AMERICAN INSTITUTE OF CERTIFIED PUBLIC ACCOUNTANTS PROFESSIONAL ETHICS DIVISION

Frequently Asked Quest !ns Per"!r#$n%e !" N!n$ttest&N!n$ssur$n%e Ser' %es

Answers to frequently asked questions (FAQs) regarding performance of nonattest services follow. The answers to these FAQs are based on guidance the A !"A "rofessional #thics $ivision staff provided in response to members% inquires concerning nterpretation &o. '(')*+ ,"erformance of &onattest -ervices+, under .ule '('+ Independence (A !"A+ Professional Standards+ vol. /+ #T sec.'(' par. .(0)+ and have been updated through the date of this practice aid. 1nless specifically noted otherwise+ the "rofessional #thics $ivision published these FAQs through various documents between 2ay /((3 and 2ay /((0. n an effort to make the guidance more user)friendly+ the FAQs were reformatted into this document in 2arch /((4. The FAQs are not rules+ regulations+ or statements of the "rofessional #thics #5ecutive !ommittee and+ therefore+ are not authoritative guidance. Further+ the answers do not address the requirements of other regulatory bodies+ such as the state boards of accountancy+ the -ecurities and #5change !ommission (-#!)+ and the 1.-. 6overnment Accountability 7ffice whose positions may differ from those of the A !"A. IMPORTANT NOTE( In $))ly n* t+e "!ll!, n* FAQs- t+e #e#.er s+!uld %!#)ly , t+ $ll $))l %$.le )r!' s !ns !" Inter)ret$t !n N!/ 01023- n%lud n*- .ut n!t l # ted t!- t+e 45ener$l Requ re#ents60 unless s)e% " %$lly dent " ed !t+er, se $nd t+$t t+e %l ent n quest !n s $n $ttest %l ent t+$t s n!t requ red t! " le , t+ t+e SEC/ The FAQs in this document cover the following topics8 2anagement Functions (' FAQ) .outine Activities (/ FAQs) -uitable -kill+ 9nowledge+ and:or #5perience ('( FAQs) $ocumentation .equirement (4 FAQs) "eriod of the "rofessional #ngagement (' FAQ) ;ookkeeping -ervices ('( FAQs) !ontrollership -ervices (' FAQ) Ta5 -ervices (* FAQs) nformation Technology -ervices (4 FAQs) Appraisal+ <aluation+ and Actuarial -ervices (' FAQ) Training (' FAQ)

"ro=ect 2anagement -ervices (/ FAQs)

M$n$*e#ent Fun%t !ns 0/ T+e " rst *ener$l requ re#ent under Inter)ret$t !n N!/ 01023 st$tes t+$t t+e #e#.er s+!uld n!t )er"!r# #$n$*e#ent "un%t !ns !r #$ke #$n$*e#ent de% s !ns "!r t+e $ttest %l ent/ 7+$t $re s!#e e8$#)les !" #$n$*e#ent "un%t !ns "!r )ur)!ses !" Inter)ret$t !n N!/ 010239 A management function generally would include doing or having the authority to do the following8 2ake decisions on behalf of the client Authori>e+ e5ecute+ or consummate client transactions -upervise+ hire+ or terminate client employees 7versee or manage any aspect of the client%s business -et policy for the client ?ave access to or custody of client assets -ign or cosign client checks Taking responsibility for the management of a client%s pro=ect #stablish or maintain internal controls for the client Note: The preceding list is not intended to be all)inclusive. "roviding advice+ research materials+ and recommendations to assist the client%s management in performing its functions and making decisions would not constitute the performance of a management function. R!ut ne A%t ' t es 0/ T+e se%!nd $nd t+ rd *ener$l requ re#ents under Inter)ret$t !n N!/ 01023 d! n!t $))ly t! %ert$ n r!ut ne $%t ' t es )er"!r#ed .y t+e #e#.er/ 7+$t $re %!ns dered t! .e r!ut ne $%t ' t es "!r )ur)!ses !" t+e nter)ret$t !n9 @hether an activity is routine should be determined by considering all of the facts and circumstances surrounding the activity. .outine activities generally involve providing advice or assistance to the client on an informal basis as part of the normal client)member relationship. .outine activities typically are insignificant in terms of time incurred or resources e5pended and generally do not result in a specific pro=ect or engagement or in the member producing a formal report or other formal work product. #5amples of routine activities may include the following8 "roviding advice to the client on an accounting matter as an ancillary part of the overall attest engagement

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.esearching and responding to the client%s technical questions on relevant ta5 laws as an ancillary part of providing ta5 services "roviding advice to the client on routine business matters #ducating the client on matters within the technical e5pertise of the member "roviding information to the client that is readily available to the member+ such as best practices and benchmarking studies

:/ Is $ #e#.er )er# tted t! $ss st t+e %l ent n underst$nd n* t+e n$ture !" $d;ust n* entr es $nd t+e r #)$%t !n t+e " n$n% $l st$te#ents9 Aes. f a client needs assistance in understanding the nature of the entries and their impact on the financial statements+ the member may e5plain the accounting principles giving rise to the ad=ustments+ as well as the impact of the ad=ustments on the financial statements. Su t$.le Sk ll- <n!,led*e- $nd&!r E8)er en%e 0/ 7+$t d!es su t$.le sk ll- kn!,led*e- $nd&!r e8)er en%e #e$n n t+e %!nte8t !" Inter)ret$t !n N!/ 010239 Suitable skill, knowledge, and/or experience means that the individual designated to oversee the nonattest service has the ability to understand the nature+ ob=ective+ and scope of the nonattest service. 7verseeing the service does not require the designated individual to supervise the member in the day)to)day rendering of the services. .ather+ the individual should agree on the nature+ ob=ective+ and scope of the servicesB receive periodic progress reports when appropriateB make all significant =udgmentsB evaluate the adequacy and results of the serviceB accept responsibility for the service resultsB and ensure that the resulting work product meets the agreed)upon specifications. The skill+ knowledge+ and:or e5perience needed will vary depending on the nature of the nonattest service. For e5ample+ the skill+ knowledge+ and:or e5perience needed to oversee a payroll service can be e5pected to be different than the skill+ knowledge+ and:or e5perience needed to oversee a comple5 ta5 service. The requirement for the designated individual to possess suitable skill+ knowledge+ and:or e5perience does not+ however+ require that the individual possess the technical e5pertise and e5perience and:or e5tensive familiarity that the member possesses or the ability to perform or reperform the services. For e5ample+ at various times the rule has called for the individual to Cbe sufficiently knowledgeable+D Csufficiently informed+D :/ Is t+e requ re#ent t+$t t+e )r$%t t !ner )!ssess su t$.le sk ll- kn!,led*e- $nd&!r e8)er en%e t! !'ersee t+e n!n$ttest ser' %es )r!' ded .y t+e #e#.er $ #$nd$t!ry )r!' s !n9

