Audit  Tax  Advisory
Grant Thornton LLP
175 W Jackson Boulevard, 20th Floor
Chicago, IL 60604-2687
June 6, 2011
T 312.856.0200
F 312.565.4719
www.GrantThornton.com
Professional Ethics Executive Committee
C/O Lisa A. Snyder, Director
Professional Ethics Division
American Institute of Certified Public Accountants
1211 Avenue of the Americas, 19th Floor
New York, NY 10036
Via e-mail: (lsnyder@aicpa.org)
American Institute of Certified Public Accountants
1211 Avenue of the Americas
Re: Omnibus
Proposal
of AICPA Professional Ethics Division: Interpretations and Rulings
New
York, NY
10036-8775
Dear Ms. Snyder and Committee Members:
Grant Thornton LLP appreciates the opportunity to comment on the American Institute of Certified
Public Accountants’ (“AICPA”) Professional Ethics Executive Committee’s (“PEEC”) recently issued
Exposure Draft (“ED”), Omnibus Proposal of AICPA Professional Ethics Division: Interpretations and Rulings,
which proposes certain revisions to the independence and ethics requirements and related guidance.
We strongly support the AICPA’s commitment to strengthen the independence and ethics of its
members in the accounting profession, whether or not they are in public practice.
Due to the length and complexity of the ED, we have broken our comments into to the following
sections to facilitate your evaluation:
 Attachment 1: New interpretation on affiliates of attest clients
 Attachment 2: New interpretation on employment with educational institutions
 Attachment 3: Proposed new definition, “Confidential Client Information,” and proposed
revisions to Ethics Ruling No. 2, “Distribution of Client Information to Trade Associations”
 Attachment 4: Proposed revision to ET Section 91, Applicability
 Attachment 5: Proposed revision to Conceptual Framework for AICPA Independence Standards
 Attachment 6: Proposed revision to ET Interpretation 101-3 (ET 101-3), “Performance of
Nonattest Services, “ Under Rule 101, Independence
 Attachment 7: Proposed revision to Interpretation 101-11 (ET 101-11), “Modified
Application of Rule 101 for Certain Engagements to Issue Restricted-Use Reports Under the
Statements on Standards for Attestation Engagements”
Grant Thornton LLP
U.S. member firm of Grant Thornton International Ltd
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
Attachment 8: Other Grant Thornton comments
If the Division of Ethics staff or PEEC task force members have questions regarding our comment
letter, please feel free to contact Karin A. French, National Managing Partner of Professional
Standards, at Karin.French@us.gt.com or (312).602.9160.
Very truly yours,
Attachments
Grant Thornton LLP
U.S. member firm of Grant Thornton International Ltd
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Attachment 1
New interpretation on affiliates of attest clients
Grant Thornton fully supports PEEC’s conclusion that Interpretation No. 101-18,
“Application of the Independence Rules to Affiliates,” Under Rule 101, Independence (No. 10118 or Proposed Interpretation), is needed to update Interpretation 101-8 (“ET 101-8’), “Effect
on independence of financial interests in non-clients having investor or investee relationships
with a covered member’s client.” In addition to financial interests, other guidance is needed to
address other relationships that a member or the member’s firm may have with entities that are
affiliated with an attest client. Currently, both the International Federation of Accountants’
International Ethics Standards Board for Accountants’ Code of Ethics for Professional Accountants
(the “IESBA Code”) and the U.S. Securities and Exchange Commission’s rules in Regulation SX address related entities or affiliates, including definitions. With respect to the proposal, we
are concerned with the complexity of the application of the affiliate definition and its expansion
beyond the IESBA Code’s related entity definition. In order to be more widely understood and
implemented, a member should not have to use visual aids to make determinations as to
whether a related party is or is not an affiliate. Therefore, we believe that the scope and
application of the proposal need to be substantially simplified to facilitate a member’s
understanding and appropriate decision making.
