January 17, 2013
Professional Ethics Executive Committee
C/O Lisa A. Snyder, Director
Professional Ethics Division
1211 Avenue of the Americas, 19th Floor
New York, NY 10036
Via e-mail: (lsnyder@aicpa.org)
Audit  Tax  Advisory
Grant Thornton LLP
175 W Jackson Boulevard, 20th Floor
Chicago, IL 60604-2687
T 312.856.0200
F 312 565 4719
www.GrantThornton.com
American Institute of Certified Public Accountants
1211 Avenue of the Americas
New York, NY 10036-8775
Re: Comments on Exposure Draft, Proposed Revised Interpretation of Professional Ethics Division:
Subordination of Judgment by a Member
Dear Ms. Snyder and Committee Members:
Grant Thornton LLP (“Grant Thornton” or the “Firm”) appreciates the opportunity to
comment on the American Institute of Certified Public Accountants (“AICPA”) Professional
Ethics Executive Committee (“PEEC”) recently issued Exposure Draft (“ED”), Proposed Revised
Interpretation of Professional Ethics Division: Subordination of Judgment by a Member, issued November
16, 2012. We strongly support the AICPA’s commitment to strengthen the ethics and
independence of all of its members in the accounting profession, in public practice, and in
business.
Grant Thornton understands that the PEEC undertook the project to revise Interpretation No.
102-4, “Subordination of Judgment by a Member” (ET “102-4”), as many members did not
understand that this interpretation of Rule 102, Integrity and Objectivity, was meant to apply broadly
to all professional services. Due to the emphasis on financial statement disagreements and the
recording of transactions in the extant ET 102-4, many members believed that the interpretation
did not apply to disagreements for other professional services.
Threats and safeguards approach
Grant Thornton agrees that changes to ET 102-4 were necessary to make the fundamental
principle that no member should subordinate his or her professional judgment to others clear.
We agree with the clarifications, which highlight that the interpretation pertains to differences of
opinion in performing professional services. The steps for a member to consider once the
member concludes that a supervisor’s position is inconsistent with professional standards and/or
that the position would result in a material misstatement, misapplication of facts, or violate
applicable laws or regulations appear reasonable. We also agree with the inclusion of the
examples of action steps and safeguards a member should consider to eliminate or reduce threats
to a member’s objectivity and integrity to an acceptable level. We also agree that the revisions are
consistent with the risk-based approach on a member’s responsibility for identifying and
evaluating threats under the Conceptual Framework for AICPA Independence Standards and our
understanding of the proposed approach with the Codification project.
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Disagreement with supervisor’s position
Currently, the revised interpretation focuses on a disagreement with a member’s supervisor. It is
not clear whether the professional disagreement extends beyond one’s immediate supervisor or
whether the fundamental principles should extend beyond one’s immediate supervisor to others
within the employing organization or others at a client organization. For example, if one were to
evaluate certain of the larger financial frauds in the 2000s, many others beyond the member’s
direct supervisor were involved. Many of the regulatory enforcement actions also appear to be
taken against accountants alleging that the accountants subordinated their judgment to client
personnel. Therefore, in order to assist members in complying with Rule 102, PEEC should
consider further clarifying in the revised interpretation whether the revised interpretation will
only apply to the direct supervisor or extend beyond the member’s direct supervisor. If the
interpretation is meant to include all types of disagreements where a member may find
themselves in a position where he or she may be asked to subordinate his or her judgment,
additional guidance and clarity in this interpretation would be helpful.
In concluding on a “position” as noted in the fourth and fifth paragraphs, we believe it may be
difficult for a member to discuss his or her conclusions on a position taken by a supervisor, for
example, because of fear of retribution, firing, or performance review degradation. We know that
recently enacted law does provide for “whistle blower” protection, but it may not be clear when
this protection would extend to a member who has a professional disagreement. Many employing
organizations and accounting firms have reporting “hotlines” for their employees and others to
highlight issues. We are not certain that discussion with one’s “supervisor” will always occur,
especially in a non-protected manner. It may be more reasonable for a member to make
“reasonable efforts” to more accurately “inform” the person (supervisor) who is taking the
“contrary” or “inconsistent” position regarding the “representation of a known fact or judgment
about such fact.” It is our view that, if a member believes a discussion would be impractical or
impossible with the person to whom subordination may occur, and the conclusion reached is that
it is a material misrepresentation of fact or a violation of applicable laws or regulations, we
believe the interpretation should address whether it may be appropriate, in some cases, to
immediately discuss the member’s concerns with the appropriate higher level(s) of management.
In referring to “his or her” in the sixth paragraph, we would recommend using “member” to
clearly indicate who it refers to.
In addition, we believe it may not be clear or there may be doubt concerning whether a
conclusion needs to be reached on whether a violation of professional standards, laws, or
regulations exists in order for ET 102-4 to apply. Therefore, we recommend that PEEC consider
clarification within the revised interpretation or within non-authoritative guidance that would
provide members further guidance on the initial steps to be followed in order to make a
conclusion on a disagreement; and, second, the additional steps a member should take when the
conclusion does not comply with professional standards or represents a material
misrepresentation of facts, laws, or regulations.
Alignment with AICPA attest quality control standards
Secondly, Grant Thornton understands that every U.S. firm that performs attestation services will
need to have risk management and quality control policies in place to comply with the
requirements of SQCS No. 8, a Firm’s System of Quality of Control (SQCS 8) and other quality
control standards. We would think that, for attest engagements, the reference and the safeguards
should be consistent with the AICPA’s quality control requirements, which should be sufficient
to comply with the revised ET 102-4 requirements to handle disagreements when performing
attest engagements. Grant Thornton believes that PEEC should consider conformity with these
requirements that have been approved by the Auditing Standards Board. It is not clear that these
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standards were considered in the construct of the revised ET 102-4 interpretation. If ET 102-4
has additional requirements for professional disagreements not contemplated by the quality
control standards, members may not be aware of the ET 102-4 requirements, which could create
unnecessary confusion and will not foster compliance with ET 102-4.
Specifically, in light of SQCS 8 requirements for each firm to establish internal quality control
policies for resolving differences of opinion within audit or nonaudit engagement teams (or with
other professionals within the firm), Grant Thornton recommends that PEEC consider
referencing the SQCS 8 requirements in revised ET 102-4 and incorporating the same
requirements. In addition, PEEC should consider whether it would be appropriate to add
guidance within the revised interpretation or within non-authoritative guidance that provides
members further guidance on the importance of establishing appropriate internal quality control
policies to address subordination of judgment issues. It will be essential for firms to have one
dispute resolution process so that its partners and professionals can easily understand and comply
with the requirements of SQCS 8 and ET 102-4.
Other comments
Grant Thornton has identified the following other comments for PEEC’s consideration:

