MODULE 21 PROFESSIONAL RESPONSIBIliTIES 43

(b) Determine whether scope and nature of other services provided to an audit client would
create a conflict of interest in performance of audit
(c) Assess whether activities are consistent with role as professionals
3. Code of Professional Conduct-Rules, Interpretations, and Rulings
4. Combined outline of Section 2 of the code (rules) integrated with interpretation and rulings
ET Section 100.01-Conceptual Framework for AICPA Independence Standards. The con-
ceptual framework describes the risk-based approach to analyzing independence that is used by
the AICPA Professional Ethics Executive Committee (PEEC). A member is not independent if
there is an unacceptable risk to the member's independence. Risk is unacceptable if the relation-
ship would compromise (or would be perceived as compromising by an informed third party) the
member's professional judgment.
(1) In using this framework, the member should identify and evaluate threats (both individually
and in the aggregate) to independence. Types of threats include
(a) Self-review threat-Reviewing evidence that results from the member's own work (e.g.,
preparing source documents for an audit client).
(b) Advocacy threat-Actions promoting the client's interests or position (e.g., promoting a
client's securities). .
(e) Adverse interest threat-Actions or interests between the member and the client that are
in opposition (e.g., litigation between the client and the member).
(d) Familiarity threat-Members having a close or long standing relationship with client or
knowing individuals or entities who performed nonattest services for the
client.fe.g., a
member of the attest engagement team whose spouse is in a key position at the
client).
(e) Undue influence threat-Attempts by a client's management (or others) to coerce the
member or exercise excessive influence over the member (e.g., threat to replace
the mem-
ber over a disagreement regarding an accounting principle).
(f) Financial self-interest threat-Potential benefit to a member from a financial interest in,
or some financial relationship with, an attest client (e.g., having a direct financial
interest
in the client). .
(g) Management participation threat-Assuming the role of management or performing man-
agement functions for the attest client (e.g., serving as an officer of the client).
(2) After considering the threats to independence, the member should consider the safeguards that
mitigate or eliminate threats to independence. The three types of safeguards include
(a) Safeguards created by the profession, legislation, or regulation (e.g., required continuing
education on independence and ethics).
(b) Safeguards implemented by the client (e.g., an effective governance structure, including
an active audit committee).
(c) Safeguards implemented by the firm (e.g., quality controls for attest engagements).
Rule 101 Independence. A member in public practice shall be independent in the performance of
professional services as required by standards promulgated by designated bodies.
Interpretation 101-1. Independence is impaired if
(1) During the period of the professional engagement a covered member
(a) Had or was committed to acquire any direct or material indirect financial interest in the
client.
(b) 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 financial interest
in the
client.
(c) Had a joint closely held investment that was material to the covered member.
(d) Except as specifically permitted in interpretation 101-5, had any loan to or from the client,
any officer or director of the client, or any individual owning 10% or more of the
client's
outstanding equity securities or other ownership interests.