By Heather Demshock, CPA, CMA
According to one of the largest surveys of the global workforce, one in five workers planned to quit their jobs in 2022.1
In public accounting, turnover had already been
high for several years, with upward of 20% of accounting talent lost per year by firms.2
Accounting professionals at all stages of their careers have been moving on.
This raises ethical considerations for those in public
accounting since many of the professionals and partners leaving have opportunities for continued employment with their firms’ clients. For CPAs moving into a role with an attest client, the transition is not a simple one. A recent episode of
the AICPA Ethically Speaking podcast covers the complexities of this topic and presents the following considerations:3
- What threats exist for the firm?
- How can firms create appropriate safeguards?
- What is a reasonable amount of time for employees to transition?
The AICPA’s guidance on considering employment with, subsequent employment with, and simultaneous employment with an attest client can be found in the Code of Professional Conduct.
The reason for concern is the maintenance
of independence with the attest client. Consider the following scenario. A partner in a firm has been offered a job with an attest client and is considering the position. Code of Professional Conduct Interpretation 1.279.010 requires the following
safeguards to be met:
- The individual promptly reports such considerations to an appropriate person in the firm.
- The individual immediately ceases participation in the engagement and does not provide any services to the attest client until the offer is rejected or employment is no longer sought.
- If a covered member becomes aware that an individual is considering association with an attest client, the covered member should notify an appropriate person in the firm.
- The appropriate person in the firm should consider whether, based on the nature of the engagement and the individual involved, the firm should perform additional procedures to provide reasonable assurance that any work the individual performed
for the attest client was performed in compliance with the Integrity and Objectivity Rule.
If the above-mentioned partner accepts the position with the attest client (or even an affiliate of an attest client), there are additional safeguards that need to be met, especially if there is a transition period from the time the offer is accepted
until the partner retires from the firm and begins employment with the client. All of the following individual safeguards are required to avoid impairing independence:
- The amounts the firm owes the partner (capital balance or retirement benefits) are based on a fixed formula and are not material to the firm.
- The partner cannot influence the firm’s operations or financial policies.
- The partner does not participate or appear to participate in the firm’s business or professional activities.
Additionally, the firm must consider the following:
- Did the partner serve on the engagement team; if so, for how long?
- What are the positions the partner held with the firm and their status?
- What will be the partner’s position and status with the attest client?
- How much time has passed since the partner left the firm?4
As can be seen, a transition from firm to client needs to happen in a purposeful manner to maintain independence in fact and in appearance. Also, it is crucial that it does not appear that the partner/employee is employed by the attest client simultaneously.
“If a partner or professional employee of the member’s firm is simultaneously employed or associated with an attest client, familiarity, management participation, advocacy, or self-review threats to the member’s compliance with the
‘Independence Rule’ would not be at an acceptable level and could not be reduced to an acceptable level by the application of safeguards. Accordingly, independence would be impaired.”5
In general, AICPA
independence rules will apply to any scenario involving an attest client. If any additional rules governing the engagement also apply, the firm should comply with the more restrictive portions of each rule.6
For example, if the client involved
is a public company, individuals and firms should follow Securities and Exchange Commission guidance, which is more restrictive and requires a one year cooling-off period from roles that would influence financial statements. Additionally, some clients
could be subject to governmental oversight and regulation from agencies such as the Government Accountability Office or the Department of Labor. If the client is subject to such oversight, employees and firms would also be required to comply with
independence rules established by those agencies.
1Stefan Ellerbeck, “The Great Resignation Is Not Over: A Fifth of Workers Plan to Quit in 2022,”
Economic Forum (June 24, 2022).
2 Sean McCabe, “Firms Face the Great Resignation,”
AccountingToday.com (Jan. 5, 2022).
3 AICPA, “The Great Resignation and Ethical Independence,”
Speaking podcast (No. 55: July 15, 2022).
4 AICPA Professional Ethics Division, “Plain English Guide to Independence” (November 2021). https://us.aicpa.org/content/dam/aicpa/interestareas/professionalethics/resources/tools/downloadabledocuments/plain-english-guide.pdf
5 AICPA Code of Professional Conduct. www.aicpa.org/research/standards/codeofconduct.html
6 AICPA Professional Ethics Division, “Plain English Guide to Independence” (November 2021).