................... [.057-.058] [30.] Financial Interest by Employee [Deleted] ............... [.059-.060] 31. Performance of Services for Common Interest Realty Associations (CIRAs), Including Cooperatives, Condominium Associations, Planned Unit Developments Homeowners Associations, and Timeshare Developments, [Revised] ................................. .061-.062 [32.] Mortgage Loan to Member’s Corporation [Deleted] .... [.063-.064] [33.] Member as Participant in Employee Benet Plan [Deleted] ................................................ [.065-.066] [34.] Member as Auditor of Common Trust Funds [Deleted]... [.067-.068] [35.]Stockholder in Mutual Funds [Deleted] ................. [.069-.070] [36.] Participant Investment Club [Deleted] .................. [.071-.072] [37.] Retired Partners as Co-Trustee [Deleted] ............... [.073-.074] 38. Member as Co-Fiduciary With Client Bank .............. .075-.076 [39.] Member as Ofcially Appointed Stock Transfer Agent or Registrar [Deleted] .................................... [.077-.078] [40.] Controller Entering Public Practice [Deleted] ........... [.079-.080] 41. Financial Services Company Client Has Custody of a Member’s Assets [Revised] ............................... .081-.082 [42.] Member as Life Insurance Policy Holder [Deleted] ...... [.083-.084] [43.] Member’s Employee as Treasurer of a Client [Deleted] ................................................ [.085-.086] [44.] Past Due Billings [Superseded by ethics ruling No. 52] ................................................. [.087-.088] [45.] Past Due Fees: Client in Bankruptcy [Deleted] .......... [.089-.090] [46.] Member as General Counsel [Superseded by ethics ruling No. 51] .......................................... [.091-.092] [47.] Member as Auditor of Mutual Fund and Shareholder of Investment Advisor/Manager [Deleted] ................ [.093-.094] [48.] Faculty Member as Auditor of a Student Fund [Deleted] ................................................ [.095-.096] [49.] Investor and Investee Companies [Superseded by interpretation 101-8] .................................... [.097-.098] [50.] Family Relationship, Brother-in-Law [Deleted] ........... [.099-.100] [51.] Member Providing Legal Services [Deleted] ............ [.101-.102] 52. Unpaid Fees [Revised] .................................. .103-.104 [53.] Member as Auditor of Employee Benet Plan and Sponsoring Company [Deleted] .......................... [.105-.106] [54.] Member Providing Appraisal, Valuation, or Actuarial Services [Deleted] ....................................... [.107-.108] Contents 2848 Table of Contents Section Paragraph 191 Ethics Rulings on Independence, Integrity, and Objectivity—continued [55.] Independence During Systems Implementation [Deleted] ................................................ [.

....................................... [.107-.108] Contents 2848 Table of Contents Section Paragraph 191 Ethics Rulings on Independence, Integrity, and Objectivity—continued [55.] Independence During Systems Implementation [Deleted] ................................................ [.109-.110] [56.] Executive Search [Deleted] ............................ [.111-.112] [57.] MAS Engagement to Evaluate Service Bureaus [Deleted] ................................................ [.113-.114] [58.] Member as Lessor [Deleted] ........................... [.115-.116] [59.] Account With Brokerage Client [Deleted] .............. [.117-.118] 60. Employee Benet Plans—Member’s Relationships With Participating Employer .................................. .119-.120 [61.] Participation of Member’s Spouse in Client’s Stock Ownership Plans (Including an ESOP) [Deleted] .......... [.121-.122] [62.] Member and Client Are Limited Partners in a Limited Partnership [Deleted] .................................... [.123-.124] [63.] Review of Prospective Financial Information—Member’s Independence of Promotors [Deleted] .................... [.125-.127] 64. Member Serves on Board of Organization for Which Client Raises Funds [Revised] ............................ .128-.129 [65.] Use of the CPA Designation By Member Not in Public Practice [Deleted] ....................................... [.130-.131] [66.] Member’s Retirement or Savings Plan Has Financial Interest in Client [Deleted] ............................... [.132-.133] 67. Servicing of Loan ...................................... .134-.135 [68.] Blind Trust [Deleted] ................................... [.136-.137] 69. Investment With a General Partner ...................... .138-.139 70. Member’s Depository Relationship With Client Financial Institution [Revised] ...................................... .140-.141 71. Use of Nonindependent CPA Firm on an Engagement ... .142-.143 72. Member on Advisory Board of Client ................... .144-.145 [73.] Meaning of the Period of a Professional Engagement [Deleted] ................................................ [.146-.147] [74.] Audits, Reviews, or Compilations and a Lack of Independence [Deleted] ................................. [.148-.149] 75. Membership in Client Credit Union ..................... .150-.151 [76.] Guarantee of Loan [Deleted] .......................... [.152-.153] [77.] Individual Considering or Accepting Employment With the Client [Deleted] ...................................... [.154-.155] [78.] Service on Governmental Board [Deleted] ............. [.156-.157] [79.] Member’s Investment in a Partnership That Invests in Client [Deleted] ....................................... [.158-.159] [80.] The Meaning of a Joint Closely Held Business Investment [Deleted] ..................................... [.160-.161] 81. Member’s Investment in a Limited Partnership ........... .162-.163 82. Campaign Treasurer ................................... .164-.165 [83.] Member on Board of Component Unit and Auditor of Oversight Entity [Deleted] ................................ [.166-.167] [84.] Member on Board of Material Component Unit and Auditor of Another Material Component Unit [Deleted] ... [.168-.169] Contents Table of Contents 2849 Section Paragraph 191 Ethics Rulings on Independence, Integrity, and Objectivity—continued 85. Bank Director .......................................... .170-.171 [86.] Partially Secured Loans [Deleted] ...................... [.172-.173] [87.] Loan Commitment or Line of Credit [Deleted] ........... [.174-.175] [88.] Loans to Partnership in Which Members Are Limited Partners [Deleted] ....................................... [.176-.177] [89.] Loan to Partnership in Which Members Are General Partners [Deleted] ....................................... [.178-.179] [90.] Credit Card Balances and Cash Advances [Deleted] ... [.180-.181] 91. Member Leasing Property to or From a Client [Revised] ... .182-.183 92. Joint Interest in Vacation Home .......................... .184-.

ances and Cash Advances [Deleted] ... [.180-.181] 91. Member Leasing Property to or From a Client [Revised] ... .182-.183 92. Joint Interest in Vacation Home .......................... .184-.185 93. Service on Board of Directors of Federated Fund-Raising Organization ............................................ .186-.187 94. Indemnication Clause in Engagement Letters ........... .188-.189 95. Agreement With Attest Client to Use ADR Techniques .... .190-.191 96. Commencement of ADR Proceeding ..................... .192-.193 [97.] Performance of Certain Extended Audit Services [Deleted] ................................................ [.194-.195] 98. Member’s Loan From a Nonclient Subsidiary or Parent of an Attest Client .............................. .196-.197 99. Member Providing Services for Company Executives .... .198-.199 100. Actions Permitted When Independence Is Impaired ..... .200-.201 [101.] Client Advocacy and Expert Witness Services [Deleted] ................................................ [.202-.203] 102. Indemnication of a Client ............................ .204-.205 [103.] Attest Report on Internal Controls [Deleted] ........... [.206-.207] [104.] Operational Auditing Services [Deleted] .............. [.208-.209] [105.] Frequency of Performance of Extended Audit Procedures [Deleted] ..................................... [.210-.211] 106. Member Has Signicant Inuence Over an Entity That Has Signicant Inuence Over a Client ................... .212-.213 107. Participation in Employee Benet Plan Sponsored by Client [Revised] ...................................... .214-.215 [108.] Participation of Member, Spouse or Dependent in Retirement, Savings, or Similar Plan Sponsored by, or That Invests in, Client [Deleted] ........................... [.216-.217] [109.] Member’s Investment in Financial Services Products That Invest in Clients [Deleted] ........................... [.218-.219] 110. Member Is Connected With an Entity That Has a Loan to or From a Client (in part) .............................. .220-.221 111. Employee Benet Plan Sponsored by Client ............ .222-.223 112. Use of a Third-Party Service Provider to Assist a Member in Providing Professional Services ............... .224-.225 113. Acceptance or Offering of Gifts or Entertainment ....... .226-.227 114. Acceptance or Offering of Gifts and Entertainment to or From an Attest Client .................................. .228-.229 Contents Conceptual Framework for AICPA Independence Standards 2851 ET Section 100-1 Conceptual Framework for AICPA Independence Standards Introduction .01 This conceptual framework describes the risk-based approach to ana- lyzing independence matters that is used by the Professional Ethics Executive Committee (PEEC) of the AICPA when it develops independence standards. Under that approach, a member's relationship with a client is evaluated to de- termine whether it poses an unacceptable risk to the member's independence. Risk is unacceptable if the relationship would compromise (or would be per- ceived as compromising by an informed third party having knowledge of all relevant information) the member's professional judgment when rendering an attest service to the client. Key to that evaluation is identifying and assessing the extent to which a threat to the member's independence exists and, if it does, whether it would be reasonable to expect that the threat would compromise the member's professional judgment and, if so, whether it can be effectively miti- gated or eliminated. Under the risk-based approach, steps are taken to prevent circumstances that threaten independence from compromising the professional judgments required in the performance of an attest engagement. .02 Professional standards of the AICPA require independence for all at- test engagements. The PEEC bases its independence interpretations and rul- ings under section 100 on the concepts in this framework. However, in certain circumstances the PEEC has determined that it is appropriate to prohibit or re- strict certain relationships notwithstanding the fact that the risk may be at an acceptable level. For example, the PEEC has determined that a covered mem- ber should not