Financial statement attest client
While we understand that the definition of “client” is too broad since it includes an entity that
engages the member or the member’s firm to provide professional services, we believe that the
proposed “financial statement attest client” definition should be limited to audited or reviewed
financial statements. Fundamentally, unlike an audit and a review, the accountant provides
neither positive nor negative assurance on compiled financial statements. Therefore, PEEC’s
definition seems inconsistent with the level of assurance provided by the accountant for other
attest engagements where independence is required by the standard setter for that type of
engagement.
Moreover, the IESBA Code extends its more strenuous independence requirements only to
audit and review engagements, which paragraph 290.1 of the IESBA Code has determined are
“assurance engagements in which a professional accountant in public practice expresses a
conclusion on financial statements.” Although we are uncertain why PEEC has concluded that
the United States (U.S.) has a particularly complex organizational structure in comparison to
other countries, we firmly believe that all U.S. standard-setters collectively share the
responsibility to achieve international convergence, especially if the international standard-setter
has been recognized by the AICPA Council or if PEEC has concluded that the standardsetter’s process for transparency and public comment are robust. With increasing globalization,
we believe that PEEC should not adopt more stringent standards than are generally accepted
international independence standards for attest clients that are not public interest entities.
We do, however, agree with PEEC’s conclusion that, for all other attest engagements where
Rule 101, Independence, applies, the member should use the threats and safeguards approach
outlined in ET Section 100-1, “Conceptual Framework for AICPA Independence Standards.”
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We also agree with PEEC’s conclusion that the threats and safeguards approach enhances
international convergence with the IESBA Code for all other attest engagements.
Entities considered affiliates
We note that the IESBA Code independence requirements in Section 290 are applied to the
accounting firm’s audit or review client (the “client”) that is subject to the group audit or group
review. Therefore, to comply with the IESBA Code, a professional accountant would apply the
requirements of Section 290 to an entity where the


Client had direct or indirect control (“subsidiary”)
Client or a subsidiary had a material direct financial interest that gives the client or its
subsidiary significant influence over the investee’s operations
The broader IESBA Code related entity definition is applied only to the parents, brother-sister
entities, or other affiliated relationships of a client that is a public interest entity, listed entity, or
publicly traded entity.
As discussed in the ED, PEEC intends to include the client’s direct and indirect parents,
investors who have a material investment in the client and who have significant influence over
the client’s operations, and brother-sister entities that are also material to the direct or indirect
parents. Therefore, the proposed definition is closer to the SEC’s definition of an affiliate of an
audit client (Rule 2-01(f)(4)), which is extremely difficult to consistently apply in practice. The
PEEC’s version seems to be a lighter, distilled version of SEC independence rules, and we are
uncertain whether PEEC has concluded that it needs to apply these more stringent
independence rules because of issues perceived by the public, users, clients, or AICPA
members or because of a greater number of referrals to the Ethics Division for misapplication
of ET 101-8.
Further, we encourage PEEC to consider the difficulty that a practitioner will have in
understanding and applying the proposed broader definition of an affiliate. In practice, the
member should be able to obtain information from its client on its related parties, but the
typical audit or review client may not know whether the parent company’s investment in the
client is material to the parent. Similarly, the client may have no visibility into whether an
investor’s interest in the client is material to the investor. Therefore, the practitioner, in the
absence of affirmative knowledge, may assume that the parent or the investor’s investment is
material or immaterial, which could lead to misapplication of Rule 101, its interpretations, and
its rulings. We note, in particular, the difficulty that a practitioner would have in applying this
definition in a private equity environment when the practitioner is not auditing, for example, a
fund, but a portfolio company of a fund. Since we understand that the majority of AICPA
members are not dealing with audit or review clients that file registration statements with the
SEC or performing audits subject to SEC independence rules, we believe that the members
need understandable standards that they can implement within their client base. We believe that
a clear, understandable standard is in the public interest so that all users, clients, and members
can consistently apply it.
Based on our experience with applying the SEC’s affiliate definition, certain information may
not always be readily available to a member (in particular, when a private equity group is
involved). Therefore, after significant time is spent trying to determine whether the entity is an
affiliate, the member may ultimately be required to apply its judgment. When this situation
arises, members may not be consistent as to how they apply their judgment. Our belief is that if
Grant Thornton LLP
U.S. member firm of Grant Thornton International Ltd
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information is not available, one would need to be more conservative and deem the entity being
evaluated to be an affiliate (whether or not the entity truly is an affiliate), however, other
members may not conclude the same, which then leads to inconsistency in applying the
applicable independence provisions.
