Firm Independence

The Board of Accountancy rules that became effective on March 25, 2003 restricts a firm's independence when a firm owner goes to work for a client, as per Minnesota Board of Accountancy Administrative Rule 1105.7800, item G.

Text of Administrative Rule 1105.7800, item G:

"A firm granted a permit under Minnesota Statutes, section 326.05, is not considered independent with respect to an audit of financial statements for a client if any person specified in part 1105.4000, items D and E, within one year preceding the commencement of audit procedures, participated in any capacity in the current or prior audit, and subsequently became the chief executive officer, controller, chief financial officer, chief accounting officer, or any person servicing an equivalent position for the client."

Clarification:

The persons specified in 1105.4000, items D and E, are:

• Partners
• Members
• Managers
• Shareholders
• Directors
• Officers

The area of uncertainty is the definition of the term "manager". Some have been concerned that this applied to a manager who is an employee.

"Manager" is defined in the statute 326A.01 as follows: "Manager means a manager of a limited liability company."

This means an owner-manager.

If you are planning a future audit for a client, and an owner of your firm, who participated in the current or prior audit, has gone to work for that client in a high level position within the year preceding the commencement of audit procedures, your firm is not considered independent. With each client, you will need to look back for one year before beginning an audit, to see if any owners of your firm have gone to work for that client.