, in certain circumstances the PEEC has determined that it is appropriate to prohibit or re- strict certain relationships notwithstanding the fact that the risk may be at an acceptable level. For example, the PEEC has determined that a covered mem- ber should not own even an immaterial direct nancial interest in an attest client. .03 Because this conceptual framework describes the concepts upon which the AICPA's independence interpretations and rulings are based, it may assist AICPA members and others in understanding those interpretations and rul- ings. In addition, this conceptual framework should be used by members when making decisions on independence matters that are not explicitly addressed by the Code of Professional Conduct. Under no circumstances, however, may the framework be used to overcome prohibitions or requirements contained in the independence interpretations and rulings. .04 The risk-based approach entails evaluating the risk that the member would not be independent or would be perceived by a reasonable and informed third party having knowledge of all relevant information as not being inde- pendent. That risk must be reduced to an acceptable level to conclude that a member is independent under the concepts in this framework. Risk is at an acceptable level when threats are at an acceptable level, either because of the types of threats and their potential effect, or because safeguards have suf- ciently mitigated or eliminated the threats. Threats are at an acceptable level when it is not reasonable to expect that the threat would compromise profes- sional judgment. .05 The risk-based approach involves the following steps. ET §100-1.05 2852 Independence, Integrity, and Objectivity a. Identifying and evaluating threats to independence—Identify and evaluate threats, both individually and in the aggregate, because threats can have a cumulative effect on a member's independence. Where threats are identied but, due to the types of threats and their potential effects, such threats are considered to be at an acceptable level (that is, it is not reasonable to expect that the threats would com- promise professional judgment), the consideration of safeguards is not required. If identied threats are not considered to be at an acceptable level, safeguards should be considered as described in paragraph .05b. b. Determining whether safeguards already eliminate or sufciently mit- igate identied threats and whether threats that have not yet been mitigated can be eliminated or sufciently mitigated by safeguards— Different safeguards can mitigate or eliminate different types of threats, and one safeguard can mitigate or eliminate several types of threats simultaneously. When threats are sufciently mitigated by safeguards, the threats' potential to compromise professional judg- ment is reduced to an acceptable level. A threat has been sufciently mitigated by safeguards if, after application of the safeguards, it is not reasonable to expect that the threat would compromise professional judgment.1 c. If no safeguards are available to eliminate an unacceptable threat or reduce it to an acceptable level, independence would be considered impaired. Denitions .06 Independence is dened as: a. Independence of mind—The state of mind that permits the perfor- mance of an attest service without being affected by inuences that compromise professional judgment, thereby allowing an individual to act with integrity and exercise objectivity and professional skepticism. b. Independence in appearance—The avoidance of circumstances that would cause a reasonable and informed third party, having knowledge of all relevant information, including safeguards2 applied, to reason- ably conclude that the integrity, objectivity, or professional skepticism of a rm or a member of the attest engagement team had been com- promised. .07 This denition reects the longstanding professional requirement that members who provide services to entities for which independence is required be independent both in fact and in appearance.3 The state of mind of a member who is independent "in fact" assists the member in performing an attest en- gagement in an objective manner. Accordingly, independence of mind reects the longstanding requirement that members be independent in fact. .08 This denition is used as part of the risk-based approach to analyze independence. Because the risk-based approach requires judgment, the deni

ects the longstanding requirement that members be independent in fact. .08 This denition is used as part of the risk-based approach to analyze independence. Because the risk-based approach requires judgment, the deni- tion should not be interpreted as an absolute. For example, the phrase "without 1 In cases where threats to independence are not at an acceptable level, thereby requiring the application of safeguards, the threats identied and the safeguards applied to eliminate the threats or reduce them to an acceptable level should be documented as required under "Other Considerations" of Interpretation 101-1, Interpretation of Rule 101 [section 101.02]. 2 The term safeguards is dened in paragraph .20. 3 Section 55, Article IV—Objectivity and Independence, states, "A member in public practice should be independent in fact and appearance when providing auditing and other attestation services." ET §100-1.06 Conceptual Framework for AICPA Independence Standards 2853 being affected by inuences that compromise professional judgment" is not in- tended to convey that the member must be free of any and all inuences that might compromise objective judgment. Instead, a determination must be made about whether such inuences, if present, create an unacceptable risk that a member would not act with integrity and exercise objectivity and professional skepticism in the conduct of a particular engagement, or would be perceived as not being able to do so by a reasonable and informed third party that has knowledge of all relevant information. .09 Impair—For purposes of this framework, impair means to effectively extinguish (independence). When a member's independence is impaired, the member is not independent. .10 Threats—Threats to independence are circumstances that could im- pair independence. Whether independence is impaired depends on the nature of the threat, whether it would be reasonable to expect that the threat would compromise the member's professional judgment and, if so, the specic safe- guards applied to reduce or eliminate the threat, and the effectiveness of those safeguards as described in paragraph .21. .11 Threats might not involve violations of existing interpretations or rul- ings. For example, the circumstance described in paragraph .18b of this frame- work is permissible in limited instances under current AICPA independence interpretations and rulings. .12 Many different circumstances (or combinations of circumstances) can create threats to independence. It is impossible to identify every situation that creates a threat. However, seven broad categories of threats should always be evaluated when threats to independence are being identied and assessed. They are self-review, advocacy, adverse interest, familiarity, undue inuence, nancial self-interest, and management participation threats The following paragraphs dene and provide examples, which are not all-inclusive, of each of these threat categories. Some of these examples are the subject of independence interpretations and rulings contained in the Code of Professional Conduct. .13 Self-review threat—Members reviewing as part of an attest engage- ment evidence that results from their own, or their rm's, nonattest work such as, preparing source documents used to generate the client's nancial state- ments .14 Advocacy threat—Actions promoting an attest client's interests or po- sition.4 a. Promoting the client's securities as part of an initial public offering b. Representing a client in U.S. tax court .15 Adverse interest threat—Actions or interests between the member and the client that are in opposition, such as, commencing, or the expressed in- tention to commence, litigation by either the client or the member against the other. .16 Familiarity threat—Members having a close or longstanding relation- ship with an attest client or knowing individuals or entities (including by rep- utation) who performed nonattest services for the client. a. A member of the attest engagement team whose spouse is in a key position at the client, such as the client's CEO 4 This threat does not arise from testifying as a fact witness or defending the results of a profes- sional service that the member performed for the client. ET §100-1.16 2854 Independence, Integrity

such as the client's CEO 4 This threat does not arise from testifying as a fact witness or defending the results of a profes- sional service that the member performed for the client. ET §100-1.16 2854 Independence, Integrity, and Objectivity b. A partner or partner equivalent of the rm who has provided the client with attest services for a prolonged period c. A member who performs insufcient audit procedures when reviewing the results of a nonattest service because the service was performed by the member's rm d. A member of the rm having recently been a director or an ofcer of the client e. A member of the attest engagement team whose close friend is in a key position at the client .17 Undue inuence threat—Attempts by an attest client's management or other interested parties to coerce the member or exercise excessive inuence over the member. a. A threat to replace the member or the member's rm over a disagree- ment with client management on the application of an accounting prin- ciple b. Pressure from the client to reduce necessary audit procedures for the purpose of reducing audit fees c. A gift from the client to the member that is other than clearly insignif- icant to the member .18 Financial self-interest threat—Potential benet to a member from a nancial interest in, or from some other nancial relationship with, an attest client. a. Having a direct nancial interest or material indirect nancial interest in the client b. Having a loan from the client, from an ofcer or director of the client, or from an individual who owns 10 percent or more of the client's out- standing equity securities c. Excessive reliance on revenue from a single attest client d. Having a material joint venture or other material joint business ar- rangement with the client .19 Management participation threat—Taking on the role of client man- agement or otherwise performing management functions on behalf of an attest client. a. Serving as an ofcer or director of the client b. Establishing and maintaining internal controls for the client c. Hiring, supervising, or terminating the client's employees .20 Safeguards—Controls that eliminate or reduce threats to indepen- dence. Safeguards range from partial to complete prohibitions of the threat- ening circumstance to procedures that counteract the potential inuence of a threat. The nature and extent of the safeguards to be applied depend on many factors, including the size of the rm and whether the client is a public interest entity. To be effective, safeguards should eliminate or reduce the threat to an acceptable level. Solely for the purpose of this conceptual framework, the following entities are considered to be public interest entities: (a) all listed entities 5 and (b) any entity for which an audit is required by regulation or legislation to be conducted in 5 Including entities that are outside the United States whose shares, stock, or debt are quoted or listed on a recognized stock exchange or marketed under the regulations of a recognized stock exchange or other equivalent body. [Footnote revised September 2011, effective November 30, 2011.] ET §100-1.17 Conceptual Framework for AICPA Independence Standards 2855 compliance with the same independence requirements that apply to an audit of listed entities (for example, requirements of the Securities and Exchange Commission, the Public Company Accounting Oversight Board, or other similar regulators or standard setters).6,7 .21 The effectiveness of a safeguard depends on many factors, including those listed here: a. The facts and circumstances specic to a particular situation b. The proper identication of threats c. Whether the safeguard is suitably designed to meet its objectives d. The party or parties that will be subject to the safeguard e. How the safeguard is applied f. The consistency with which the safeguard is applied g. Who applies the safeguard .22 There are three broad categories of safeguards. The relative impor- tance of a safeguard depends on its appropriateness in light of the facts and circumstances. a. Safeguards created by the profession, legislation,