Further, we now see a fundamental inconsistency in the application of the affiliate criteria. The
U.S. practitioner who is part of a network of firms based solely in the United States would need
to confirm independence under this affiliate framework with all of the practitioner’s network
firms, which makes the application of the affiliate definition exponentially more difficult. The
proposed change to the auditing standards and the proposed revision to the AICPA Code to
permit foreign auditing firms that are part of the group audit or network firms of the group
auditor to provide independence representations under the IESBA Code, rather than the
AICPA Code of Professional Conduct, also creates a divergence in practice. This divergence in
practice appears to place the U.S.-based networks at a disadvantage in the application of
independence standards.
In essence, we disagree with PEEC’s expansion of the scope of affiliates to entities that are not
part of the group audit or group review. We believe that the measurement criterion for both
control and significant influence are easier to understand and apply when performing an audit
or review engagement for a client with affiliates a. and b. We would agree, however, that for all
other related entities that the auditor or accountant should consider the threats and safeguards
approach in considering whether a reasonable and informed third party aware of all of the
relationships would conclude that the accounting firm is independent in both mind and
appearance.
Grant Thornton concludes that PEEC should consider adopting an affiliate model that would
assist the U.S. in converging with the international standards. We would support an affiliate
model that is consistent with the fundamental principles in the IESBA Code and that would be
understandable and practicable for AICPA members to implement. Therefore, we suggest
something simpler that would include the following as affiliates:

An entity, such as a subsidiary, partnership, or limited liability company, that an audit
or review client can control (“Affiliate A”)

An entity in which an audit or review client or one of its Affiliate As has a material
financial interest that gives the client or Affiliate A significant influence over the
entity’s operations (“Affiliate B”)

An employee benefit plan sponsored by an audit or review client or by one of the
client’s Affiliate As (“Affiliate C”)

The sponsor of a single employer benefit plan that is an audit or review client
(“Affiliate D”)
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Application of the independence rule, interpretations, and rulings to affiliates
We believe that, after PEEC narrows its definition of an affiliate, Rule 101, its interpretations,
and its ruling should apply to an audit or review client and its affiliates.
However, the proposed four exceptions taken into consideration with the proposed definitions
of affiliates (a. through j.) make the application of the affiliate criteria confusing and more
difficult to apply. We do not understand the first exception because it appears to make it
acceptable for a member or the member’s firm to have a lending relationship with a related
entity or individual provided that a member does not know of such relationship. Generally, we
do not understand a standard that uses ignorance of the facts or circumstances to be a decision
point on whether independence is or is not impaired.
We do agree, however, if PEEC chose to continue with the multiple affiliate definitions, that
the member should be able to apply “subject to audit” criteria and “key person” criteria based
on the relationship of the services or the employment or association to the group audit or
review client.
Other comments
We would like to commend PEEC for the various illustrations that were included in the ED to
assist the reader in understanding the affiliate definition. These illustrations are extremely helpful
when dealing with such a complex and difficult subject. We believe that these illustrations may
need to be a component of the final ET 101-18, particularly if affiliate definitions (a. through j.)
are adopted, simply due to the complexity of application. However, at a minimum, each affiliate
definition would need to be cross referenced or hyperlinked to the illustrations as nonauthoritative guidance.
Effective date
Our Firm is in agreement with the proposed delayed effective date in order to allow members
sufficient time to implement the necessary internal quality control procedures needed to
appropriately identify and monitor affiliates of financial statement attest clients.
