Ethics rulings.

Ethics interpretations and rulings are promulgated by the executive committee of the professional ethics division to provide guidelines as to the scope and application of the rules but are not intended to limit such scope or application. Publication of an interpretation or ethics ruling in the Journal of Accountancy constitutes notice to members. A member who departs from interpretations or rulings shall have the burden of justifying such departure in any disciplinary hearing.

RULING 140. 19 UNDER RULE OF

CONDUCT 302 AND RULING

NO. 187 UNDER RULE OF

CONDUCT 503--RECEIPT OF

CONTINGENT FEES OR

COMMISSIONS BY MEMBER'S

SPOUSE

Question--May a member's spouse provide services to the members attest client for a contingent fee or refer products or services for a commision to or from the members attest client without causing the member to be in violation of rule 302 or rule 503?

Answer--Yes, if the activities of the member's spouse are separate from the members practice and the member is not significantly involved in those activities. The member, however, should consider whether a conflict of interest may exist as described in rule 102 ([AICPA Professional Standards] ET section 102.01) and interpretation 102-2 (ET section 102.03).

RULING NO. 188 UNDER RULE

OF CONDUCT 503-REFERRAL

OF PRODUCTS OF OTHERS

Question--A member refers computer products of wholesalers to clients of the firm through distributors and agents. A payment is received by the member from the wholesaler if the clients purchase the computer products. Must the member consider rule 503 in connection with this payment?

Answer Yes. Section 91.03 of the Code of Professional Conduct provides that a member shall not permit others to perform acts on behalf of the member that, if carried out by the member, would place the member in violation of the rules. Therefore, the member would be held responsible for the actions of the distributors and agents.

Rule 503 provides that, if a member or the members firm performs for a client a service described in rule 503, the member may not recommend or refer to that client for a commission any product or service, or receive a commission for a recommendation or referral. This prohibition applies during the period in which the member is engaged to perform any of the services described in rule 503 and during the period covered by any historical financial statements involved in such services.

If the products are referred on a commission basis to clients for which the member is not engaged to perform any of the services described in rule 503, rule 503 would not be violated as long as the commission is disclosed to the client. However, any subsequent performance of services described in rule 503 during a period in which the commission was received would constitute a violation of rule 503.