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&o. -ince the mid)'EF(s+ nterpretation &o. '(')* has called for the attest client to undertake certain responsibilities in connection with the delivery of various nonattest services. These requirements necessitate oversight by an individual with suitable skill+ knowledge+ and:or e5perience. 3/ 7+y d!es t+e rule requ re $n nd ' du$l ,+! )!ssesses su t$.le sk ll- kn!,led*e$nd&!r e8)er en%e t! !'ersee t+e n!n$ttest ser' %es )r!' ded .y t+e #e#.er9 f the individual designated by the client does not possess suitable skill+ knowledge+ and:or e5perience to oversee the nonattest service+ there would be no one (other than the member) to make the significant =udgments that become necessary during the delivery of the service or discharge the other client responsibilities under nterpretation &o. '(')*. =/ 7+$t $re t+e underly n* %!n%e)ts t+$t su))!rt t+e %!n%lus !n t+$t $ #e#.er>s nde)enden%e ,!uld .e #)$ red " $n nd ' du$l des *n$ted .y t+e %l ent , t+ su t$.le sk ll- kn!,led*e- $nd&!r e8)er en%e d!es n!t )er"!r# t+e $%t ' t es des%r .ed n t+e nter)ret$t !n9 Two threats to a member%s independence arise if the member assumes the client%s responsibilities under nterpretation &o. '(')*. First a Cself)review threatD arises when the member reviews+ as part of an attest engagement+ evidence that results from his or her (or his or her firm%s) own nonattest work. That could happen+ for e5ample+ when the member makes significant =udgments on behalf of the client during the performance of the nonattest service+ or the designated client individual lacks suitable skill+ knowledge+ and:or e5perience to evaluate the adequacy and results of the service and accept responsibility for those results. n that situation+ the member has a disincentive to challenge the related financial statement amounts because doing so could call into question his or her (or his or her firm%s) own work. That disincentive is inconsistent with the need for the member to be independent and ob=ective with respect to the client. The second threat that arises is a Cmanagement participation threat.D 2aking significant =udgments on behalf of the attest client during the performance of the nonattest service causes the member to function as management in connection with the service. That also is inconsistent with the need for the member to be independent and ob=ective with respect to the client. ;y ensuring that an individual designated by the client with suitable skill+ knowledge+ and:or e5perience oversees the member%s nonattest services and makes all management decisions+ both threats are eliminated. ?/ H!, s+!uld $ #e#.er $ssess ,+et+er t+e nd ' du$l des *n$ted .y t+e %l ent t! !'ersee t+e n!n$ttest ser' %e )!ssesses su t$.le sk ll- kn!,led*e- $nd&!r e8)er en%e9 n assessing whether the designated individual has suitable skills+ knowledge+ and:or e5perience to oversee a nonattest service+ the member might consider the following factors that pertain to the individual8 Page 4

9nowledge of the client%s business 9nowledge of the client%s industry 6eneral business knowledge #ducation "osition at the client

-ome factors may be given more weight than others+ depending on the nature of the service. For e5ample+ although the level of education attained by the individual can be one indicator of his or her skills and:or knowledge+ it is not necessarily true that the more formal education the individual possesses+ the more able he or she would be to oversee the nonattest service. f the individual understands the nature of the service+ he or she may have the skills+ knowledge+ and:or e5perience to oversee the service+ regardless of the level of education he or she possesses. Accordingly+ members might conclude that those individuals would possess the necessary skills+ knowledge+ and:or e5perience to understand the services being performedB make any management decisionsB and determine whether the results of the services meet the agreed)upon specifications. @/ Inter)ret$t !n N!/ 01023 requ res t+$t t+e %l ent des *n$te $n nd ' du$l ,+! )!ssesses su t$.le sk ll- kn!,led*e- $nd&!r e8)er en%e- )re"er$.ly , t+ n sen !r #$n$*e#ent- t! !'ersee t+e n!n$ttest ser' %es/ 7+ %+ nd ' du$lAsB $t t+e %l ent %$n ser'e n t+ s %$)$% ty A"!r e8$#)le- t+e !,nerCsD- %!ntr!ller- !r .!!kkee)erB9 The individual(s) designated by the client will likely depend on the nature of the client%s organi>ation and the nature of the nonattest engagement. n an owner) managed business+ it will often be the owner+ but depending on the nature of the nonattest services and the qualifications (that is+ skill+ knowledge+ or e5perience) of other client employees or individuals+ it also could be the controller+ bookkeeper+ or another employee with or without knowledge:e5perience provided there is a basic training on the nature of the engagement. n larger organi>ations or for more comple5 services+ the client is more likely to designate a senior officer to oversee the services. The employee or individual responsible for overseeing the nonattest services needs to understand the services sufficiently to oversee them but does not need to possess the technical qualifications to perform or reperform the services. For e5ample+ consider a nonattest engagement in which the member has been asked to provide investment advisory services that include recommendations on the allocation of funds that the client should invest in various asset classes based on the client%s desired rate of return and risk tolerance. The owner of the company has knowledge of the company%s investment ob=ectives and therefore serves as the client designee. The owner makes all investment decisions concerning the allocation of funds and investment selections and accepts responsibility for the resulting investment plan. For purposes of this nonattest engagement+ the member may conclude that the owner of the company possesses the skill+ knowledge+ and:or e5perience to oversee the service. 7n the other hand+ consider an engagement when Page 5

