presented by Kenneth E. Dakdduk, Chair AICPA PEEC Gaylen · PDF filepresented by Kenneth E. Dakdduk, Chair AICPA PEEC Gaylen R. Hansen, Chair Firm Name Study Group 2009 NASBA Annual

presented by Kenneth E. Dakdduk, Chair

AICPA PEEC Gaylen R. Hansen, Chair Firm Name Study Group

2009 NASBA Annual Meeting – Phoenix, AZ

!  CPA Firm Associations/Networks !  Firms join groups to enhance quality/service capabilities

o  Groups are small (e.g., 5 firms) & large (e.g., 150 firms)

!  Some refer to themselves as “networks” !  Some sound like the Big 4

o  Ranking in the world, # of countries, # of member firms/offices/partners/staff

o  Subscribe to core values and standards o  References to seamless service across borders o  May use common name in the firm name

!  Should firms in an association be independent of clients of other firms in the association? If so, under what conditions? !  Would a reasonable person presume a connection between

the firms that goes beyond membership in an association? !  What indicators would create that presumption? !  Would disclosure (e.g., on letterhead or a website) add

clarity or confusion? !  Does the fact that some firms may compete against each

other in a given market affect the analysis?

!  Several countries (Europe and UK) define the terms “network” or “network firm” !  Many define them in local law

!  EU and IFAC have similar definitions !  European Federation of Accountants survey

!  Provides insight into implementation/consistency of definitions in 27 EU member states, Norway and Switzerland

!  PEEC studied the issues and the existing guidance !  Met with representatives of several CPA associations

o  Some participated in PEEC’s open meetings !  Reached conclusions after extensive due process and

deliberations

!  Association of firms that cooperate to enhance service capability and share one of the following: !  Common brand name as part of the firm name !  Common control !  Profits or costs – excluding costs of operating association,

audit methodologies, manuals, training, immaterial costs !  Common business strategy – ongoing collaboration amongst

firms, responsibility for implementing, accountability !  Significant part of professional resources !  Common QC policies – firms required to implement,

monitored by association

!  Name issue was the most challenging !  Dealing with perception and messaging

!  Name is very powerful !  PEEC decided disclosure to counteract effects of common

brand name could be confusing

!  Merely identifying name of association and that firm is a member would not create the perception that a network exists

!  Must be independent of all other network firms’ audit/review clients !  All other attest clients – consider threats that may be

created by other network firms !  Apply safeguards to reduce threat to acceptable level

!  If subset of firms in association share network firm characteristics (e.g., common brand name), only that subset is a network

!  Effective for engagements covering periods beginning on or after 12/15/10

!  Inconsistent guidance and practice !  Network Firm project criteria

!  Common brand name !  Association relationships

!  August 2008 AICPA & NASBA leadership call for joint study of issues

!  Study Group – !  8 current / prior PEEC members; 4 with State Board

backgrounds

!  Study existing guidance – identify issues !  Many conferences calls !  Discussed at 2009 NASBA Regional Meetings

!  Provide public transparency about CPA firm identity and their services

!  Promote uniform laws, rules and guidance to regulators and standard-setters

!  White Paper issued August 2009

! Uncertainty of whether a name might be considered misleading !  Multi-state practice

! Public confusion about who a firm really is !  Breath and scope of practice

! Misleading names ! Fictitious names

!  Allow users of firm services & public at large to recognize firm identity

!  Do not permit use of names if: !  Misleading !  Could confuse

!  Likely to cause “reasonable person” to misunderstand or be confused

!  Legal form !  Ownership !  Any other matter

!  Create false/unjustified expectations !  Favorable results or capabilities !  Imply ability to influence regulators

! Common brand name such as an association name as part of a name

! Association name as the entire firm name

! Names without name(s) or initials of present/ former owners

! Not allowed if false or misleading ! Should not be used unless registered with state

board ! Pejorative inferences ! Drop references in UAA?