Grant Thornton LLP
U.S. member firm of Grant Thornton International Ltd
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Attachment 2
New interpretation on employment with educational institutions
PEEC believes that permitting partners and professional employees of accounting firms to
serve as adjunct faculty members at educational institutions that are attest clients is in the public
interest only if the accounting firm applies certain safeguards. However, there are many
instances where a partner or professional employee of an accounting firm’s employment or
association with an attest client would also serve in the public interest, such as volunteering to
maintain a church or not-for-profit’s accounting records accurately or providing services in
recognition of a need with one’s community, where PEEC has not reached a similar
conclusion. Therefore, we are uncertain as to why this particular employment or association
with an attest client is so unique or why this particular type of employment or association is of
such fundamental importance to the public interest as a whole that a blanket exception to ET
Interpretation 101-C (or ET 101-C) is necessary. We do understand that the exception is a
benefit to the promotion of the accounting profession in institutions of higher learning, as
students and faculty can benefit from the adjunct instructor or professor’s expertise in the
application of professional standards. However, by selecting this lone type of employment or
relationship, we are concerned that the perception will be that PEEC is acting in its member’s
own interests first and foremost, rather than in the interests of the public.
Moreover, we currently do not see any theoretical basis for this sole exception. If PEEC
concludes that ET 101-C is too restrictive and that other types of employment or association
should be permitted so that members can act in the public interest, then PEEC should reevaluate ET 101-C. There are numerous examples where a part-time job by a part-time
professional employee would seem to create less of an independence threat than the adjunct
professor position. We also understand that many adjunct professor positions are now subject
to college’s tenure policies and that certain colleges and universities permit participation in
employee benefit plans, such as 403(b) savings plan, which seem to contradict other
interpretations within the AICPA Code. If PEEC concludes that safeguards can reduce the
independence threat when a partner or professional employee serves as an adjunct professor to
an acceptable level, we see no reason that similar safeguards for other self-interest, familiarity,
or self-review threats cannot be applied in similar or other situations.
We believe that the adoption of Proposed ET 101-19 will create numerous issues that may
require PEEC to re-open its evaluation of ET 101-C. While we agree with PEEC’s
determination that education and teaching are in the public interest, we believe that the public
currently has an expectation that ET 101-C should be consistently followed without exception.
Grant Thornton LLP
U.S. member firm of Grant Thornton International Ltd
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Attachment 3
Proposed new definition, “Confidential Client Information,” and proposed
revisions to Ethics Ruling No. 2, “Distribution of Client Information to Trade
Associations”
Proposed new definition
We support clarifying what is meant by “confidential client information” within the context of
ET Rule 301, “Confidential Client Information.” However, we note that defining the term in
the negative is particularly difficult and, therefore, we ultimately believe that the proposed
language is not really a definition. By illustrating what is not confidential client information, we
believe that the “proposed new definition” is a better fit as a ruling under ET Rule 301. We
would propose, therefore, that a question be phrased to inquire whether information that is
known to be in the public domain or that is readily available to the public represents client
confidential information.
We do not agree with the example provided in the “proposed new definition” pertaining to
information obtained through freedom of information (“FOI” or other similar requests). We
do not agree that client information obtained from such requests can be immediately
determined to be available in the public domain, unless such information is put into the public
domain by the requesting party. Therefore, by stating that such information is in the public
domain, members may inadvertently disclose confidential information to a third-party. We
request that PEEC consider soliciting advice from legal counsel prior to including FOI
documents as client information that is available to the public.
Information or other guidance that we recommend for consideration in a proposed ethics
ruling include the following:

A reminder that certain boards of accountancy and tax regulatory agencies may have
more restrictive requirements pertaining to confidential client information, which must
be followed. Therefore, the member should be cautioned to consider that more
restrictive requirements may apply. The cautionary language will alert the member that
disclosing confidential information to a thirty-party may violate other confidentiality
requirements.

A reminder that even when the client has information in the public domain, the client
may not appreciate its professional disclosing that information without the client’s
consent. If the member or the member’s firm has signed a non-disclosure or certain
other confidentiality agreement, that agreement is binding, regardless of whether the
client’s information is considered in the public domain.

A reminder that release of certain client information to a third party may give the third
party “privity” to the member’s work product or deliverable in many states since the
member has knowledge of the third party’s reliance on the work product.

Elements of the non-authoritative table provided in this section of the ED, such as the
column headed, “Other Information in the Member’s Possession,” could be
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incorporated into the ruling to make the categories of information authoritative. We
believe that a member may find these distinctions useful in making his or her decisions
on what is in the public domain, what types of confidential information is believed to
generally always require a client’s specific consent prior to the member’s release of that
information to a third party, and what types of information in the member’s working
papers or documentation could be disclosed if the information was sufficiently deidentified.