Who applies the safeguard .22 There are three broad categories of safeguards. The relative impor- tance of a safeguard depends on its appropriateness in light of the facts and circumstances. a. Safeguards created by the profession, legislation, or regulation b. Safeguards implemented by the attest client c. Safeguards implemented by the rm, including policies and procedures to implement professional and regulatory requirements .23 Examples of various safeguards within each category are presented in the following paragraphs. The examples are not intended to be all-inclusive and, conversely, the examples of safeguards implemented by the attest client and within the rm's own systems and procedures may not all be present in each instance. In addition, threats may be sufciently mitigated through the application of other safeguards not specically identied herein. .24 Examples of safeguards created by the profession, legislation, or regu- lation a. Education and training requirements on independence and ethics rules for new professionals b. Continuing education requirements on independence and ethics c. Professional standards and monitoring and disciplinary processes d. External review of a rm's quality control system e. Legislation governing the independence requirements of the rm f. Competency and experience requirements for professional licensure .25 Examples of safeguards implemented by the attest client that would operate in combination with other safeguards a. The attest client has personnel with suitable skill, knowledge, and/or experience who make managerial decisions with respect to the delivery of nonattest services by the member to the attest client 6 Members may wish to consider whether additional entities should also be treated as public interest entities because they have a large number and wide range of stakeholders. Factors to be considered may include (a) the nature of the business, such as the holding of assets in a duciary capacity for a large number of stakeholders; (b) size; and (c) number of employees. [Footnote added September 2011, effective November 30, 2011.] 7 Members should refer to the independence regulations of authoritative regulatory bodies when a member performs attest services and is required to be independent of the client under such regulations. [Footnote added September 2011, effective November 30, 2011.] ET §100-1.25 2856 Independence, Integrity, and Objectivity b. A tone at the top that emphasizes the attest client's commitment to fair nancial reporting c. Policies and procedures that are designed to achieve fair nancial re- porting d. A governance structure, such as an active audit committee, that is designed to ensure appropriate decision making, oversight, and com- munications regarding a rm's services e. Policies that dictate the types of services that the entity can hire the audit rm to provide without causing the rm's independence to be considered impaired .26 Examples of safeguards implemented by the rm a. Firm leadership that stresses the importance of independence and the expectation that members of attest engagement teams will act in the public interest b. Policies and procedures that are designed to implement and monitor quality control in attest engagements c. Documented independence policies regarding the identication of threats to independence, the evaluation of the signicance of those threats, and the identication and application of safeguards that can eliminate the threats or reduce them to an acceptable level d. Internal policies and procedures that are designed to monitor compli- ance with the rm's independence policies and procedures e. Policies and procedures that are designed to identify interests or rela- tionships between the rm or its partners and professional staff and attest clients f. The use of different partners, partner equivalents, and engagement teams that have separate reporting lines in the delivery of permitted nonattest services to an attest client, particularly when the separation between reporting lines is signicant g. Training on, and timely communication of, a rm's policies and pro- cedures, and any changes to them, for all partners and professional staff h. Policies and procedures that are designed to monitor the rm's, part- ner's, or partner equivalent's reliance on revenue from a single client and, if necessary

and any changes to them, for all partners and professional staff h. Policies and procedures that are designed to monitor the rm's, part- ner's, or partner equivalent's reliance on revenue from a single client and, if necessary, cause action to be taken to address excessive reliance i. Designating someone from senior management as the person who is responsible for overseeing the adequate functioning of the rm's qual- ity control system j. A means of informing partners and professional staff of attest clients and related entities from which they must be independent k. A disciplinary mechanism that is designed to promote compliance with policies and procedures l. Policies and procedures that are designed to empower staff to com- municate to senior members of the rm any engagement issues that concern them without fear of retribution m. Policies and procedures relating to independence communications with audit committees or others charged with client governance n. Discussing independence issues with the audit committee or others responsible for the client's governance ET §100-1.26 Conceptual Framework for AICPA Independence Standards 2857 o. Disclosures to the audit committee (or others responsible for the client's governance) regarding the nature of the services that are or will be provided and the extent of the fees charged or to be charged p. The involvement of another professional accountant who (i) reviews the work that is done for an attest client or (ii) otherwise advises the attest engagement team (This individual could be someone from out- side the rm or someone from within the rm who is not otherwise associated with the attest engagement.) q. Consultation on engagement issues with an interested third party, such as a committee of independent directors, a professional regulatory body, or another professional accountant r. Rotation of senior personnel who are part of the attest engagement team s. Policies and procedures that are designed to ensure that members of the attest engagement team do not make or assume responsibility for management decisions for the attest client t. The involvement of another rm to perform part of the attest engage- ment u. The involvement of another rm to reperform a nonattest service to the extent necessary to enable it to take responsibility for that service v. The removal of an individual from an attest engagement team when that individual's nancial interests or relationships pose a threat to independence w. A consultation function that is staffed with experts in accounting, au- diting, independence, and reporting matters who can help attest en- gagement teams (i) assess issues when guidance is unclear or when the issues are highly technical or require a great deal of judgment and (ii) resist undue pressure from a client when the engagement team disagrees with the client about such issues x. Client acceptance and continuation policies that are designed to pre- vent association with clients that pose an unacceptable threat to the member's independence y. Policies that preclude audit partners or partner equivalents from being directly compensated for selling nonattest services to the audit client [Revised September 2011, effective November 30, 2011. Issued April 2006, ef- fective April 30, 2007, with earlier application encouraged, by the Professional Ethics Executive Committee. Revised March 2013, revisions effective for en- gagements covering periods beginning on or after December 15, 2014.] ET §100-1.26 Independence 2859 ET Section 101 Independence .01 Rule 101—Independence A member in public practice shall be in- dependent in the performance of professional services as required by standards promulgated by bodies designated by council. [As adopted January 12, 1988.] Interpretations under Rule 101—Independence In performing an attest engagement, a member should consult the rules of his or her state board of accountancy, his or her state CPA society, the Public Company Accounting Oversight Board and the U.S. Securities and Exchange Commission (SEC) if the member's report will be led with the SEC, the U.S. Department of Labor (DOL) if the member's report will be led with the DOL, the Government Accountability Ofce (GAO) if law, regulation, agreement, policy or contract requires the member's report to be led under GAO regulations, and any organization that issues or enforces standards of independence that would apply to the member's engagement. Such organizations may have independence requirements

regulation, agreement, policy or contract requires the member's report to be led under GAO regulations, and any organization that issues or enforces standards of independence that would apply to the member's engagement. Such organizations may have independence requirements or rulings that differ from (for example, may be more restrictive than) those of the AICPA. .02 101-1—Interpretation of Rule 101 Independence shall be consid- ered to be impaired if: A. During the period of the professional engagement* a cov- ered member 1. Had or was committed to acquire any direct or material indirect nancial interest in the client. 2. Was a trustee of any trust or executor or administrator of any estate if such trust or estate had or was committed to acquire any direct or material indirect nancial interest in the client and (i) The covered member (individually or with others) had the authority to make investment decisions for the trust or estate; or (ii) The trust or estate owned or was committed to acquire more than 10 percent of the client's outstanding equity securities or other ownership interests; or (iii) The value of the trust's or estate's holdings in the client exceeded 10 percent of the total assets of the trust or estate. 3. Had a joint closely held investment that was material to the covered member. 4. Except as specically permitted in Interpretation No. 101-5, "Loans From Financial Institution Clients and Related Termi- nology" [sec. 101 par. .07], had any loan to or from the client, any ofcer or director of the client, or any individual owning 10 percent or more of the client's outstanding equity securities or other ownership interests. * Terms shown in boldface type upon rst usage in this interpretation are dened in section 92, Denitions. [Footnote added, July 2002, to reect conforming changes necessary due to the revision of Interpretation No. 101-1.] ET §101.02 2860 Independence, Integrity, and Objectivity B. During the period of the professional engagement, a partner or professional employee of the rm, his or her immediate family, or any group of such persons acting together owned more than 5 percent of a client's outstanding equity securities or other own- ership interests. C. During the period covered by the nancial statements or during the period of the professional engagement, a rm, or partner or professional employee of the rm was simultaneously associated with the client as a(n) 1. Director, ofcer, or employee, or in any capacity equivalent to that of a member of management; 2. Promoter, underwriter, or voting trustee; or 3. Trustee for any pension or prot-sharing trust of the client. Transition Period for Certain Business and Employment Relationships A business or employment relationship with a client that impairs indepen- dence under Interpretation No. 101-1, "Interpretation of Rule 101" [sec. 101 par. .02(C)], and that existed as of November 2001, will not be deemed to im- pair independence provided such relationship was permitted under Rule 101 [sec. 101 par. .01], and its interpretations and rulings as of November 2001, and the individual severed that relationship on or before May 31, 2002. Application of the Independence Rules to Covered Members Formerly Employed by a Client or Otherwise Associated With a Client A rm's independence would be impaired if a covered member who was for- merly1 (a) employed by a client or (b) associated with a client as a(n) ofcer, director, promoter, underwriter, voting trustee, or trustee for a pension or prot sharing trust of the client a. fails to disassociate himself or herself from the client prior to be- coming a covered member. Disassociation includes the following: i. Ceasing to participate in all employee health and welfare plans sponsored by the client, unless the client is legally required to allow the covered member to participate in the plan (for example, Consolidated Omnibus Budget Recon

