On December 11, 2023, the Professional Ethics Division of the American Institute of Certified Public Accountants (AICPA) issued New and Revised Definitions Related to Public Interest Entities (the Interpretation) revising the AICPA Code of Professional Conduct.
The Interpretation provides authoritative guidance regarding independence by adding a new definition of “publicly traded entity” and revising the definition of “public interest entity” to converge with the International Ethics Standards Board for Accountants (IESBA) revisions to their definition of listed entity and public interest entity (PIE).
The new definition of “publicly traded entity” in paragraph .45 of ET section 0.400 is as follows: “An entity that issues financial instruments that are transferable and traded through a publicly accessible market mechanism, including through listing on a stock exchange. When an entity is required to file a registration statement with the SEC [Securities and Exchange Commission], the entity will be considered a publicly traded entity when the registration statement becomes effective.”
The definition of “public interest entity” in paragraph .43 of ET section 0.400 was revised to include more specific categories that would qualify as a public interest entity, including publicly traded entities or investment companies registered with the SEC, entities who take deposits from the public, and entities who provide insurance to the public, which aligns with the categories covered by the new IESBA PIE definition. However, since these types of entities are already heavily regulated in the United States, the revised definition defers to the requirements set by regulators referred to in the definition, such as the SEC, Federal Deposit Insurance Corporation (FDIC), and the National Association of Insurance Commissioners Annual Financial Reporting Model Regulation. When a member performs a financial statement audit subject to these regulatory requirements, members should comply with the applicable independence requirements as required by the “Governmental Bodies, Commissions, or Other Regulatory Agencies” interpretation [1.400.050] of the “Acts Discreditable Rule” [1.400.001].
The new definition of “publicly traded entity” is effective December 15, 2023. The revised definition of “public interest entity” is effective for periods beginning on or after December 15, 2024, except for entities that are no longer considered public interest entities under the revised definition, which is effective December 15, 2023. Early implementation of the revised definition of “public interest entity” is allowed.