We agree with PEEC that client information not in the public domain even if sufficiently deidentified would require a member to obtain consent from a third party. However, since the
elements of what constitutes sufficient de-identification of client information and other releases
of client information, including information in the public domain, will require the member to
exercise significant judgment, we believe that members would greatly benefit from the inclusion
of the following considerations in a ruling rather than their inclusion in non-authoritative
guidance. Therefore, we have the following comments for PEEC’s consideration:

We understand that the Center for Audit Quality and many audit educators have
concluded that academicians’ access to the “Other Information in the Member’s
Possession,” is necessary to improve audit quality. However, many members will not
be comfortable with making these significant judgments without authoritative
guidance. Therefore, PEEC should consider that if the purpose of the proposed
change is to ultimately provide the requisite auditing information needed by academia
for research and proposed changes to auditing standards, the guidance in the table on
page 53 of the ED will somehow need to be incorporated into authoritative guidance.

We believe information under the category, other information in the member’s possession,
would require a member to use judgment in determining whether or not the
information is truly in the member’s possession. If the information can be associated
to a specific client (e.g., audit information obtained from the work papers of a specific
client), a member or a regulatory authority could easily conclude that information is
confidential client information. Therefore, the member’s risk in ensuring that this
information is appropriately de-identified needs to be highlighted so that each member
and the member’s firm can establish appropriate policies with respect to the potential
dissemination of such information without the client’s specific written consent.
Proposed Ethics Ruling 2
We find certain elements of the proposed “answer” to the question posed in the ruling to be
confusing. We do not understand why, if the information is available in the public domain, the
third party would come to the member for the client’s information. If the client refers the third
party to the member, one would think that the client is doing so for its own convenience and
would provide specific written consent. If the information is the client’s confidential
information, then we would believe that the contractual agreement on the third party’s use of
that information would be an agreement between the client and the third party and not the
responsibility of the member. This paragraph seems to imply that the member had knowledge
that the client’s information believed to be in the public domain is, in actuality, not in the public
domain.
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The proposed revisions in Ethics Ruling 2, “Disclosure of Client Information to Third parties,”
provides guidance on the type of information that should be included when a member obtains
the client’s specific written consent, such as the nature of the information that may be
disclosed, the type of third party to whom it may be disclosed, and its intended use. We note
some confusion in language since the requirement pertains to specific written consent and the
answer uses different language, such as “client’s permission.”
We believe members may interpret how to obtain specific written consent differently; therefore,
it would be benefit members if PEEC developed a frequently asked questions document as
non-authoritative guidance to assist members on how to obtain specific consent, such as
whether specific consent language can be obtained through signing an engagement letter or
whether a separate written statement/acknowledgment is required.
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Attachment 4
Proposed revision to ET Section 91, Applicability
To promote greater convergence in the international auditing and independence standards, we
agree with PEEC’s conclusion to permit a group auditor to rely on independence
representations obtained from any foreign component auditor or the group auditor’s foreign
network firm when such representations are made pursuant to compliance with the IESBA
Code. To assist the group engagement team to understand the IESBA Code, we recommend
that PEEC provide the link to where the IESBA Code can be obtained on the AICPA or IFAC
website.
In addition, the member should be alerted that when the SEC and the Public Company
Accounting Oversight Board (“PCAOB”) independence standards apply to a group audit
performed under PCAOB standards, the member must obtain independence confirmation
from the foreign component auditor or the member’s network firms that comply with the more
restrictive requirements of the SEC or PCAOB.
Although not highlighted in this proposed revision, we assume that the non-enforcement
provision will continue for review engagements where the reviewer uses a foreign component
reviewer or the reviewer has a foreign network firm. This continued non-enforcement may be
needed until similar convergence occurs within the professional standards for review
engagements.
We understand that the August 2010 non-enforcement policy pertained during the time that
PEEC deliberated and proposed the matter for exposure. Accordingly, we assume that the
implementation date will be effective immediately on adoption by PEEC.