the member is asked to install an off)the)shelf accounting package and set up the chart of accounts and financial statement format for a small business client. The owner of the company is traveling on business and designates the office manager or bookeeper to oversee the installation. Those individual primarily performs routine clerical and receptionist functions for the business and has limited understanding of the company%s operations. ?e or she has never used accounting or financial software+ such as the application being installed by the practitioner. For purposes of this nonattest engagement+ it appears unlikely that the office manager or bookkeeper would be in a position to sufficiently understand the services being performed to oversee them and accept responsibility for the resulting accounting system. E/ M$y t+e %l ent %!ntr$%t , t+ $ t+ rd )$rty ,+! s n!t $n e#)l!yee !" t+e %l ent t! !'ersee !r $d' se !n t+e #e#.er>s )er"!r#$n%e !" t+e n!n$ttest ser' %e9 The client may contract with a third party to advise management regarding the nature of the services and the evaluation of the adequacy and results of the services in order to enable management to effectively oversee the services+ perform all management functions+ make all management decisions+ accept responsibility for the services+ and maintain internal controls over the services. @hen the client outsources the nonattest services oversight functions to a third party+ such third party may serve as the individual designated by the client to oversee the nonattest services provided he or she possesses the necessary skill+ knowledge+ or e5perienceB functions in a capacity equivalent to that of a client employeeB and has the authority to make decisions on behalf of the client. F/ H!, %$n $ #e#.er .e s$t s" ed t+$t t+e %l ent des *nee underst$nds t+e n!n$ttest ser' %es )er"!r#ed $nd t+e result n* ,!rk )r!du%t9 2embers are e5pected to utili>e their professional =udgment and e5perience to recogni>e which individuals are able and willing to fulfill the client responsibilities that are set forth in the interpretation. Through interaction with the client owner(s) or client employees+ e5perienced practitioners should be able to assess whether the designated client individual possesses the skill+ knowledge+ and:or e5perience to effectively oversee the nonattest service. G/ A %l ent +$s d "" %ulty underst$nd n* de"erred t$8 $ssets $nd de"erred t$8 l $. l t es/ 7+$t #ust $ %l ent kn!, $.!ut t+ese %!n%e)ts n !rder t! .e %!ns dered t! )!ssess t+e sk ll- kn!,led*e- $nd&!r e8)er en%e ne%ess$ry t! "ul" ll t+e requ re#entAsB under Inter)ret$t !n N! 010239 The intent of nterpretation &o. '(')* is not for the client to possess a level of technical e5pertise commensurate with that of the member. n the case of deferred ta5es+ the client should understand the basis for the deferred ta5 assets or liabilities and the impact of the deferred ta5es on the financial statements.

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01/ 7+$t $re s!#e e8$#)les !" n!n$ttest ser' %es $nd t+e le'el !" underst$nd n* t+$t t+e %l ent des *nee s+!uld )!ssess n !rder t! %!#)ly , t+ Inter)ret$t !n N!/ 010239 BookkeepingG@hen the member performs routine bookkeeping services for an audit+ review+ or compilation client+ the member should be satisfied that the designated individual understands the reason why the =ournal entries are being proposed and the effect they have on the financial statements. For recurring or standard =ournal entries (for e5ample+ depreciation)+ the designated individual may require no e5planation regarding the reason for the entry (for e5ample+ when the member has previously discussed these entries with the client)+ whereas for more comple5 =ournal entries (for e5ample+ deferred ta5es)+ the member may need to e5plain to the client the reason and basis for the entry and its impact on the financial statements. n any case+ the individual should be in a position to approve the proposed =ournal entries and accept responsibility for the company%s financial statements. Tax ServicesGFor ta5 return preparation engagements+ the individual designated by the client need not have an understanding of the applicable ta5 lawsB however+ the member should have the designated individual review the ta5 return with an emphasis on the key ta5 positions taken. The member also should be satisfied that the individual understands the company%s ta5 situation+ has a general understanding of how the amounts on the ta5 return were determined+ and make all decisions regarding significant ta5 positions taken in the return. Valuation ServicesGFor more comple5 engagements+ such as permitted valuation services+ the member may need to e5plain to the individual designated by the client the valuation methodologies used as well as all significant assumptions. The individual then should be in a position to approve all significant assumptions and accept responsibility for the resulting valuation. D!%u#ent$t !n Requ re#ent '. T+e t+ rd *ener$l requ re#ent !" Inter)ret$t !n N!/ 01023 requ res t+$t t+e #e#.er s+!uld est$.l s+ $nd d!%u#ent n ,r t n* + s !r +er underst$nd n* , t+ t+e %l ent re*$rd n* t+e AaB !.;e%t 'es !" t+e en*$*e#ent- A bB ser' %es t! .e )er"!r#ed- AcB %l ent>s $%%e)t$n%e !" ts res)!ns . l t es- A dB #e#.er>s res)!ns . l t es- $nd AeB l # t$t !ns !" t+e en*$*e#ent/ 7!uld $ #e#.er .e n %!#)l $n%e , t+ t+ s requ re#ent " t+e )re%ed n* )! nts ,ere d!%u#ented n $n en*$*e#ent letter- t+e $ud t )l$nn n* #e#!- !r n $ #e#! !" underst$nd n* #$ nt$ ned n t+e #e#.er>s . ll n* " les9 Aes. The general requirements of nterpretation &o. '(')* only require a member to document his or her understanding with the client and do not indicate any specific method of documentation. The methods indicated are not all)inclusive+ and other Page 7

methods may be appropriate as well. FAQ &o. / that follows provides further details+ including illustrative sample language. :/ 7+$t "!r# !" d!%u#ent$t !n s requ red9 Although the rule requires that the understanding with the client must be in writing+ the form of documentation is left to the member%s discretion. The method of documentation is not as important as the content of the documentation. For e5ample+ if the member performs a consulting engagement for an audit client+ the member may decide to document the required elements with respect to the consulting engagement in the audit engagement letter. The understanding also could be documented+ for e5ample+ in a separate engagement letter specific to the consulting service engagement+ a memo to the audit files+ or a checklist that the member completes as part of the audit. f a client engages the member to perform ta5 services+ the understanding could be documented in a ta5 organi>er or a memo contained in the ta5 working papers. 7ther methods of documentation+ such as a memo of understanding maintained in the member%s billing or correspondence files (that is+ separate from the client working paper files)+ also would satisfy this requirement. The following is illustrative sample language that can be incorporated into an audit+ review+ or compilation engagement letterB a Cstand)aloneD nonattest services engagement letterB a ta5 organi>er letterB or other documentation method preferred by the member8

