By the MACPA Professional Ethics Task Force
Following is a transcript of a question and answer highlighting frequent inquiries sent to the MACPA Professional Ethics Task Force. Responses to the inquiries have been tailored to specific questions presented and may not consider all of the unique circumstances that are part of an ethical inquiry. Attempt your own answer before reading the “unofficial” opinion of the Task Force.
“When we make entries and adjustments directly into a client’s accounting system, does it impair our independence and require disclosure on the compilation letter?”
The answer is essentially found in Section 101-3, Performance of Other Services, of the AICPA/MACPA Code of Professional Conduct:
“A member or his or her firm (“member”) who performs an attest engagement for a client may also perform other nonattest services (“other services”) for that client. Before a member performs other services for an attest client, he or she must evaluate the effect of such services on his or her independence. In particular, care should be taken not to perform management functions or make management decisions for the attest client, the responsibility for which remains with the client’s board of directors and management.”
Section 92, Definitions, of the Code defines “Attest Engagement” as “an engagement that requires independence as defined in the AICPA Professional Standards.” Compilations are defined as such an engagement and, therefore, independence is required.
Section 101-3 of the Code goes on to give examples of the impact on independence of the performance of “other services.” One such “other service,” bookkeeping, is presented as follows:
| Independence Would Not Be Impaired | Independence Would Be Impaired |
| Record transactions for which management has determined or approved the appropriate account classification, or post coded transactions to a client's general ledger. | Determine or change journal entries, account codings or classification for transactions, or other accounting records without obtaining client approval. |
| Prepare financial statements based on information in the trial balance. | Authorize or approve transactions. |
| Post client-approved entries to a client's trial balance. | Prepare source documents or originate data. |
| Propose standard, adjusting, or correcting journal entries or other changes affecting the financial statements to the client. | Make changes to source documents without client approval. |
| Provide data-processing services. |
The answer to your question requires one more piece of information. Did you obtain the client’s approval of the entries and adjustments you made directly into the client’s accounting system?
This means specific approval of the actual entries and adjustments, not the approval that comes from “the client wanted me to correct the books.” If you did not get approval, you are not independent; therefore, the disclosure that you are not independent must be included in your compilation report.
If you did get approval, you are independent, if, using your professional judgment, you have determined the degree of bookkeeping services performed was not so extensive you were actually performing management functions, and the client had a reasonable knowledge of the entries and adjustments (even if you had to explain the transactions to him or her, so that his or her “approval” was meaningful).
This “if” is part of professional judgment, just as professional judgment is used in the decision on how to document the client’s “approval.”