association includes the following: i. Ceasing to participate in all employee health and welfare plans sponsored by the client, unless the client is legally required to allow the covered member to participate in the plan (for example, Consolidated Omnibus Budget Recon- ciliation Act (COBRA)) and the covered member pays 100 percent of his or her portion of the cost of participation on a current basis. ii. Ceasing to participate in all other employee benet plans by liquidating or transferring all vested benets in the client's dened benet plans, dened contribution plans, share-based compensation arrangements,2 deferred com- pensation plans, and other similar arrangements at the earliest date permitted under the plan.3 1 This provision applies once the individual has terminated his or her relationship with the client and is no longer employed by, or otherwise associated with, the client. See item (C) of Interpretation No. 101-1, "Interpretation of Rule 101" [par. .02], for matters involving a partner or professional employee who is simultaneously employed by, or otherwise associated with, the client and the rm. [Footnote moved and revised by the Professional Ethics Executive Committee, March 2010.] 2 As dened in the Financial Accounting Standards Board Accounting Standards Codication glossary under the term share-based payment arrangements. [Footnote moved and revised by the Professional Ethics Executive Committee, March 2010.] 3 When the member is a former employee of a governmental unit that is one of the sponsors of an employee benet plan, the member may continue to participate in the governmental plan if (continued) ET §101.02 Independence 2861 When the covered member does not participate on the at- test engagement team or is not in a position to inuence the attest engagement, he or she is not required to liqui- date or transfer any vested benets if such an action is not permitted under the terms of the plan or if a penalty 4 sig- nicant to the benets is imposed upon such liquidation or transfer. iii. Disposing of any direct or material indirect nancial in- terests in the client. iv. Collecting or repaying any loans to or from the client, ex- cept for loans specically permitted or grandfathered un- der Interpretation No. 101-5 [par. .07]. v. Assessing other relationships with the client to determine if such relationships create threats to independence that would require the application of safeguards to reduce the threats to an acceptable level. b. participates on the attest engagement team or is an individual in a position to inuence the attest engagement for the client when the attest engagement covers any period that includes his or her former employment or association with that client. Effective Date The revisions to the section "Application of the Independence Rules to Cov- ered Members Formerly Employed by a Client or Otherwise Associated With a Client" of Interpretation No. 101-1 [par. .02] will be effective on June 1, 2011. Early application is permitted. Application of the Independence Rules to a Covered Member’s Imme- diate Family A covered member's immediate family is subject to Rule 101 [par. .01] and its interpretations and rulings. When materiality of a nancial interest is iden- tied as a factor affecting independence in these interpretations and rulings, the immediate family member and the covered member's interests should be combined. The following exceptions address situations in which independence will not be considered impaired. Notwithstanding the following exceptions, the indepen- dence requirement in Interpretation No. 101-1 [par. .02(B)] applies. Permitted Employment An individual in a covered member's immediate family may be employed by an attest client in a position other than a key position. (footnote continued) his or her current employer is also one of the sponsors of the plan. In such circumstances, a covered member's participation in the plan will not impair independence, provided that the plan is offered to all employees in comparable employment positions and the covered member has no inuence or control over the investment

the plan. In such circumstances, a covered member's participation in the plan will not impair independence, provided that the plan is offered to all employees in comparable employment positions and the covered member has no inuence or control over the investment strategy, benets, or other management activities associated with the plan and is required to continue his or her participation in the plan as a condition of employment. See Ethics Ruling No. 107, "Participation in Health and Welfare Plan Sponsored by Client," of section 191, Ethics Rulings on Independence, Integrity, and Objectivity [sec. 191 par. .214–.215], for further information. [Footnote added by the Professional Ethics Executive Committee, March 2010.] 4 A penalty includes an early withdrawal penalty levied under the tax law but excludes other income taxes that would be owed, or market losses that may be incurred, as a result of the liquidation or transfer. [Footnote added by the Professional Ethics Executive Committee, March 2010.] ET §101.02 2862 Independence, Integrity, and Objectivity Employee Benet Plans Other Than Certain Share-Based Arrange- ments or Nonqualied Deferred Compensation Plans As a result of his or her permitted employment, an immediate family member of a covered member may participate in a plan that is an attest client or that is sponsored by an attest client, other than a client's share-based compensation arrangement or nonqualied deferred compensation plan, provided that a. the plan is offered to all employees in comparable employment positions; b. the immediate family member does not serve in a position of gov- ernance (for example, board of trustees) for the plan; and c. the immediate family member does not have the ability to super- vise or participate in the plan's investment decisions or in the selection of the investment options that will be made available to plan participants. An immediate family member of a covered member may hold a direct or material indirect nancial interest in an attest client through participation in a plan,5 provided that 1. the covered member neither participates on the attest engage- ment team nor is in a position to inuence the attest engagement; 2. such investment is an unavoidable consequence6 of such partici- pation; and 3. in the event that a plan option to invest in a nonattest client becomes available, the immediate family member selects such option and disposes of any direct or material indirect nancial interests in the attest client as soon as practicable but no later than 30 days after such option becomes available.7 Share-Based Compensation Arrangements Resulting in Benecial Financial In- terests8 in Attest Clients As a result of his or her permitted employment, an immediate family member of a covered member may participate in a share-based compensation arrange- ment, such as an employee stock ownership plan (ESOP), that results in his or her holding a benecial nancial interest in an attest client, provided that 1. the covered member neither participates on the attest engage- ment team nor is in a position to inuence the attest engagement. 2. the immediate family member does not serve as a trustee for the share-based compensation arrangement and does not have the ability to supervise or participate in the selection of the invest- ment options, if any, that are available to participants. 5 Excluding share-based compensation arrangements and nonqualied deferred compensation plans. [Footnote added by the Professional Ethics Executive Committee, March 2010.] 6 Unavoidable consequence means that the immediate family member has no investment options available for selection, including money market or invested cash options, other than in an attest client. [Footnote added by the Professional Ethics Executive Committee, March 2010.] 7 When legal or other similar restrictions exist on a person's right to dispose of a nancial interest at a particular time, the person need not dispose of the interest until the restrictions have lapsed. For example, a person does not have to dispose of a nancial interest in an attest client if doing so would violate an employer's policies on insider trading. On the other hand, waiting for more advantageous market conditions to dispose of the interest would not fall within this exception.

dispose of a nancial interest in an attest client if doing so would violate an employer's policies on insider trading. On the other hand, waiting for more advantageous market conditions to dispose of the interest would not fall within this exception. [Footnote added by the Professional Ethics Executive Committee, March 2010.] 8 See Interpretation No. 101-15, "Financial Relationships" [par. .17], for an explanation of when a nancial interest is benecially owned. [Footnote added by the Professional Ethics Executive Com- mittee, March 2010.] ET §101.02 Independence 2863 3. when the benecial nancial interests are distributed or the im- mediate family member has the right to dispose of the shares, the immediate family member a. disposes of the shares as soon as practicable but no later than 30 days after he or she has the right to dispose of the shares or b. exercises his or her put option to require the employer to repurchase the benecial nancial interests as soon as permitted by the terms of the share-based compensation arrangement. 9 Any repurchase obligation due to the im- mediate family member arising from exercise of the put option that is outstanding for more than 30 days would need to be immaterial to the covered member during the payout period. 4. benets payable from the share-based compensation arrange- ment to the immediate family member upon termination of employment, whether through retirement, death, disability, or voluntary or involuntary termination, are funded by investment options other than the employer's nancial interests, and any un- funded benets payable are immaterial to the covered member at all times during the payout period. Share-Based Compensation Arrangements Resulting in Rights to Acquire Shares in an Attest Client As a result of his or her permitted employment, an immediate family member of a covered member may participate in a share-based compensation arrangement resulting in a right to acquire shares in an attest client, such as an employee stock option plan10 or restricted stock rights plan, provided that 1. the covered member neither participates on the attest engagement team nor is in a position to inuence the attest engagement and 2. the immediate family member exercises or forfeits these rights once he or she is vested and the closing market price of the under- lying stock equals or exceeds the exercise price for 10 consecutive days (market period). The exercise or forfeiture should occur as soon as practicable but no later than 30 days after the end of the market period. In addition, if the immediate family member ex- ercises his or her right to acquire the shares, he or she should dis- pose of the shares as soon as practicable but no later than 30 days after the exercise date.11 If the employer repurchases the shares, any employer repurchase obligation due to the immediate family member that is outstanding for more than 30 days would need to be immaterial to the covered member during the payout period. Share-Based Compensation Arrangements Based Upon Stock Appreciation As a result of his or her permitted employment, an immediate family member of a covered member may participate in a share-based compensation arrangement based on the appreciation of an attest client's underlying shares, provided that 1. the share-based compensation arrangement (for example, a stock appreciation or phantom stock plan) does not provide for the is- suance of rights to acquire the employer's nancial interests. 9 See footnote 7. [Footnote added by the Professional Ethics Executive Committee, March 2010.] 10 See Interpretation No. 101-15 [par. .17] for guidance on stock option plans. [Footnote added by the Professional Ethics Executive Committee, March 2010.] 11 See footnote 7. [Footnote added by the Professional Ethics Executive Committee, March 2010.] ET §101.02 2864 Independence, Integrity, and Objectivity 2. the covered member neither participates on the attest engage- ment team nor is in a position to inuence the attest engagement. 3. the immediate family member exercises or forfeits his or her vested compensation rights if the underlying price of the em- ployer's shares equals or exceeds the exercise price for 10 con- secutive days (market period). Exercise or forfeiture should occur as soon as practicable but no later