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-ample Hanguage to $ocument 1nderstanding @ith the !lient for the "rovision of ;ookkeeping and Ta5 -ervices
O.;e%t 'es !" t+e En*$*e#ent $nd Ser' %es t! .e Per"!r#ed '. @e provide the bookkeeping and ta5 services outlined as follows8 At the end of each month+ !"A Firm agrees to perform the following functions8 G "ost coded transactions to A;! !ompany%s general ledger. G "ropose ad=usting or correcting =ournal entries to be reviewed and approved by A;! !ompany. G "repare a trial balance based on the ad=usted general ledger. G "repare monthly sales and payroll ta5 returns Iinsert applicable tax jurisdictionsJ. At the end of the year+ !"A Firm agrees to perform the following functions8 G "ropose ad=usting or correcting =ournal entries to be reviewed and approved by A;! !ompany. G "repare federal and state income ta5 returns I insert applicable tax jurisdictionsJ. G "repare year)end sales and payroll ta5 returns I insert applicable tax jurisdictionsJ. G Answer inquiries on specific ta5 matters. !"A Firm will not perform management functions or make management decisions on behalf of A;! !ompany. ?owever+ we will provide advice and recommendations to assist management of A;! !ompany in performing its functions and making decisions. /. A;! !ompany%s responsibilities are as follows8 A;! !ompany agrees to perform the following functions in connection with !"A Firm%s provision of the bookkeeping and ta5 services8 G 2ake all management decisions and perform all management functions+ including determining account codings and approving all proposed =ournal entries. G Assign Iname of competent client emplo eeJ to oversee the bookkeeping and ta5 services and evaluate the adequacy and results of the services. G Accept responsibility for the results of the bookkeeping and ta5 services+ including the =ournal entries+ general ledger+ trial balance+ and ta5 returns. G #stablish and maintain internal controls over the bookkeeping and ta5 return preparation processes. *. !"A Firm%s responsibilities and limitations of the engagement are as follows8 !"A Firm will perform the services in accordance with applicable professional standards+ including the -tatements on -tandards for Ta5 -ervices issued by the A !"A. This engagement is limited to the bookkeeping and ta5 services previously outlined. !"A Firm+ in its sole professional =udgment+ reserves the right to refuse to do any procedure or take any action that could be construed as making management decisions or performing management functions+ including determining account codings and approving =ournal entries. !"A Firm will advise A;! !ompany with regard to ta5 positions taken in the preparation of the ta5 return+ but A;! !ompany must make all decisions with regard to those matters.

3/ 7+$t %l ents $re $""e%ted .y t+e d!%u#ent$t !n requ re#ent9

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The documentation requirement applies to any nonattest services (for e5ample+ bookkeeping+ ta5+ or consulting services) performed by the member for an attest client. For purposes of this rule+ an attest client is any client for which the member performs any service for which independence is required. Accordingly+ for purposes of this rule+ a client for which a member performs a compilation would only be considered an attest client if the member%s compilation report does not disclose a lack of independence. 7ther regulators may have more restrictive rules regarding independence when performing nonattest services for an attest client. Accordingly+ the member should be aware of and comply with all rules and regulations applicable to specific clients.

=/ Are $ny $%t ' t es e8%luded "r!# t+e d!%u#ent$t !n requ re#ent9 The documentation requirement does not apply to routine activities performed by the member+ such as providing advice and responding to the client%s technical questions as part of the normal client)member relationship. -ee FAQ &o. ' under the heading C.outine Activities.D ?/ 7!uld nde)enden%e .e #)$ red ,+en $ #e#.er "$ ls t! d!%u#ent t+e underst$nd n* , t+ t+e %l ent9 &o. A failure to prepare the required documentation would not impair the member%s independence provided the understanding with the client had been established. ?owever+ the failure to document the understanding with the client would be considered a violation of .ule /(/+ !ompliance "it# Standards (A !"A+ Professional Standards+ vol. /+ #T sec. /(/ par. .(').

@/ A #e#.er )r!' des !nly n!n$ttest ser' %es t! $ %l ent "!r t+e ye$r end n* De%e#.er 30- :11=/ In :11?- t+e #e#.er s $sked t! )er"!r# $n $ud t !" t+e %l ent>s ye$r2end :11= " n$n% $l st$te#ents/ 7!uld t+e #e#.er .e n ' !l$t !n !" t+e t+ rd *ener$l requ re#ent under Inter)ret$t !n N!/ 01023 .e%$use t+e " r# d d n!t %!#)ly , t+ t+e d!%u#ent$t !n requ re#ent , t+ res)e%t t! t+e n!n$ttest ser' %es )er"!r#ed n :11=9 &o. The documentation requirement does not apply to nonattest services performed prior to the client becoming an attest client. ?owever+ upon the acceptance of an attest engagement+ the member should prepare written documentation demonstrating his or her compliance with the other general requirements of nterpretation &o. '(')* during the period covered by the financial statements+ including the requirement to establish an understanding with the client. Page 10

E/ Must $ #e#.er d!%u#ent t+e %l ent>s re' e, $nd $))r!'$l !" ;!urn$l entr es )r!)!sed .y t+e #e#.er9 nterpretation &o. '(')* does not require that the member document the client%s review and approval of the =ournal entries. ?owever+ the member may wish to document the name of the client representative who reviewed and approved the =ournal entries and the date of his or her review to provide evidence that such review and approval took place. F/ A #e#.er>s " r# d!es n!t requ re ts %l ents t! s *n en*$*e#ent letters "!r t$8 return )re)$r$t !n ser' %es/ H!, d!es t+e d!%u#ent$t !n requ re#ent under Inter)ret$t !n N!/ 01023 $))ly , t+ res)e%t t! t+ese %l ents9 Ta5 services are nonattest services sub=ect to the requirements of nterpretation &o. '(')*. Therefore+ the documentation requirement applies when the member provides ta5 services to a client for which the member also provides attest services. ?owever+ the method of documentation is left to the member%s discretion+ and+ provided it contains all of the required elements+ it could be documented in a ta5 organi>er or disclosure statement provided to the client+ a memo in the ta5 or attest service working papers+ or through other means. Per !d !" t+e Pr!"ess !n$l En*$*e#ent 0/ 7!uld $ #e#.er>s nde)enden%e .e %!ns dered #)$ red " $ #e#.er )er"!r#ed ser' %es t+$t ,!uld #)$ r nde)enden%e under Inter)ret$t !n N!/ 01023 dur n* t+e )er !d %!'ered .y t+e " n$n% $l st$te#ents .ut )r !r t! t+e )er !d !" t+e )r!"ess !n$l en*$*e#ent9 nterpretation &o. '(')* states that in cases when the requirements of the interpretation have not been met during the period of the professional engagement or the period covered by the financial statements+ the member%s independence would be impaired. ?owever+ independence would not be considered impaired provided the services (a) do not constitute management functions+ (b) were performed prior to the period of the professional engagement+ (c) relate solely to financial statements of the prior period+ and (d) those financial statements were audited by another firm (or in the case of a review engagement+ reviewed or audited by another firm). -ee FAQ &o. ' under the previous heading C2anagement FunctionsD and #T section '((.('+ !onceptual $ramework for %I!P% Independence Standards (A !"A+ Professional Standards+ vol. /)+ for further guidance on what would constitute a management function (issued &ovember /((F). B!!kkee) n* Ser' %es