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Attachment 5
Proposed revision to Conceptual Framework for AICPA Independence
Standards
We agree with the harmonization of the definition of public interest entity that will now be
embodied in the safeguards definition in the Conceptual Framework for AICPA Independence
Standards. In the IESBA Code, the definition is meaningful because the IESBA Code either
imposes additional safeguards necessary to eliminate or reduce the independence threat to an
acceptable level or imposes additional restrictions.
In the U.S., one assumes that a public interest entity as defined would include SEC registrants
or issuers, FDICIA financial institutions, broker-dealers, private collective funds, or other
similar audit clients where the SEC and PCAOB independence rules may apply. For entities
that are listed outside the United States, one would assume that the member would need to
apply the more restrictive of the AICPA Code of Professional Conduct, the IESBA Code, or
the independence requirements specified by the regulators of the recognized stock exchange or
other equivalent body prior to applying the conceptual framework approach. Therefore, in the
context of a conceptual framework, we are not certain how the member would be able to apply
the threats and safeguards approach when more restrictive independence standards apply and
whether sufficient guidance is provided to the member to highlight that the member will
undoubtedly need to consider more restrictive standards before applying the AICPA
conceptual framework. We believe that additional clarity may be required to assist the member
assess when the threats and safeguards approach would be applied.
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Attachment 6
Proposed revisions to ET Interpretation 101-3 (ET 101-3), “Performance of
Nonattest Services,” Under Rule 101, Independence
Nonattest services (in part)
We agree with PEEC’s conclusion that independence is restored for the period covered by the
client’s current financial statements if the


Prohibited nonattest services pertain solely to transactions, events, or the books and
records of the prior period’s financial statements; and
The prior period financial statements were audited by another member or the
member’s firm or, for review engagements, the prior period financial statements were
reviewed or audited by another member of the member’s firm.
We do not, however, understand how it would ever theoretically be possible for the nonattest
services to not constitute a management responsibility as redefined in this ED. Many nonattest
services, such as bookkeeping services or a valuation/appraisal service, impair independence
because the requirements in the former general activities section of this interpretation or the
management responsibilities section were not met. If this requirement is left in the
interpretation, one would conclude that no restoration of independence could occur when the
member performs a prohibited nonattest service during the period covered by the client’s
financial statements. Further, we believe that this requirement would make the AICPA
interpretation more restrictive than the practice for SEC audit clients and their affiliates
discussed in SEC Staff speeches and frequently asked questions.
Moreover, we believe that certain prohibited nonattest services performed during the client’s
fiscal period covered by the financial statements would impair independence. For example, we
could see that certain nonattest services that were “subject to audit,” such as bookkeeping,
valuation services, internal audit outsourcing, or information system design and
implementation, could be performed which pertain clearly to the audit or reviewed financial
statements. However, we have more difficulty when applying the “restoration of
independence” to expert services or tax services where the member represented the client in a
public forum. Therefore, we believe it would be helpful for PEEC to consider whether there
should be certain nonattest services that create such significant independence threats that the
predecessor audit or review of the client’s financial statements cannot eliminate the threats or
reduce the threats to an acceptable level.
We assume the following in applying this interpretation when the successor accountant or
auditor relies on the issuance of the predecessor accountant or auditor’s report:


The successor auditor or accountant would reference the other’s accountant’s report
when the client issues comparative financial statements
The predecessor’s subsequent withdrawal of its report would not nullify the successor’s
previous conclusion or the successor’s independence
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
The successor auditor or accountant would be precluded from performing audit or
review procedures to update the previously issued financial statements, such as changes
relating to the retroactive application of an accounting principle, restatement,
discontinued operations
We assume that the documentation requirement in paragraph 3 of the General Requirements
for Performing Nonattest Services is applicable to this section of ET 101-3 as well.