or forfeits his or her vested compensation rights if the underlying price of the em- ployer's shares equals or exceeds the exercise price for 10 con- secutive days (market period). Exercise or forfeiture should occur as soon as practicable but no later than 30 days after the end of the market period. 4. any resulting compensation payable to the immediate family member that is outstanding for more than 30 days is immaterial to the covered member during the payout period. Nonqualied Deferred Compensation Plan As a result of his or her permitted employment at an attest client, an immediate family member of a covered member may participate in a nonqualied deferred compensation plan, provided that 1. the covered member neither participates on the attest engage- ment team nor is in a position to inuence the attest engagement; 2. the amount of the deferred compensation payable to the immedi- ate family member is funded through life insurance, an annuity, a trust, or similar vehicle and any unfunded portion is immaterial to the covered member; and 3. any funding of the deferred compensation does not include nan- cial interests in the attest client. Effective Date The revisions to the "Application of the Independence Rules to a Covered Mem- ber's Immediate Family" section of Interpretation No. 101-1 [par. .02] will be effective on June 1, 2011. Early application is permitted. Application of the Independence Rules to Close Relatives Independence would be considered to be impaired if 1. an individual participating on the attest engagement team has a close relative who had a. a key position with the client or b. a nancial interest in the client that (i) the individual knows or has reason to believe was material to the close relative or (ii) enabled the close relative to exercise signicant inuence over the client. 2. an individual in a position to inuence the attest engagement or any partner or partner equivalent in the ofce in which the lead attest engagement partner or partner equivalent primarily practices in con- nection with the attest engagement has a close relative who had a. a key position with the client or b. a nancial interest in the client that (i) the individual, partner, or partner equivalent knows or has reason to believe was material to the close relative; and (ii) enabled the close relative to exercise signicant inuence over the client. ET §101.02 Independence 2865 Grandfathered Employment Relationships Employment relationships of a covered member's immediate family and close relatives with an existing attest client that impair independence under this interpretation and existed as of November 2001, will not be deemed to impair independence provided such relationships were permitted under preexisting re- quirements of Rule 101 [sec. 101 par. .01], and its interpretations and rulings. Employment relationships of a partner equivalent's immediate family and close relatives with an existing attest client that impair independence under this interpretation and existed as of May 31, 2013, will not be deemed to impair independence provided such employment relationships were permitted under preexisting requirements of Rule 101 [sec. 101 par. .01], and its interpretations and rulings. Other Considerations§ It is impossible to enumerate all circumstances in which the appearance of in- dependence might be questioned. In the absence of an independence interpreta- tion or ruling under Rule 101, Independence [sec. 101 par. .01] that addresses a particular circumstance, a member should evaluate whether that circumstance would lead a reasonable person aware of all the relevant facts to conclude that there is an unacceptable threat to the member's and the rm's independence. When making that evaluation, members should refer to the risk-based approach described in the Conceptual Framework for AICPA Independence Standards [see section 100-1]. If the threats to independence are not at an acceptable level, safeguards should be applied to eliminate the threats or reduce them to an acceptable level. In cases where threats to independence are not at an acceptable level, thereby requiring the application of safeguards, the threats identied and the safeguards applied to eliminate the threats or reduce them to an acceptable level should be documented.12 [Paragraph added by adoption of the Code of Professional Conduct on January 12, 1988

the application of safeguards, the threats identied and the safeguards applied to eliminate the threats or reduce them to an acceptable level should be documented.12 [Paragraph added by adoption of the Code of Professional Conduct on January 12, 1988. Revised, effective June 30, 1990, by the Professional Ethics Executive Committee. Revised, November 1991, effective January 1, 1992, with earlier ap- plication encouraged, by the Professional Ethics Executive Committee. Revised, effective February 28, 1998, by the Professional Ethics Executive Committee. Revised, November 2001, effective May 31, 2002, with earlier application en- couraged, by the Professional Ethics Executive Committee. Revised, effective July 31, 2002, by the Professional Ethics Executive Committee. Revised, effec- tive March 31, 2003, by the Professional Ethics Executive Committee. Revised, effective April 30, 2003, by the Professional Ethics Executive Committee. Re- vised, April 2006, effective April 30, 2007, with earlier application encouraged, by the Professional Ethics Executive Committee. Revised, August 2009, effec- tive October 31, 2009, by the Professional Ethics Executive Committee. Re- vised, March 2010, effective June 1, 2011, by the Professional Ethics Executive § In April 2006, the Professional Ethics Executive Committee (PEEC) of the AICPA issued the Conceptual Framework for AICPA Independence Standards (Conceptual Framework) [section 100-1], which describes the risk-based approach to analyzing independence matters that is used by PEEC when it develops independence standards. Consequently, this interpretation has been revised in the "Other Considerations" section to reect the issuance of the Conceptual Framework. Because the Conceptual Framework [section 100-1] is effective April 30, 2007, with earlier application encouraged, the revisions made in the "Other Considerations" section of this interpretation are also effective April 30, 2007, with earlier application encouraged. 12 A failure to prepare the required documentation would be considered a violation of Rule 202, Compliance With Standards [sec. 202 par. .01], of the AICPA Code of Professional Conduct. Inde- pendence would not be considered to be impaired provided the member can demonstrate that he or she did apply safeguards to eliminate unacceptable threats or reduce them to an acceptable level. [Footnote added, effective April 30, 2006, by the Professional Ethics Executive Committee. Footnote renumbered by the revision of Interpretation No. 101-1, March 2010.] ET §101.02 2866 Independence, Integrity, and Objectivity Committee. Revised March 2013, revisions effective for engagements covering periods beginning on or after December 15, 2014.] [.03] [101-1] [Formerly paragraph .02 renumbered by adoption of the Code of Professional Conduct on January 12, 1988. Formerly Interpretation No. 101-1, renumbered as 101-4 and moved to paragraph .06, April 1992.] .04 101-2—Employment or association with attest clients. A rm's independence will be considered to be impaired with respect to a client if a part- ner or professional employee leaves the rm and is subsequently employed by or associated with that client in a key position unless all the following conditions are met: 1. Amounts due to the former partner or professional employee for his or her previous interest in the rm and for unfunded, vested retirement benets are not material to the rm, and the underlying formula used to calculate the payments remains xed during the payout period. Re- tirement benets may also be adjusted for ination and interest may be paid on amounts due. 2. The former partner or professional employee is not in a position to inuence the accounting rm's operations or nancial policies. 3. The former partner or professional employee does not participate or appear to participate in, and is not associated with the rm, whether or not compensated for such participation or association, once employ- ment or association with the client begins. An appearance of partici- pation or association results from such actions as: • The individual provides consultation to the rm. • The rm provides the individual with an ofce and related

begins. An appearance of partici- pation or association results from such actions as: • The individual provides consultation to the rm. • The rm provides the individual with an ofce and related ameni- ties (for example, secretarial and telephone services). • The individual's name is included in the rm's ofce directory. • The individual's name is included as a member of the rm in other membership lists of business, professional, or civic organizations, unless the individual is clearly designated as retired. 4. The ongoing attest engagement team considers the appropriateness or necessity of modifying the engagement procedures to adjust for the risk that, by virtue of the former partner or professional employee's prior knowledge of the audit plan, audit effectiveness could be reduced. 5. The rm assesses whether existing attest engagement team members have the appropriate experience and stature to effectively deal with the former partner or professional employee and his or her work, when that person will have signicant interaction with the attest engagement team. 6. The subsequent attest engagement is reviewed to determine whether the engagement team members maintained the appropriate level of skepticism when evaluating the representations and work of the for- mer partner or professional employee, when the person joins the client in a key position within one year of disassociating from the rm and has signicant interaction with the attest engagement team. The re- view should be performed by a professional with appropriate stature, expertise, and objectivity and should be tailored based on the position that the person assumed at the client, the position he or she held at the rm, the nature of the services he or she provided to the client, and other relevant facts and circumstances. Appropriate actions, as deemed necessary, should be taken based on the results of the review. ET §101[.03] Independence 2867 Responsible members within the rm should implement procedures for com- pliance with the preceding conditions when rm professionals are employed or associated with attest clients. With respect to conditions 4, 5, and 6, the procedures adopted will depend on several factors, including whether the former partner or professional employee served as a member of the engagement team, the positions he or she held at the rm and has accepted at the client, the length of time that has elapsed since the professional left the rm, and the circumstances of his or her departure.13 Considering Employment or Association With the Client When a member of the attest engagement team or an individual in a position to inuence the attest engagement intends to seek or discuss potential employ- ment or association with an attest client, or is in receipt of a specic offer of employment from an attest client, independence will be impaired with respect to the client unless the person promptly reports such consideration or offer to an appropriate person in the rm, and removes himself or herself from the engagement until the employment offer is rejected or employment is no longer being sought. When a covered member becomes aware that a member of the attest engagement team or an individual in a position to inuence the attest engagement is considering employment or association with a client, the covered member should notify an appropriate person in the rm. The appropriate person should consider what additional procedures may be necessary to provide reasonable assurance that any work performed for the client by that person was performed with objectivity and integrity as required under Rule 102 [sec. 102 par. .01]. Additional procedures, such as reperformance of work already done, will depend on the nature of the engagement and the individual involved. [Replaces previous Interpretation No. 101-2, Retired Partners and Firm Inde- pendence, August, 1989, effective August 31, 1989. Revised, effective December 31, 1998, by the Professional Ethics Executive Committee. Revised, July 2002, to reect conforming changes necessary due to the revision of Interpretation No. 101-1. Revised, effective April 30, 2003, by the Professional Ethics Executive Committee.] .05 101-3—Nonattest Services. Before a member or his or her rm (member) performs nonattest services (for example,