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0/ A #e#.er re%!rds ;!urn$l entr es ,+ le )er"!r# n* #!nt+ly .!!kkee) n* ser' %es , t+!ut !.t$ n n* %l ent $))r!'$l/ 7!uld nde)enden%e .e #)$ red9 Aes. n order for the member to maintain his or her independence+ the client must review and approve the =ournal entries+ and the member should be satisfied that management understands the nature of the proposed entries and the impact the entries have on the financial statements. :/ Dur n* t+e %!urse !" )r!' d n* #!nt+ly .!!kkee) n* ser' %es- t+e #e#.er re%e 'es n'! %es "r!# t+e %l ent nd %$t n* $))r!'$l "!r )$y#ent $nd dent "y n* t+e $))r!)r $te *ener$l led*er $%%!unts t! re%!rd t+e tr$ns$%t !n/ T+e #e#.er )re)$res t+e %l ent>s %+e%ks "!r )$y#ent !" t+!se n'! %es- re%!rds t+e tr$ns$%t !ns n t+e %l ent>s *ener$l led*er syste#- $nd returns t+e %+e%ks t! t+e %l ent "!r $))r!'$l $nd s *n$ture/ T+e #e#.er d!es n!t +$'e s *n$ture $ut+!r ty !'er t+e %l ent>s %+e%k n* $%%!unt/ 7!uld nde)enden%e .e #)$ red9 &o. 2anagement determined and approved the appropriate account classifications+ approved the invoices for payment+ and reviewed and signed the prepared checks. 3/ Dur n* t+e %!urse !" )r!' d n* #!nt+ly .!!kkee) n* ser' %es- t+e #e#.er d s%usses , t+ %l ent #$n$*e#ent t+e need t! re%!rd re%urr n* ;!urn$l entr es A"!r e8$#)le- de)re% $t !n e8)enseB e$%+ #!nt+ n t+e *ener$l led*er/ T+e %l ent $))r!'es t+e re%urr n* ;!urn$l entr es $nd #$kes $ny ne%ess$ry de% s !ns A"!r e8$#)le- use"ul l 'es !" t+e $ssetsB/ T+e #e#.er t+en re%!rds t+ese entr es n t+e %l ent>s *ener$l led*er e$%+ #!nt+/ 7!uld nde)enden%e .e #)$ red9 &o. The client understands the general nature of the =ournal entries and the impact they have on its financial statements. =/ A %l ent re%!rds $ll d s.urse#ents n ts %+e%k.!!k $nd dent " es t+e ty)e !" e8)ense A"!r e8$#)le- tele)+!ne- rent- $nd s! !nB !n t+e %+e%k.!!k stu.s/ Dur n* t+e %!urse !" )r!' d n* #!nt+ly .!!kkee) n* ser' %es- t+e #e#.er $ss *ns t+e *ener$l led*er $%%!unt nu#.er .$sed !n t+e ty)e !" e8)ense nd %$ted .y t+e %l ent $nd re%!rds t+ese )$y#ents n t+e %l ent>s $%%!unt n* syste#/ 7!uld nde)enden%e .e #)$ red9 &o. The member would not be considered coding transactions. ?/ A #e#.er s en*$*ed t! )er"!r# $n $ud t- re' e,- !r %!#) l$t !n !" $ %l ent>s " n$n% $l st$te#ents/ Dur n* t+e %!urse !" t+e $ud t- re' e,- !r %!#) l$t !n- t+e #e#.er )r!)!ses $ud t $d;ust#ents t! t+e " n$n% $l st$te#ents/ E8$#)les !" t+ese entr es n%lude t+e %urrent t$8 $%%ru$l $nd de"erred t$8 $ssets !r l $. l t es $nd t+e $#!unt !" de)re% $t !n $nd $#!rt H$t !n ne%ess$ry "!r t+e %urrent ye$r/ T+e %l ent re' e,s t+ese entr es- underst$nds t+e #)$%t !n ts " n$n% $l st$te#ents- $nd re%!rds t+e $d;ust#ents dent " ed .y t+e #e#.er/ 7!uld t+e )r!)!s$l !" su%+ entr es %!nst tute $ n!n$ttest .!!kkee) n* ser' %e su.;e%t t! Inter)ret$t !n N!/ 010239