Activities related to attest services
We agree with the distinction drawn by PEEC with respect to services normally provided as a
component of attest services and the clarification that these types of services do not fall within
the parameters of ET 101-3. We think that it would be clearer to members if PEEC outlined
those nonattest services that may be performed in conjunction with the attest engagement that
would fall within the parameters of ET 101-3. We also support PEEC’s caution to members to
exercise judgment in determining whether the member’s involvement in these services has
become so extensive that the member is undertaking management responsibilities. If the
member believes that significant independence threats exist due to the extent of the services,
we believe that the safeguards to eliminate or reduce the independence threats to an acceptable
level should be documented in the appropriate attest working papers.
General requirements for performing nonattest services
We also agree with PEEC’s conclusions with respect to a member not assuming management
responsibilities. We are uncertain whether the term, “client,” in paragraph 2 is correct since the
term client, as defined in ET 92, appears to a much broader term than that used in this context.
Management responsibilities, including monitoring and separate evaluations
Although we agree with the clarifications to the term, management responsibilities, in lieu of
management functions, and the highlighting of certain distinctions in what constitutes management
responsibilities from other activities that are ordinarily considered part of an attest engagement,
we have significant reservations as to the clarity and appropriateness of the proposed revisions
related to monitoring controls. In particular, we believe that the references to management
accepting responsibility for the financial statements and internal control are misleading and that the
differentiation between performing ongoing monitoring procedures and separate evaluations is
quite perplexing.
Management is responsible for, not just accepting responsibility for, the preparation and fair
presentation of the financial statements and for the design, implementation, and maintenance
of internal control, including monitoring procedures. In this regard, we believe that the
proposed revisions to ET 101-3 are inconsistent with the standards established by the Auditing
Standards Board and the description of management’s responsibilities in the Accounting and
Review Services Committee’s standards. Grant Thornton believes that the fundamental
inconsistency can create even greater confusion in member’s application of ET 101-3. Further,
Grant Thornton is concerned as to whether there is meant to be an implied difference between
being responsible and accepting responsibility. We believe that these inconsistencies need to be
rectified.
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U.S. member firm of Grant Thornton International Ltd
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In addition, we believe that the proposed revision obscures the monitoring component of
internal control in relation to the Internal Control—Integrated Framework issued by the Committee
of Sponsoring Organizations of the Treadway Commission (COSO Framework). The language
in these two paragraphs is difficult to understand and seems circular in its logic. We do not
think that it is instructive or informative to members to state: “Accepting responsibility for
designing, implementing, or maintaining internal control includes accepting responsibility for
designing, implementing, or maintaining monitoring procedures.” We would appreciate PEEC
putting this wording into clear, concise Plain English.
We agree that monitoring ensures that internal control is operating effectively (footnote 18).
However, monitoring itself must be designed into the system of internal control. Also, separate
evaluations must focus on design, as well as operating effectiveness, to be able to assess the
effectiveness of the system as a whole or in relation to the stated objectives. So, in actuality, all
internal control components relate to both design and operating effectiveness.
Further, ongoing monitoring activities and separate evaluations, as components of monitoring,
are both part of the system of internal control. A long standing premise of the AICPA Code is
that a member performing attest services cannot assume management’s responsibilities,
including undertaking responsibility for the design, implementation or maintenance of internal
controls. The proposed revisions alter this premise by permitting a member to perform
separate evaluations without any additional boundaries, other than for management to accept
responsibility and for the member to evaluate potential threats and safeguards. This is even more
concerning when the subject matter of the engagement pertains to the effectiveness of internal
control, whether related to financial reporting or compliance objectives. Accordingly, we
believe that it is important to maintain the concepts in Ethics Ruling 103, “Report on Internal
Controls,” which clearly indicates that management cannot rely on the member’s work as a
basis for its assertion. We understand that this ethics ruling is proposed for deletion, but the
fundamental concepts embodied in Ethics Ruling 103 must be left incorporated into ET 101-3
before the ruling can be deleted.
Lastly, we believe that PEEC must reconcile the concept of separate evaluations of internal
controls with the existing guidance on “Internal Audit Assistance Services” in ET 101-3. The
proposed revisions simply indicate that a member may provide an objective analysis of control
effectiveness by performing separate evaluations without creating a significant management
participation threat that would impair independence. Such an analysis would clearly need to be
directed by management, including the scope and frequency of the evaluation. Accordingly, we
believe that a link to the safeguards provided by the AICPA Code in relation to internal audit
assistance services is essential in this context.