Revised, effective April 30, 2003, by the Professional Ethics Executive Committee.] .05 101-3—Nonattest Services. Before a member or his or her rm (member) performs nonattest services (for example, tax or consulting services) for an attest client,14 the member should determine that the requirements de- scribed in this interpretation have been met. In cases where the requirements of this interpretation have not been met during the period of the professional engagement or the period covered by the nancial statements, the member's independence would be impaired, except as noted in the following paragraph. 13 An inadvertent and isolated failure to meet conditions 4, 5, and 6 would not impair indepen- dence provided that the required procedures are performed promptly upon discovery of the failure to do so, and all other provisions of the interpretation are met. [Footnote added, effective April 30, 2003, by the Professional Ethics Executive Committee. Footnote renumbered by the revision of Interpreta- tion No. 101-1, April 2006. Footnote subsequently renumbered by the revision of Interpretation No. 101-1, March 2010.] 14 A member who performs a compilation engagement for a client should modify the compilation report to indicate a lack of independence if the member does not meet all of the conditions set out in this interpretation when providing a nonattest service to that client (see Statement on Standards for Accounting and Review Services No. 19, Compilation and Review Engagements [paragraph .21 of AR section 80]). [Footnote added, effective December 31, 2003, by the Professional Ethics Executive Committee. Footnote renumbered by the revision of Interpretation No. 101-1, April 2006. Footnote subsequently renumbered by the revision of Interpretation No. 101-1, March 2010. Footnote revised March 2013.] ET §101.05 2868 Independence, Integrity, and Objectivity A member's independence would not be impaired if the member performed nonattest services that would have impaired independence during the period covered by the nancial statements, provided that all the following conditions exist: a. The nonattest services were provided prior to the period of the professional engagement. b. The nonattest services related to periods prior to the period cov- ered by the nancial statements. c. The nancial statements for the period to which the nonattest services relate were audited by another rm (or in the case of a review engagement, reviewed or audited by another rm). Activities Related to Attest Services Performing attest services often involves communication between the member and client management regarding (a) the client's selection and application of ac- counting standards or policies and nancial statement disclosure requirements, (b) the appropriateness of the client's methods used in determining the account- ing and nancial reporting, (c) adjusting journal entries that the member has prepared or proposed for client management consideration, and (d) the form or content of the nancial statements. These communications are considered a normal part of the attest engagement and would not constitute performing a nonattest service subject to this interpretation. However, the member should exercise judgment in determining whether his or her involvement has become so extensive that it would constitute performing a separate service that would be subject to the interpretation's "General Require- ments for Performing Nonattest Services" section. For example, activities such as nancial statement preparation, cash-to-accrual conversions, and reconcili- ations are considered outside the scope of the attest engagement and, therefore, constitute a nonattest service. Such activities would not impair independence provided the requirements of this interpretation are met. [The revisions to the "Activities Related to Attest Services" section that require activities such as nancial statement preparation, cash-to-accrual conversions, and reconciliations to be subject to this interpretation are effective for engage- ments covering periods beginning on or after December 15, 2014.] Engagements Subject to Independence Rules of Certain Regulatory Bodies This interpretation requires compliance with independence regulations of au- thoritative regulatory bodies (such as the SEC, the GAO, the DOL, the Public Company Accounting Oversight Board [PCAOB

.] Engagements Subject to Independence Rules of Certain Regulatory Bodies This interpretation requires compliance with independence regulations of au- thoritative regulatory bodies (such as the SEC, the GAO, the DOL, the Public Company Accounting Oversight Board [PCAOB], and state boards of accoun- tancy) when a member performs nonattest services for an attest client and is required to be independent of the client under the regulations of the applica- ble regulatory body. Accordingly, failure to comply with the nonattest services provisions contained in the independence rules of the applicable regulatory body that are more restrictive than the provisions of this interpretation would constitute a violation of this interpretation. General Requirements for Performing Nonattest Services 1. The member should not assume management responsibilities for the attest client. 2. Before performing nonattest services, the member should determine that the client has agreed to a. Assume all management responsibilities ET §101.05 Independence 2869 b. Oversee the service, by designating an individual, preferably within senior management, who possesses suitable skill, knowl- edge, and/or experience. The member should assess and be sat- ised that such individual understands the services to be per- formed sufciently to oversee them. However, the individual is not required to possess the expertise to perform or reperform the services. c. Evaluate the adequacy and results of the services performed. d. Accept responsibility for the results of the services. To avoid assuming management responsibilities when providing nonattest ser- vices to the client, the member should be satised that management will be able to meet all these criteria, make an informed judgment on the results of the member's nonattest services, and be responsible for making the signicant judgments and decisions that are the proper responsibility of management. In cases in which the client is unable or unwilling to assume these responsibilities (for example, the client cannot oversee the nonattest services provided, or is unwilling to carry out such responsibilities due to lack of time or desire), the member's provision of these services would impair independence. 3. Before performing nonattest services, the member should establish and document in writing15 his or her understanding with the client (board of directors, audit committee, or management, as appropriate in the circumstances) regarding the following: a. Objectives of the engagement b. Services to be performed c. Client's acceptance of its responsibilities d. Member's responsibilities e. Any limitations of the engagement The documentation requirement does not apply to nonattest services performed prior to the client becoming an attest client.16 The preceding general requirements 2–3 do not apply to certain routine activ- ities performed by the member such as providing advice and responding to the client's questions as part of the client-member relationship. Management Responsibilities If a member were to assume a management responsibility for an attest client, the management participation threat created would be so signicant that no safeguards could reduce the threat to an acceptable level. It is not possible to specify every activity that is a management responsibility. However, manage- ment responsibilities involve leading and directing an entity, including making signicant decisions regarding the acquisition, deployment, and control of hu- man, nancial, physical, and intangible resources. 15 A failure to prepare the required documentation would not impair independence, but would be considered a violation of Rule 202 [sec. 202 par. .01], provided that the member did establish the understanding with the client. [Footnote added, effective December 31, 2003, by the Professional Ethics Executive Committee. Footnote revised, January 2005, by the Professional Ethics Executive Committee. Footnote renumbered by the revision of Interpretation No. 101-1, April 2006. Footnote subsequently renumbered by the revision of Interpretation No. 101-1, March 2010.] 16 However, upon the acceptance of an attest engagement, the member should prepare written documentation demonstrating his or her compliance with the other general requirements during the period covered by the nancial statements, including the requirement to establish an understanding with the client. [Footnote added, effective October 31, 2004, by the Professional Ethics Executive Committee. Footnote renumbered by the revision of Interpretation No. 101-1, April 2006. Footnote subsequently renumbered by the revision of Interpretation

