August 4, 2005 -- The AICPA Professional Ethics Executive Committee recently adopted two new ethics rulings and one revised ruling (effective July 1, 2005 ) to provide guidance in regard to a member’s (i.e., an accounting firm’s) responsibilities when using third-party service providers to provide professional services to clients. The committee defines a third-party service provider as “any entity that the member individually, or collectively with his or her firm, does not control (as defined by U.S. GAAP) and any individual who is not employed by the member.”  Therefore, the new ethics standards would apply to the use of independent contractors by an accounting firm. 

One of the new ethics rulings which addresses integrity and objectivity requires a member to inform a client, preferably in writing, of the use of a third-party service provider, prior to disclosing confidential client information to the service provider. The client has the right to object to the use of a service provider. If so, the member should either perform the professional services without the use of the service provider, or consider declining the engagement. However, a member is not required to disclose the use of a third-party service provider who provides administrative support services to the member.

Another new ethics ruling addresses general compliance with standards. It clarifies that the member is responsible for all work performed by the third-party service provider. The ruling does not extend the member’s responsibility for planning and supervising the work of a service provider beyond the requirements of applicable professional standards which may vary depending on the nature of the engagement.

And lastly, the new revised ethics ruling upholds confidential client information. It states that a member should enter into a contractual agreement with a third-party service provider in order to maintain the confidentiality of the client’s information. If a member does not enter into a confidential agreement, client consent should be obtained prior to disclosing confidential client information to the service provider.

The provisions of these ethics rulings became effective for all professional services performed on or after July 1, 2005 . For more information, contact an Asher professional at 215--564-1900.

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