Grant Thornton LLP
U.S. member firm of Grant Thornton International Ltd
16
Other editorial comments in ET 101-3
 Page 44: Under the examples of the activities that would be considered a management
responsibility –
o The edits made to the following activity: “Deciding which recommendations of the
member or the third parties to implement or prioritize” are not clear. As worded,
a member may conclude that he or she cannot provide advice to the client
regarding prioritization of recommendations.
o The new activity added: “Accepting responsibility for the management of a client’s
project”, aside from the comments provided above regarding accepting responsibility,
is not clear. A member is responsible for managing the professionals assigned to
the project, but in doing so, the member would not act as the project manager of
the client’s project. As outlined in the interpretation, the client needs to designate
an individual to oversee the services. Therefore, we recommend that PEEC
consider a cross-reference within these sections as well as the nonauthoritative
guidance that PEEC has issued in its frequently asked questions document relating
to project management. We believe that the terms “project manager” and “project
management” as used in this section may create substantial confusion as to client
management and the member’s responsibility for these functions.
 Page 45: In the matrix, “Impact on Independence of Performance of Nonattest Services,”o Under the heading,” Information systems - design, installation or integration”, we
recommend that PEEC consider expanding the permitted services to include
assisting the client with its evaluation of a new software or system, including
software that is not off-the-shelf or canned software.
o We also recommend updating the prohibition on operating a client’s local area
network to other types of network systems, including whether the member could
operate a “cloud” used by an attest client.
Grant Thornton LLP
U.S. member firm of Grant Thornton International Ltd
17
Attachment 7
Proposed revision to Interpretation No. 101-11 (ET 101-11), “Modified
Application of Rule 101 for Certain Engagements to Issue Restricted-Use
Reports Under the Statements on Standards for Attestation Engagements”
We support PEEC’s proposed changes that would allow accounting firms to permit application
of different independence rules to engagements performed under the Statements of Standards
for Attestation Engagements (SSAEs). Currently, the AICPA Code provides an exception only
to agreed-upon procedures (AUP) engagements that result in restricted reports. Further, we
agree that, to conform with the Auditing Standards Board’s attestation standards, that
independence would be required only with respect to the “responsible party,” rather than the
specified parties or to entities that would fall within the definition of “client” in ET Section 92.
However, we question whether the proposed limitation of the application of ET 101-3 should
apply only to those prohibited nonattest services that are not the subject matter of the
responsible party’s assertion or whether other considerations for certain nonattest prohibitions,
such as expert services or tax services where the member is representing the responsible party
in a public forum, should apply. We believe that certain nonattest services that impair
independence of the entity may be so significant in appearance that the users of the attestation
report would question the member’s independence if the users were aware of these services.
However, we do have a concern for general use attestation reports that the users will not
understand that the member is applying different, less restrictive independence standards. We
do not believe that it is in the public interest if a reasonable and informed third party would
conclude that an independence threat is so significant that no safeguards could eliminate the
threat or reduce the independence threat to an acceptable level. For certain independence
threats, one of the safeguards that may need to occur is disclosure of the independence matter
to the users of the attestation report. Therefore, we believe that, in addition to the nonattest
service not being related to the subject matter of the assertion, a separate evaluation under the
Conceptual Framework for AICPA Independence Standards (ET 100-1) should be considered
for inclusion in the proposed revisions to ET 101-11.
Further, it would be helpful to practitioners, in the basis for conclusions or in a frequently
asked questions document, to provide illustrative examples to assist the practitioner navigate
through these considerations.
Grant Thornton LLP
U.S. member firm of Grant Thornton International Ltd
18
Attachment 8
Other Grant Thornton comments
Deleting old ethics rulings
Numerous ethics rulings have been proposed for deletion, PEEC should consider whether
there may be a need for a member to refer to those rulings. Therefore, it may be necessary to
capture or summarize certain rulings in a frequently asked questions document or other
practice aid, if the questions and answers are still applicable.
Grant Thornton LLP
U.S. member firm of Grant Thornton International Ltd