the client. [Footnote added, effective October 31, 2004, by the Professional Ethics Executive Committee. Footnote renumbered by the revision of Interpretation No. 101-1, April 2006. Footnote subsequently renumbered by the revision of Interpretation No. 101-1, March 2010.] ET §101.05 2870 Independence, Integrity, and Objectivity Whether an activity is a management responsibility depends on the circum- stances and requires the exercise of judgment. Examples of activities that would be considered a management responsibility and would, therefore, impair inde- pendence if performed for an attest client include • setting policies or strategic direction for the client. • directing or accepting responsibility for the actions of the client's em- ployees except to the extent permitted when using internal auditors to provide assistance for services performed under auditing or attestation standards. • authorizing, executing or consummating transactions or otherwise ex- ercising authority on behalf of a client or having the authority to do so. • preparing source documents17 in electronic or other form evidencing the occurrence of a transaction. • having custody of client assets. • deciding which recommendations of the member or other third parties to implement or prioritize. • reporting to those in charge of governance on behalf of management. • serving as a client's stock transfer or escrow agent, registrar, general counsel, or its equivalent. • accepting responsibility for the management of a client's project. • accepting responsibility for the preparation and fair presentation of the client's nancial statements in accordance with the applicable - nancial reporting framework. • accepting responsibility for designing, implementing, or maintaining internal control.[18] • performing ongoing evaluations of the client's internal control as part of its monitoring activities. Specic Examples of Nonattest Services The examples in the following table identify the effect that performance of certain nonattest services for an attest client can have on a member's indepen- dence. These examples presume that the general requirements in the previous section "General Requirements for Performing Nonattest Services" have been met and are not intended to be all-inclusive of the types of nonattest services performed by members. 17 Source documents are the documents upon which evidence of an accounting transaction are initially recorded. Source documents are often followed by the creation of many additional records and reports, which do not, however, qualify as initial recordings. Examples of source documents are purchase orders, payroll time cards, and customer orders. [Footnote renumbered by the revision of Interpretation No. 101-2, April 2003. Footnote subsequently renumbered and revised, September 2003, by the Professional Ethics Executive Committee. Footnote subsequently renumbered by the Professional Ethics Executive Committee, July 2004. Footnote subsequently renumbered by the re- vision of Interpretation No. 101-1, April 2006. Footnote subsequently renumbered by the revision of Interpretation No. 101-1, March 2010.] [18] [Footnote added, effective July 31, 2007, by the Professional Ethics Executive Committee. Footnote renumbered by the revision of Interpretation No. 101-1, March 2010. Footnote deleted, ef- fective August 31, 2012, by the Professional Ethics Executive Committee.] ET §101.05 Independence 2871 Impact on Independence of Performance of Nonattest Services Type of Nonattest Service Independence Would Not Be Impaired Independence Would Be Impaired Bookkeeping • Record transactions for which management has determined or approved the appropriate account classication, or post coded transactions to a client's general ledger. • Prepare nancial statements based on information in the trial balance. • Post client-approved entries to a client's trial balance. • Prepare a reconciliation (for example, bank, accounts receivable, and so forth) that identies reconciling items for the client's evaluation. • Propose standard, adjusting, or correcting journal entries or other changes affecting the nancial statements to the client provided the client reviews the entries and the member is satised that management understands the nature of the proposed entries and the impact the entries have on the nancial statements. • Determine or change journal entries, account codings or classication for transactions, or other accounting records without obtaining client approval. • Authorize or approve transactions

impact the entries have on the nancial statements. • Determine or change journal entries, account codings or classication for transactions, or other accounting records without obtaining client approval. • Authorize or approve transactions. • Prepare source documents. • Make changes to source documents without client approval. Nontax disbursement • Using payroll time records provided and approved by the client, generate unsigned checks, or process client's payroll. • Transmit client-approved payroll or other disbursement information to a nancial institution provided the client has authorized the member to make the transmission and has made arrangements for the nancial institution to limit the corresponding individual payments as to amount and payee. In addition, once transmitted, the client must authorize the nancial institution to process the information.[19] • Accept responsibility to authorize payment of client funds, electronically or otherwise, except as specically provided for with respect to electronic payroll tax payments. • Accept responsibility to sign or cosign client checks, even if only in emergency situations. • Maintain a client's bank account or otherwise have custody of a client's funds or make credit or banking decisions for the client. • Approve vendor invoices for payment (continued) [19] [Footnote renumbered by the revision of Interpretation No. 101-2, April 2003. Footnote sub- sequently renumbered by the Professional Ethics Executive Committee, September, 2003. Footnote subsequently renumbered by the Professional Ethics Executive Committee, July 2004. Footnote sub- sequently renumbered by the revision of Interpretation No. 101-1, April 2006. Footnote deleted by the Professional Ethics Executive Committee, February 2007. Footnote subsequently renumbered by the Professional Ethics Executive Committee, July 2007. Footnote subsequently renumbered by the revision of Interpretation No. 101-1, March 2010.] ET §101.05 2872 Independence, Integrity, and Objectivity Type of Nonattest Service Independence Would Not Be Impaired Independence Would Be Impaired Benet plan administration20 • Communicate summary plan data to plan trustee. • Advise client management regarding the application or impact of provisions of the plan document. • Process transactions (e.g., investment/ benet elections or increase/decrease contributions to the plan; data entry; participant conrmations; and processing of distributions and loans) initiated by plan participants through the member's electronic medium, such as an interactive voice response system or Internet connection or other media. • Prepare account valuations for plan participants using data collected through the member's electronic or other media. • Prepare and transmit participant statements to plan participants based on data collected through the member's electronic or other medium. • Make policy decisions on behalf of client management. • When dealing with plan participants, interpret the plan document on behalf of management without rst obtaining management's concurrence. • Make disbursements on behalf of the plan. • Have custody of assets of a plan. • Serve a plan as a duciary as dened by ERISA. Investment— advisory or management • Recommend the allocation of funds that a client should invest in various asset classes, depending upon the client's desired rate of return, risk tolerance, etc. • Perform recordkeeping and reporting of client's portfolio balances including providing a comparative analysis of the client's investments to third-party benchmarks. • Review the manner in which a client's portfolio is being managed by investment account managers, including determining whether the managers are (1) following the guidelines of the client's investment policy statement; (2) meeting the client's investment objectives; and (3) conforming to the client's stated investment styles. • Transmit a client's investment selection to a broker-dealer or equivalent provided the client has authorized the broker-dealer or equivalent to execute the transaction. • Make investment decisions on behalf of client management or otherwise have discretionary authority over a client's investments. • Execute a transaction to buy or sell a client's investment. • Have custody of client assets, such as taking temporary possession of securities purchased by a client. 20 When auditing plans subject to the Employee Retirement Income Security Act, Department of Labor regulations, which may be more restrictive, must be followed. [Footnote ren

Have custody of client assets, such as taking temporary possession of securities purchased by a client. 20 When auditing plans subject to the Employee Retirement Income Security Act, Department of Labor regulations, which may be more restrictive, must be followed. [Footnote renumbered by the re- vision of Interpretation No. 101-2, April 2003. Footnote subsequently renumbered by the Professional Ethics Executive Committee, September 2003. Footnote subsequently renumbered by the Profes- sional Ethics Executive Committee, July 2004. Footnote subsequently renumbered by the revision of Interpretation No. 101-1, April 2006. Footnote subsequently renumbered by the Professional Ethics Executive Committee, July 2007. Footnote subsequently renumbered by the revision of Interpretation No. 101-1, March 2010.] ET §101.05 Independence 2873 Type of Nonattest Service Independence Would Not Be Impaired Independence Would Be Impaired Corporate nance— consulting or advisory • Assist in developing corporate strategies. • Assist in identifying or introducing the client to possible sources of capital that meet the client's specications or criteria. • Assist in analyzing the effects of proposed transactions including providing advice to a client during negotiations with potential buyers, sellers, or capital sources. • Assist in drafting an offering document or memorandum. • Participate in transaction negotiations in an advisory capacity. • Be named as a nancial adviser in a client's private placement memoranda or offering documents. • Commit the client to the terms of a transaction or consummate a transaction on behalf of the client. • Act as a promoter, underwriter, broker-dealer, or guarantor of client securities, or distributor of private placement memoranda or offering documents. • Maintain custody of client securities. Executive or employee search • Recommend a position description or candidate specications. • Solicit and perform screening of candidates and recommend qualied candidates to a client based on the client-approved criteria (e.g., required skills and experience). • Participate in employee hiring or compensation discussions in an advisory capacity. • Commit the client to employee compensation or benet arrangements. • Hire or terminate client employees. Business risk consulting • Provide assistance in assessing the client's business risks and control processes. • Recommend a plan for making improvements to a client's control processes and assist in implementing these improvements. • Make or approve business risk decisions. • Present business risk considerations to the board or others on behalf of management. Information systems—design, installation or integration • Install or integrate a client's nancial information system that was not designed or developed by the member (for example, an off-the-shelf accounting package). • Assist in setting up the client's chart of accounts and nancial statement format with respect to the client's nancial information system. • Design, develop, install, or integrate a client's information system that is unrelated to the client's nancial statements or accounting records. • Provide training and instruction to client employees on an information and control system. • Perform network maintenance, such as updating virus protection, applying routine updates and patches, or conguring user settings, consistent with management's request. • Design or develop a client's nancial information system. • Make other than insignicant modications to source code underlying a client's existing nancial information system. • Supervise client personnel in the daily operation of a client's information system. • Operate a client's local area network system. ET §101.05 2874 Independence, Integrity, and Objectivity Tax Compliance Services Tax compliance services addressed by this interpretation are preparation of a tax return,21 transmittal of a tax return and transmittal of any related tax payment to the taxing authority, signing and ling a tax return, and autho- rized representation of clients in administrative proceedings before a taxing authority. Preparing a tax return and transmitting the tax return and related tax payment to a taxing authority, in paper or electronic form, would not impair a member's independence provided the member does not have custody or control22 over the client's funds and the individual designated by the client to oversee the tax services: • Reviews and approves

