Fenn & Co., CPAs, has time available on a computer that it uses primarily for its own internal record keeping. Aware that the computer facilities of Delta Equipment Co., one of Fenn’s audit clients, are inadequate for the company’s needs, Fenn offers to maintain on its computer certain routine accounting records for Delta. If Delta were to accept the offer and Fenn were to continue to function as independent auditor for Delta, Fenn most likely would be in violation of
SEC, but not AICPA, provisions pertaining to auditors’ independence.
Under the Sarbanes-Oxley Act of 2002 and the SEC rules promulgated under it, performing bookkeeping or accounting services for a public company audit client impairs the independence of the audit firm. The major exception to this rule is for results that are not subject to audit. The AICPA view is that the firm ordinarily may retain its independence while keeping client accounting records, provided certain requirements are met. For example, when providing bookkeeping services, independence would not be impaired if the member records transactions for which management has approved the account classifications, posts coded transactions to the general ledger, prepares financial statements based on the trial balance, posts client-approved entries to the trial balance, or proposes entries or other changes in the financial statements if they are reviewed by the client and its management understands their nature and effects. However, determining or changing entries, account codings or classifications for transactions, and other accounting records without client approval; authorizing or approving transactions; preparing source documents; and making changes in source documents without client approval are activities that would impair independence. The application of these inconsistent positions seldom causes conflict because large clients, which are the most likely to report to the SEC, usually have their own accounting and computer systems and need not request these services from their auditors. Moreover, the SEC rules apply to publicly traded companies only.