AICPA Adopts Ethics Standard on Indemnification

The American Institute of CPAs has issued a new standard that tightens ethics requirements for members on indemnification and limitation of liability.

Under the new standard, failure to comply with a regulator's requirements on the use of indemnification and limitation-of-liability provisions will be considered an act discreditable to the profession. Various regulators, including the Securities and Exchange Commission, state insurance commissions and federal banking agencies, currently prohibit organizations under their jurisdiction from entering into certain types of indemnification and limitation-of-liability provisions in agreements for the performance of audit or other attest services, according to the AICPA.

A new interpretation by the AICPA's Professional Ethics Executive Committee prohibits members from using their provisions when contracting for audit and other attest services when their employer or client is subject to the requirements of one of these regulators.

"The purpose of this standard is to remind practitioners of their responsibility to comply with regulators," said AICPA vice president of member quality and state regulation Susan Coffey in a statement. "Current AICPA standards allow certain indemnification and limitation-of-liability provisions to be included in agreements for audit and attest services. However, in cases where a regulator's requirements are more restrictive than AICPA standards, our members must comply with the more restrictive standard."

The standard goes into effect on July 31. It can be found at http://www.aicpa.org/download/ethics/EDITED_Adopted_501_8_final.pdf.

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