PwC Comments on Omnibus Proposal of the AICPA Professional Ethics Division - September 19, 2012

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PwC comment letter (AICPA) 12/11/2012 by Assurance services

PwC supports the PEEC's stated objective of clarifying the circumstances under which the AICPA Code of Professional Conduct applies to services provided by its members. PwC recommends that prior to adopting its proposal, the PEEC should further consider three things: (1) whether the PEEC's proposed revision to the definition of professional services will have the unintended effect of sweeping in services that have no connection with or relationship to the practice of accountancy; (2) the potential impact of eliminating "holding out" from ET Section 92 on SSCS No. 1 and subsequent SSCSs; and (3) whether the proposal, as presently designed, has any additional consequences to the profession.

Comment letter


December 3, 2012

Lisa A. Snyder Director
Professional Ethics AICPA Professional Ethics Executive Committee
1211 Avenue of the Americas
New York, NY 10036-8775

Re: AICPA Professional Ethics Division Interpretations and Definitions - September 19, 2012

Dear Ms. Snyder:

PricewaterhouseCoopers LLP ("PwC") appreciates the opportunity to comment on the September 12, 2012 omnibus proposal from the AICPA Professional Ethics Executive Committee (PEEC). In particular, we wish to share with the PEEC our observations regarding the proposed revisions to the definitions of practice of public accounting and professional services in ET Section 92.

We support the PEEC's stated objective of clarifying the circumstances under which the AICPA Code of Professional Conduct (the "Code") applies to services provided by its members. We respectfully submit, however, that prior to adopting its proposal, the PEEC should further consider three things: first, whether the PEEC's proposed revision to the definition of professional services in paragraph .30 of ET Section 92 will have the unintended effect of sweeping in services that have no connection with or relationship to the practice of accountancy; second, the potential impact of eliminating "holding out" from ET Section 92 on Statement on Standards for Consulting Services No. 1 and subsequent SSCSs, which apply only to AICPA members "holding out" while providing consulting services; and, third, whether the proposal, as presently designed, has any additional consequences to the profession generally that should be fully vetted prior to adoption.

1. The Proposed Revisions to Practice of Public Accounting and Professional Services

The PEEC proposes to revise the definition of "professional services" as follows (additions are in boldface italics and deletions are stricken):

.30 Professional services. Professional services include all services performed 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, tax, bookkeeping, management consulting, financial management services, corporate governance, personal financial planning, litigation support services, educational services, and services for which standards are promulgated by bodies designated by Council while holding out as a CPA.

In its explanatory note, the PEEC states that the revised definition of professional services "requires professional judgment in its application and can be interpreted broadly to include a vast number of services related to the accounting profession." The revised definition, as the proposal explains, "provides some examples of what may be included in such services."

As drafted, however, the proposal reasonably can be read to go beyond the PEEC's stated objectives by including services that are not "related to the accounting profession" or that do not require the application of accountancy skill. The proposed definition also does not allow for the exercise of considered "professional judgment" by the member as to whether a particular service does or does not relate to the accounting profession or require the application of accountancy skills. Rather, we interpret the proposed definition to say that the entire list of services -- including management consulting, litigation support services, and educational services -- necessarily and in all circumstances require accountancy skills and, thus, fall within the purview of the Code. We suspect that this is not the PEEC's intention, given that management consulting, litigation support and educational services, for example, oftentimes do not involve any application of accounting or related skills.

We therefore request that the PEEC consider amending its proposal along the following lines (our strike-outs are highlighted in yellow and proposed insertions are in blue):

.30 Professional services. Professional services include all services performed by a member for a client, an employer, or on a volunteer basis requiring accountancy or related skills, including, but not limited to, which may include, but not be limited to, accounting, audit, tax, bookkeeping, management consulting, financial management services, corporate governance, personal financial planning, litigation support services, educational services, and services for which standards are promulgated by bodies designated by Council while holding out as a CPA.

We submit that these modest revisions would: first, allow the member to exercise professional judgment as to whether a service requires the application of accountancy skills; second, tie the definition of "professional services" more closely to the practice of accountancy and to the application of accounting skills, without narrowing the range of services that might fall within the definition ; and, third, more closely align the definition of "professional services" in the Code with the definitions of "practice of public accountancy" in state accountancy statutes.

2. The Impact of Proposed Revisions to ET 92 and the AICPA Consulting Standards.

The PEEC proposes to strike "holding out" as a prerequisite to the applicability of the Code to members. The notion of "holding out," however, is central to the applicability of the SSCSs to consulting services performed by a member. In particular, paragraph 4 of SSCS No. 1 provides:

This SSCS and any subsequent SSCSs apply to any AICPA member holding out as a CPA while providing Consulting Services as defined herein.

Likewise, Consulting Services Practitioner is defined as "[a]ny AICPA member holding out as a CPA while engaged in the performance of a Consulting Service for a client, or any other individual who is carrying out a Consulting Service for a client on behalf of any institute member or member's firm holding out as a CPA."

We submit that the PEEC's proposed change to ET 92 should have no downstream or attendant impact on SSCS No. 1. While it may be that whether a member "holds out" should not determine whether the AICPA Code of Professional Conduct applies to that member's performance of services, we believe that the inclusion of "holding out" in SSCS No. 1 serves the important purpose of separating services to which the SSCSs should apply from those services to which they should not. We also submit that the continued inclusion of "holding out" in SSCS No. 1 would not create an irreconcilable conflict between the AICPA Code, on the one hand, and the Consulting Standards, on the other.

3. Further Consideration of Other Consequences.

The PEEC proposal recognizes that the proposed revisions to ET 92 affect other provisions of the Code and, accordingly, includes conforming amendments to those sections. There may, however, be additional consequences beyond the Code that may affect the profession more broadly. For example, the licensing regimes of state boards of accountancy generally incorporate the concept of "holding out." That is but one example. It is unclear from the exposure draft whether, and to what extent, the PEEC has considered this or other attendant effects. If the PEEC has, it would be helpful to AICPA members to understand what impacts have been identified and the PEEC's rationale for proceeding notwithstanding those consequences. To the extent that the PEEC has not had an opportunity to consider fully the broader impacts of the proposal on the profession, we suggest that the PEEC pause to undertake such an analysis and allow for further input from interested parties. We would welcome the opportunity to participate in such a process.

* * * * *

We appreciate your consideration and would be pleased to discuss our comments and to answer any questions that you or the PEEC may have. Please contact Jacqueline Olynyk (646-471-8840) regarding our submission.

Yours sincerely,