Consider using a word other than “supervisor” to more accurately describe others in this role
such as employers, other superiors, clients, attorneys and elected officials as examples, or
clarify in non-authoritative guidance the types of roles or positions that may constitute a
“supervisor.”

When describing differences of opinion or language concerning the “facts” or “positions”
taken within ET 102-4, consider broadening such phrases to include “representation of
known facts or professional judgment about such facts, without limitation.” In addition,
consider clarifying in the interpretation that the term “position” is that of the supervisor, not
the member.

Provide specific examples or scenarios on when a supervisor’s position may create a
“material misrepresentation” of fact within the interpretation or in non-authoritative
guidance.

In connection with a member assessing the significance of any identified threats in the third
paragraph, we would recommend that the member, in forming his or her conclusion, also
consider research and/or consultation, and within the interpretation (or in non-authoritative
guidance), PEEC should provide guidance with whom to consult.

Provide further clarification in the fifth paragraph in describing the “organization.” For
example, if the person to whom subordination of judgment might occur is a client, it is not
clear if the organization represents the client, or the member’s public accounting firm.

Consider referencing Rule 301, Confidential Client Information, since one of the safeguards in
paragraph 6 addresses whether there is a responsibility to communicate identified matters to
a third party (for example, a regulator or external accountant). A member could inadvertently
be in violation of Rule 301 if certain matters or confidential client information is
communicated to other third parties. Therefore, we believe PEEC should consider alerting
members in the revised interpretation to be cognizant of Rule 301 when considering whether
there is a need to disclose or communicate subordination of judgment matters to third
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parties and that, before a member takes such action, he or she should consider consulting
with legal counsel.

Add the word “disclosed” to the phrase “… with whom these matters were discussed” in the
fourth bullet in paragraph six.

Consider the following changes (additions are in boldface italic and deletions are stricken)
to paragraph 7 in order to clarify the further steps to be considered by the member:
If the member concludes that no safeguards can eliminate or reduce
the threats to an acceptable level which will reasonably cause the
member to not be in compliance with the Integrity and
Objectivity rule, or if the member concludes that reasonably
appropriate action was not taken in response to actions taken by
responsible parties, he or she the member should consider the
appropriateness of his or her continuing relationship with the
organization.
Effective date
While we understand that PEEC proposed to not defer an effective date, we ask that PEEC
reconsider this conclusion as we believe that many employing organizations, other than the firms
complying with SQCS 8, may need additional time to build into their policies these requirements
and that additional time may be necessary for the firms to better educate their partners and
employees if differences are deemed to exist between the AICPA quality control standards and
this revised interpretation.
*****
We would be pleased to discuss our letter with you. If you have any questions, please contact
Karin A. French, National Managing Partner of Professional Standards at
Karin.French@us.gt.com or (312) 602-9160.
Very truly yours,
Grant Thornton LLP
Grant Thornton LLP
U.S. member firm of Grant Thornton International Ltd