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&o. "roposing entries as a result of the member%s audit+ review+ or compilation services is a normal part of those engagements and would not constitute performing a nonattest bookkeeping service sub=ect to nterpretation &o. '(')*. @/ A #e#.er s en*$*ed t! )er"!r# $n $ud t "!r $ %l ent ,+! re%!rds $ll tr$ns$%t !ns !n $ %$s+ .$s s n ts *ener$l led*er/ Dur n* t+e $ud t )r!%ess- t+e #e#.er dent " es $ll $))r!)r $te ;!urn$l entr es requ red t! %!n'ert t+e %l ent>s *ener$l led*er t! $n $%%ru$l .$s s $nd )re)$res t+e " n$n% $l st$te#entsn%lud n* "!!tn!tes- !n t+e $%%ru$l .$s s n !rder t! %!n"!r# , t+ U/S/ *ener$lly $%%e)ted $%%!unt n* )r n% )les A5APPB/ T+e %l ent re' e,s t+e entr es $nd " n$n% $l st$te#ents- n%lud n* $ll "!!tn!te d s%l!sures- $nd underst$nds t+e #)$%t t+ese entr es +$'e !n t+e " n$n% $l st$te#ents/ As )$rt !" t+e #$n$*e#ent re)resent$t !n letter- t+e %l ent $%kn!,led*es res)!ns . l ty "!r t+e " n$n% $l st$te#ents $nd "!!tn!tes/ 7!uld t+ese ser' %es .e %!ns dered n!n$ttest .!!kkee) n* ser' %es su.;e%t t! Inter)ret$t !n N!/ 010239 &o. "roviding these services as part of the member%s audit of the client%s financial statements would not be considered bookkeeping services sub=ect to the requirements of nterpretation &o. '(')*. n addition+ a member should use =udgment concerning what would be considered part of the normal audit process and what would be a separate nonattest service. A client%s books and records have to be substantially complete and current in order to conduct an audit of those books and records. The client%s books and records would include all subsidiary ledgers or information required by the auditor (such as accounts receivable or payable) for the necessary conversion. f a member performs a service to bring those books and records current or complete (such as compiling the subsidiary information)+ the service should be considered outside the scope of the normal audit process and+ therefore+ a nonattest service sub=ect to nterpretation &o. '(')*. ?owever+ nterpretation &o. '(')* would be applicable when the member is engaged to perform a stand)alone bookkeeping engagement for the client. An e5ample would be when a member is engaged to perform monthly bookkeeping services+ including the preparation of monthly compiled financial statements. E/ T+e #e#.er )re)$res $ .$nk re%!n% l $t !n !" $ %l ent>s .$nk $%%!unt n %!nne%t !n , t+ #!nt+ly .!!kkee) n* ser' %es/ T+e %l ent re' e,s $nd $))r!'es t+e .$nk re%!n% l $t !n/ 7!uld nde)enden%e .e #)$ red9 &o. The client reviews and approves the bank reconciliation and sufficiently understands the services performed to oversee them. F/ A #e#.er )er"!r# n* .!!kkee) n* ser' %es re%!rds $d;ust n* $nd re%l$ss " %$t !n ;!urn$l entr es $nd %!#) les )rel # n$ry " n$n% $l st$te#ents/ T+e #e#.er del 'ers t+e " n$n% $l st$te#ents $nd %!#) l$t !n re)!rt t! t+e %l ent $nd )r!' des t+e %l ent %!) es !" t+e *ener$l led*er- ;!urn$ls- $nd ;!urn$l entr es- ,+ %+ %!nt$ n $ des%r )t !n !" t+e n$ture !" e$%+ entry/ T+e #e#.er

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$sks t+e %l ent t! re' e, t+e ;!urn$l entr es $nd t+en $sks ,+et+er t+e %l ent +$s $ny quest !ns $.!ut $ny !" t+e entr es/ 7!uld t+e requ re#ents !" Inter)ret$t !n N!/ 01023 .e #et9 Aes. "rovided the member is satisfied that the client understands the nature and impact of the =ournal entries+ the requirements of nterpretation &o. '(')* would be met. G/ Must t+e #e#.er re' e, t+e )r!)!sed ;!urn$l entr es $nd e8)l$ n t+e r #)$%t !n t+e " n$n% $l st$te#ents t! t+e %l ent n )ers!n !r %$n t+ s re' e, t$ke )l$%e .y )+!ne- "$8- #$ l- !r e2#$ l9 The review process can take place in personB by phone+ fa5+ mail+ or e)mailB or a combination thereof. .egardless of the method used+ the member must be satisfied that the client understands the nature and impact of the =ournal entries. 01/ As )$rt !" )er"!r# n* .!!kkee) n* ser' %es- $ #e#.er re%!rds $d;ust n* ;!urn$l $nd re%l$ss " %$t !n entr es $nd )re)$res t+e %l ent>s )rel # n$ry " n$n% $l st$te#ents/ T+e #e#.er d!es n!t re' e, e$%+ $nd e'ery ;!urn$l entry , t+ t+e %l ent- .ut- r$t+er- t+e #e#.er des%r .es t+e n$ture !" t+e ;!urn$l entr es $nd t+e r #)$%t !n t+e )rel # n$ry " n$n% $l st$te#ents/ T+e %l ent $))r!'es t+e )rel # n$ry " n$n% $l st$te#ents $nd ssues t+e# t! ts .$nk/ 7!uld t+e requ re#ents !" Inter)ret$t !n N!/ 01023 .e #et9 Aes. "rovided all of the other requirements of nterpretation &o. '(')* are met. C!ntr!llers+ ) Ser' %es 0/ A #e#.er )r!' des te#)!r$ry %!ntr!llers+ ) ser' %es $nd '$r !us ty)es !" !t+er te#)!r$ry $%%!unt n* ser' %es "!r %l ents dur n* %l ent #$tern ty le$'esllnesses- $nd sudden de)$rtures/ D! t+ese $%t ' t es #)$ r nde)enden%e under Inter)ret$t !n N!/ 010239 These services would be sub=ect to nterpretation &o. '(')*. f a member performs controller)type activities+ independence would be impaired because such activities typically involve the performance of management functions or the supervision of client employees. ?owever+ if the member performs temporary accounting and other services in compliance with the requirements of nterpretation &o. '(')*+ independence would not be impaired. The member also should consider whether the duration or regularity of the services might appear to impair independence / ?aving the title of controller would impair independence regardless of the actual services performed. T$8 Ser' %es

