Two new ethics rulings adopted on gifts and entertainment.

On Oct. 26, 2005, the Professional Ethics Executive Committee adopted two new ethics rulings under Rule 101, Independence, and Rule 102, Integrity and Objectivity, that provide guidance on how a member's offer or acceptance of gifts or entertainment, to or from a client (both attest and nonattest), or a customer or vendor of the member's employer, affects a member's independence or objectivity. The ethics ruling under Rule 102, Integrity and Objectivity, is applicable to members in public practice with respect to all clients as well as to members in business and industry with respect to the customers and vendors of their employers, and provides that objectivity would not be considered to be impaired if a member offers or accepts gifts or entertainment to or from a client (including certain individuals associated with a client) or a customer or vendor of the member's employer (including representatives of the customer or vendor), provided the gift or entertainment is "reasonable in the circumstances." In addition, the ruling makes it clear that permitted gifts or entertainment should not violate a member, client, customer or vendor's own policies governing gifts and entertainment, or applicable laws and regulation.

The ethics ruling under Rule 101, Independence, incorporates the substance of the existing guidance contained in Ethics Ruling No. 1, "Acceptance of a Gift," (which will be deleted) and is applicable to members in public practice who are "covered members" with respect to an attest client of the member's firm. The ethics ruling provides that independence would be considered impaired if an individual on the attest engagement team or in a position to influence the attest engagement accepts a gift from an attest client unless the value is clearly insignificant to the member. And, since a member may also offer a gift to an attest client, the proposal also provides that as long as the gift offered was "reasonable in the circumstances," independence would not be considered impaired.

With respect to entertainment, the proposal provides that covered members should be able to offer or accept entertainment to or from an attest client provided the entertainment is "reasonable in the circumstances."

The ethics rulings can be found at www.aicpa.org/download/ethics/Gifts and Entertainment_Rulings.pdf and are published in the Jan. 2006 issue of the Journal of Accountancy, making them effective on Jan. 31, 2006.