to a taxing authority, in paper or electronic form, would not impair a member's independence provided the member does not have custody or control22 over the client's funds and the individual designated by the client to oversee the tax services: • Reviews and approves the tax return and related tax payment; and, • If required for ling, signs the tax return prior to the member trans- mitting the return to the taxing authority. However, signing and ling a tax return on behalf of client management would impair independence, unless the member has the legal authority to do so and: a. The taxing authority has prescribed procedures in place for a client to permit a member to sign and le a tax return on behalf of the client (for example, Form 8879 or 8453), and such procedures meet, at the mini- mum, standards for electronic return originators and ofcers outlined in I.R.S. Form 8879; or b. An individual in client management who is authorized to sign and le the client's tax return provides the member with a signed statement that clearly identies the return being led and represents that: 1. Such individual is authorized to sign and le the tax return; 2. Such individual has reviewed the tax return, including accompa- nying schedules and statements, and it is true, correct and com- plete to the best of his or her knowledge and belief; and 3. Such individual authorizes the member or another named indi- vidual in the member's rm to sign and le the tax return on behalf of the client. Authorized representation of a client in administrative proceedings before a taxing authority would not impair a member's independence provided the mem- ber obtains client agreement prior to committing the client to a specic reso- lution with the taxing authority. However, representing a client in a court23 to resolve a tax dispute would impair a member's independence. 21 For purposes of this interpretation, a tax return includes informational tax forms (for example, estimated tax vouchers, extension forms, and Forms 990, 5500, 1099, and W-2) led with a taxing au- thority or other regulatory agencies. [Footnote added, effective February 28, 2007, by the Professional Ethics Executive Committee. Footnote renumbered by the Professional Ethics Executive Committee, July 2007. Footnote subsequently renumbered by the revision of Interpretation No. 101-1, March 2010.] 22 Making electronic tax payments under a taxing authority's specied criteria or remitting a check payable to the taxing authority and signed by the client would not be considered having custody or control over a client's funds. [Footnote added, effective February 28, 2007, by the Professional Ethics Executive Committee. Footnote renumbered by the Professional Ethics Executive Committee, July 2007. Footnote subsequently renumbered by the revision of Interpretation No. 101-1, March 2010.] 23 The term court encompasses a tax, district, or federal court of claims, and the equivalent state, local, or foreign forums. [Footnote added, effective July 31, 2007, by the Professional Ethics Executive Committee. Footnote renumbered by the revision of Interpretation No. 101-1, March 2010.] ET §101.05 Independence 2875 Transition Independence would not be impaired as a result of the more restrictive re- quirements of the tax compliance services provisions provided such services are pursuant to engagements commenced prior to February 28, 2007, and com- pleted prior to January 1, 2008, and the member complied with all applicable independence interpretations and rulings in effect on February 28, 2007. Appraisal, Valuation, and Actuarial Services Independence would be impaired if a member performs an appraisal, valua- tion, or actuarial service for an attest client where the results of the service, individually or in the aggregate, would be material to the nancial statements and the appraisal, valuation, or actuarial service involves a signicant degree of subjectivity. Valuations performed in connection with, for example, ESOPs, business com- binations, or appraisals of assets or liabilities generally involve a signicant degree of

cant degree of subjectivity. Valuations performed in connection with, for example, ESOPs, business com- binations, or appraisals of assets or liabilities generally involve a signicant degree of subjectivity. Accordingly, if these services produce results that are material to the nancial statements, independence would be impaired. An actuarial valuation of a client's pension or postemployment benet liabil- ities generally produces reasonably consistent results because the valuation does not require a signicant degree of subjectivity. Therefore, such services would not impair independence. In addition, appraisal, valuation, and actuar- ial services performed for nonnancial statement purposes would not impair independence.24 However, in performing such services, all other requirements of this interpretation should be met, including that all signicant assumptions and matters of judgment are determined or approved by the client and the client is in a position to have an informed judgment on, and accepts responsibility for, the results of the service. Forensic Accounting Services For purposes of this interpretation, forensic accounting services25 are nonattest services that involve the application of special skills in accounting, auditing, nance, quantitative methods and certain areas of the law, and research, and investigative skills to collect, analyze, and evaluate evidential matter and to interpret and communicate ndings and consist of: • Litigation services; and • Investigative services. Litigation services recognize the role of the member as an expert or consultant and consist of providing assistance for actual or potential legal or regulatory proceedings before a trier of fact in connection with the resolution of disputes between parties. Litigation services consist of the following services: 24 Examples of such services may include appraisal, valuation, and actuarial services performed for tax planning or tax compliance, estate and gift taxation, and divorce proceedings. [Footnote added, effective December 31, 2003, by the Professional Ethics Executive Committee. Footnote renumbered by the Professional Ethics Executive Committee, July 2004. Footnote subsequently renumbered by the revision of Interpretation No. 101-1, April 2006. Footnote subsequently renumbered by the Pro- fessional Ethics Executive Committee, February and July 2007. Footnote subsequently renumbered by the revision of Interpretation No. 101-1, March 2010.] 25 The denitions of the specic services identied in this interpretation are solely for purposes of this interpretation and are not intended to be used for any other purpose. [Footnote added, effective February 28, 2007, by the Professional Ethics Executive Committee. Footnote renumbered by the Pro- fessional Ethics Executive Committee, July 2007. Footnote subsequently renumbered by the revision of Interpretation No. 101-1, March 2010.] ET §101.05 2876 Independence, Integrity, and Objectivity a. Expert witness services26 are those litigation services where a member is engaged to render an opinion before a trier of fact as to the matter(s) in dispute based on the member's expertise, rather than his or her direct knowledge of the disputed facts or events. Expert witness services create the appearance that a member is ad- vocating or promoting a client's position.27 Accordingly, if a member conditionally or unconditionally agrees to provide expert witness tes- timony for a client,28 independence would be considered to be impaired. However, independence would not be considered impaired if a member provides expert witness services for a large group of plaintiffs or de- fendants that includes one or more attest clients of the rm provided that at the outset of the engagement: (1) the member's attest clients constitute less than 20 percent of (i) the members of the group (ii) the voting interests of the group, and (iii) the claim; (2) no attest client within the group is designated as the "lead" plaintiff or defendant of the group; and (3) no attest client has the sole decision-making power to select or approve the expert witness. While testifying as a fact witness,29 a member may be questioned by the trier of fact or counsel as to his or her opinions pertaining to mat- ters within the member's area of expertise. Answering such questions would not impair the member's independence. b

witness,29 a member may be questioned by the trier of fact or counsel as to his or her opinions pertaining to mat- ters within the member's area of expertise. Answering such questions would not impair the member's independence. b. Litigation consulting services are those litigation services where a member provides advice about the facts, issues, and strategy of a mat- ter. The consultant does not testify as an expert witness before a trier of fact. The performance of litigation consulting services would not impair in- dependence provided the member complies with the general require- ments set forth under this interpretation.30 However, if the member 26 In determining whether the member's services are considered to be expert witness services or fact witness testimony, members should refer to the Federal Rules of Evidence, Article VII, Opinions and Expert Testimony (Rules 701, 702, and 703), and other applicable laws, regulations, and rules. [Footnote added, effective February 28, 2007, by the Professional Ethics Executive Committee. Foot- note renumbered by the Professional Ethics Executive Committee, July 2007. Footnote subsequently renumbered by the revision of Interpretation No. 101-1, March 2010.] 27 See advocacy threat as dened in the Conceptual Framework for AICPA Independence Stan- dards (section 100-1). However, even though there is an appearance of advocacy, when providing expert witness services, a member must comply with Rule 102, Integrity and Objectivity, which re- quires that a member maintain objectivity and integrity and not subordinate his or her judgment to others. [Footnote added, effective February 28, 2007, by the Professional Ethics Executive Com- mittee. Footnote renumbered by the Professional Ethics Executive Committee, July 2007. Footnote subsequently renumbered by the revision of Interpretation No. 101-1, March 2010.] 28 The client in this case refers to the party to the litigation on whose behalf the member is provid- ing testimony and not to the law rm that engaged the member on the client's behalf. If the law rm that engaged the member on behalf of the client is also an attest client of the member, the member should consider the applicability of Interpretation No. 101-12, "Independence and Cooperative Ar- rangements with Clients" [par. .14]. [Footnote added, effective July 31, 2007, by the Professional Ethics Executive Committee. Footnote renumbered by the revision of Interpretation No. 101-1, March 2010.] 29 A fact witness is also referred to as a percipient witness or a sensory witness. Fact witness testimony is based on the member's direct knowledge of the facts or events in dispute. A fact witness may have obtained his or her direct knowledge of the facts or events in dispute from the performance of prior professional services for the client. As a fact witness, the member's role is to provide factual testimony to the trier of fact. [Footnote added, effective February 28, 2007, by the Professional Ethics Executive Committee. Footnote renumbered by the Professional Ethics Executive Committee, July 2007. Footnote subsequently renumbered by the revision of Interpretation No. 101-1, March 2010.] 30 For purposes of complying with general requirement 2, the client may designate its attorney to oversee the litigation consulting services. [Footnote added, effective February 28, 2007, by the Professional Ethics Executive Committee. Footnote renumbered by the Professional Ethics Executive Committee, July 2007. Footnote subsequently renumbered by the revision of Interpretation No. 101-1, March 2010.] ET §101.05 Independence 2877 subsequently agrees to serve as an expert witness, independence would be considered to be impaired. c. Other services are those litigation services where a member serves as a trier of fact, special master, court-appointed expert, or arbitrator (including serving on an arbitration panel), in a matter involving a client. These other services create the appearance that the member is not independent. Accordingly, if a member serves in such a role, inde- pendence would be considered to be impaired. However, independence would not be considered impaired if a member serves as a mediator or any similar role in a matter involving a client provided the mem- ber is not making any decisions on behalf of the parties, but rather is acting as a facilitator by assisting the parties in reaching their own agreement.31