Page 14

0/ T+e #e#.er )er"!r#s ye$r2end t$8 )l$nn n* $nd )re)$res t+e t$8 returns "!r $n $ttest %l ent/ 7!uld t+ese ser' %es .e %!ns dered n!n$ttest ser' %es $nd t+ere"!re su.;e%t t! t+e requ re#ents !" Inter)ret$t !n N!/ 010239 Aes. Ta5 services are considered nonattest services and are therefore sub=ect to the general requirements of nterpretation &o. '(')*+ including the member%s understanding with the client with respect to the ta5 services that must be documented in writing. :/ D!es Inter)ret$t !n N!/ 01023 $))ly ,+en t+e #e#.er )re)$res t+e )ers!n$l t$8 returns !" t+e !,ners $nd !"" %ers !" $n $ud t- re' e,- !r %!#) l$t !n %l ent9 D!es t #$tter ,+et+er t+e !,ners !r !"" %ers )$y "!r t+e ser' %es t+e#sel'es !r ,+et+er t+e %l ent )$ys "!r t+e ser' %es $s $n e8e%ut 'e )erk9 f the personal ta5 returns are prepared without having to rely on representations of the client+ then nterpretation &o. '(')* would not apply. The mere fact that the client pays for the services also would not cause nterpretation &o. '(')* to apply. 3/ 7!uld $ss st n* $ %l ent n $))ly n* F n$n% $l A%%!unt n* St$nd$rds B!$rd AFASBB Accounting Standards Codification TM AASCB E=12012?1 #)$ r nde)enden%e A"!r e8$#)le- dent "y n* )!tent $l un%ert$ n t$8 )!s t !ns$d' s n* t+e %l ent ,+et+er t+!se t$8 )!s t !ns #eet t+e #!re2l kely2t+$n2n!t CMLTND t+res+!ld- $nd %$l%ul$t n* t+e rel$ted unre%!*n Hed t$8 .ene" tsB9 The provision of such services would not impair independence provided the client can make an informed =udgment on the results of the member%s services and the other requirements of nterpretation &o. '(')* are met. n meeting the requirements of nterpretation &o. '(')*+ the member may assist the client in understanding why the ta5 positions do or do not meet the 2HT& threshold and the basis for any unrecogni>ed ta5 benefit so that the client can accept responsibility for the amounts reported and disclosed in the financial statements (issued Kuly /((F and reference to FA-; A-! updated -eptember /((E). In"!r#$t !n Te%+n!l!*y Ser' %es 0/ 7+y d!es Inter)ret$t !n N!/ 01023 nd %$te t+$t nde)enden%e ,!uld .e #)$ red " $ #e#.er s !)er$t n* $ %l ent>s l!%$l $re$ net,!rk ALANB syste#9 7perating a client%s HA& is considered to be a management function that would violate the general requirements of nterpretation &o. '(')*. :/ 7!uld !uts!ur% n* t+e %l ent>s ent re net,!rk !)er$t !n $nd nde)endently !)er$t n* t+e %l ent>s LAN syste# #)$ r nde)enden%e9 Aes.

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3/ 7!uld )er"!r# n* net,!rk #$ nten$n%e A"!r e8$#)le- u)d$t n* ' rus )r!te%t !n- $))ly n* u)d$tes $nd )$t%+es- !r %!n" *ur n* user sett n*s %!ns stent , t+ #$n$*e#ent>s requestB #)$ r nde)enden%e9 &o. "erforming network maintenance is not considered to be operating the client%s network and+ therefore+ would not impair independence provided a client employee with the necessary skill+ knowledge+ and:or e5perience is making all decisions and approving all activities. =/ 7!uld $ss st n* $ %l ent , t+ $ ser'er )r!;e%t A"!r e8$#)le- nst$ll- # *r$te- !r u)d$te ts net,!rk !)er$t n* syste#I $dd equ )#ent $nd usersI !r %!)y d$t$ t! $n!t+er %!#)uterB #)$ r nde)enden%e9 &o. "rovided the member does not make other than insignificant modifications to the source code underlying the client%s financial information system. ?/ 7!uld su)er' s n* %l ent )ers!nnel n t+e d$ ly !)er$t !n !" t+e %l ent>s n"!r#$t !n syste# #)$ r nde)enden%e9 Aes. n this case+ the member would be performing management duties (supervising client employees in the performance of their normal recurring activities)+ which would impair independence. @/ 7!uld $ss st n* $ %l ent , t+ )r!%ur n* $nd se%ur n* Internet $%%ess #)$ r nde)enden%e9 &o+ provided a client employee with the necessary skill+ knowledge+ and:or e5perience makes all decisions concerning the nternet provider and services to be provided. E/ 7+$t %r ter $ s+!uld $ #e#.er use t! deter# ne ,+et+er $ %l ent>s n"!r#$t !n syste# s unrel$ted t! ts " n$n% $l st$te#ents !r $%%!unt n* re%!rds9 nformation systems that produce information that is reflected in the amounts and disclosures in the client%s financial statements+ used in determining such amounts and disclosures+ or used in effecting internal control over financial reporting are considered to be related to the financial statements and accounting records. ?owever+ information systems that are used only in connection with controlling the efficiency and effectiveness of operations are considered to be unrelated to the financial statements and accounting records. F/ 7+$t "$%t!rs s+!uld $ #e#.er %!ns der n deter# n n* ,+et+er t+e #!d " %$t !ns #$de t! s!ur%e %!de underly n* $ %l ent>s " n$n% $l n"!r#$t !n syste# $re !t+er t+$n ns *n " %$nt9

Page 16

f the modifications have more than an insignificant effect on the functionality of the software+ they should be considered to be other than insignificant. A))r$ s$l- V$lu$t !n- $nd A%tu$r $l Ser' %es 0/ 7!uld $ss st n* $ %l ent n $))ly n* FASB ASC F1?- usiness Co!binations- !r FASB ASC 3?1- "ntangib#es$%ood&i## and 't(er- #)$ r nde)enden%e A"!r e8$#)le- )r!' d n* $d' %e !n t+e '$r !us '$lu$t !n #et+!d!l!* es $'$ l$.le $nd $ssu#)t !ns needed $nd )r!' d n* '$lu$t !n te#)l$tes- s!"t,$re- !r !t+er t!!ls s! t+$t t+e %l ent %$n deter# ne $n $))r!)r $te '$lue "!r $%qu red $ssets*!!d, ll- %!nt n*ent %!ns der$t !n- $nd s! !nB9 @hen the client requests that the member perform valuation services or when the member is in essence performing the valuation for the client (such as when the member provides the client with a firm)developed template or software product or inserts amounts into a template or software product)+ the member should refer to the guidance in nterpretation &o. '(')*. The guidance states that independence would be impaired if a member performs an appraisal or valuation service for an attest client when the results of the service would be material to the financial statements and the appraisal or valuation involves a significant degree of sub=ectivity. <aluations performed in connection with business combinations or appraisals of assets or liabilities normally have a material effect on financial statements and involve a significant degree of sub=ectivity. "roviding advice on the various valuation methodologies available and assumptions to be made in performing the valuation would not impair independence provided the requirements of nterpretation &o. '(')* are met. These requirements include the client determining or approving all significant assumptions and matters of =udgment and making an informed =udgment on+ and accepting responsibility for+ the results of the service. n meeting the requirements of nterpretation &o. '(')*+ the member also may assist the client in understanding the accounting standards and the nature of the necessary accounting ad=ustments. n addition+ the member may provide the client with generic or standardi>ed templates or software products not developed by the firm to assist the client with performing the valuation. &eneric or standardi'ed products are those in which formulas are well established and sub=ect to only minor =udgments or interpretations. Accordingly+ it is reasonable to e5pect that the result produced by such products will be similar to the result that would be produced by other vendors% products (issued August /((4 and references to FA-; A-! updated -eptember /((E). Tr$ n n* 0/ An $ttest %l ent s #)le#ent n* %+$n*es t! ts " n$n% $l re)!rt n* syste# !r )r!%ess A"!r e8$#)le- #)le#ent n* Intern$t !n$l F n$n% $l Re)!rt n* St$nd$rds CIFRSsD !r eJtens .le Bus ness Re)!rt n* L$n*u$*e CJBRLDB/ 7!uld Page 17

