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?