$ #e#.er>s nde)enden%e .e #)$ red " +e !r s+e )r!' ded tr$ n n* t! t+e %l ent rel$ted t! su%+ syste# !r )r!%ess9 A member%s independence would not be impaired if he or she provides client personnel with a general understanding of the financial reporting system or process (F."). f client personnel already have a general understanding of the F."+ the member may provide more specific training to client personnel on how the system or process applies to the client%s specific circumstances. n providing training services+ however+ the member should ensure that such nonattest services do not involve supervising client personnel in either the implementation or daily operation of the F."+ or performing other management responsibilities+ such as making F." operational decisions or implementing the internal controls necessary for the F." to run effectively (issued February /('(). Pr!;e%t M$n$*e#ent Ser' %es 0/ 7!uld $ #e#.er>s nde)enden%e .e #)$ red " +e !r s+e #$n$*ed $ )r!;e%t "!r $n $ttest %l ent Asu%+ $s %!n'ert n* t+e %l ent>s FRP "r!# US 5AAP t! IFRSs !r #)le#ent n* JBRLB9 Aes+ taking responsibility for the management of a client%s pro=ect would impair a member%s independence. This would be true even if the pro=ect did not impact the financial statements. ndependence+ however+ would not be impaired if management makes all decisions related to the pro=ect and the member%s involvement was limited to providing assistance+ advice+ suggestions and:or recommendations regarding matters that are within their areas of knowledge or e5perience. -uch activities might include (a) providing advice about either the tagging of L;.H)formatted or preparation of F.-s)based financial statements+ (b) providing feedback on management%s plans+ including how management will prioriti>e its activities+ and ( c) assisting the client with its understanding of the general considerations for the pro=ect (issued February /('(.) :/ 7!uld $ #e#.er>s nde)enden%e .e #)$ red " +e !r s+e $ss sted %l ent #$n$*e#ent , t+ ts deter# n$t !n !" ,+et+er !r n!t t! )r!%eed , t+ $ )r!;e%t A"!r e8$#)le- %!n'ert ts FRP "r!# US 5AAP t! IFRSs !r s #)le#ent n* JBRL "!r ts " n$n% $l st$te#entsB9 "rovided the member only assists the client by providing guidance on the conversion or implementation issues and does not make the decision of whether or not to proceed with the pro=ect+ the member%s independence would not be impaired. For e5ample+ such assistance may include (a) helping gather information that management will use to conduct its analysis or (b) providing advice and making recommendations on the assumptions management plans to use in its analysis (issued February /('(.)

Page 18

Endn!tes

Page 19

'

. The general requirements for performing nonattest services are the following8
a( The member should not perform management functions or make management decisions for the attest client. ?owever+ the member may provide advice+ research materials+ and recommendations to assist the client%s management in performing its functions and making decisions. The client must agree to perform the following functions in connection with the engagement to perform nonattest services8 i. ii. 2ake all management decisions and perform all management functions. $esignate an individual who possesses suitable skill+ knowledge+ and:or e5perience+ preferably within senior management+ to oversee the services. iii. #valuate the adequacy and results of the services performed. iv. Accept responsibility for the results of the services. The member should be satisfied that the client will be able to meet all of these criteria and make an informed =udgment on the results of the member%s nonattest services. n assessing whether the designated individual possesses suitable skill+ knowledge+ and:or e5perience+ the member should be satisfied that such individual sufficiently understands the services to be performed to oversee them. ?owever+ the individual is not required to possess the e5pertise and e5perience to perform or reperform the services. n cases when the client is unable or unwilling to assume these responsibilities (for e5ample+ the client does not have an individual with suitable skill+ knowledge+ and:or e5perience to oversee the nonattest services provided or is unwilling to perform such functions due to lack of time or desire)+ the member%s provision of these services would impair independence. c( ;efore performing nonattest services+ the member should establish and document in writing K his or her understanding with the client (board of directors+ audit committee+ or management+ as appropriate in the circumstances) regarding the following8 (') ob=ectives of the engagementB (/) services to be performedB (*) clientMs acceptance of its responsibilitiesB (3) memberMs responsibilitiesB and (0) any limitations of the engagement. The documentation requirement does not apply to the following8 i. ii. &onattest services performed prior to Kanuary '+ /((0. &onattest services performed prior to the client becoming an attest client. L

b(

6eneral requirements (a) and (b) do not apply to certain routine activities performed by the member+ such as providing advice and responding to the clientMs questions as part of the normal client)member relationship.

A failure to prepare the required documentation would not impair independence+ but would be considered a violation of .ule /(/+ !ompliance wit# Standards (A !"A+ Professional Standards+ vol. /+ #T sec. /(/)- provided that the member did establish the understanding with the client. IFootnote added+ effective $ecember *'+ /((*+ by the "rofessional #thics #5ecutive !ommittee. Footnote subsequently revised Kanuary /F+ /((0.J ?owever+ 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 financial statements+ including the requirement to establish an understanding with the client. IFootnote added+ effective 7ctober *'+ /((3+ by the "rofessional #thics #5ecutive !ommittee.J