Chapter 7 — Business relationships Which business relationships with an attest client impair independence? As a partner or professional employee of your firm, independence would be considered to be impaired if you entered into certain business relationships with an attest client of the firm. Accordingly, you may not serve an attest client as any of the following: • Employee, director, officer, or in any management capacity • Promoter, underwriter, or voting trustee • Stock transfer or escrow agent • General counsel (or equivalent) • Trustee for an attest client’s pension or profit sharing trust In essence, any time you are able to assume management responsibilities for an attest client or exercise authority over an attest client’s operations or business affairs, independence is impaired. Your independence is considered impaired even if you were a volunteer board member because you would be part of the attest client’s governing body and, therefore, would be able to participate in managing of the entity. Three possible exceptions apply to this rule: 1. You may serve as an adjunct faculty member of an educational institution that is an attest client provided certain safeguards are in place (See Chapter 3, above.). 2. If you are an honorary director or trustee for an attest client that is a nonprofit charitable, civic, or religious organization, you may hold such position with a client if a. your position is purely honorary, b. you do not vote or participate in managing the organization, or c. your position is clearly identified as honorary in any internal or external correspondence. 3. In addition, you may serve on a client’s advisory board if all the following criteria are met: a. The board’s function is purely advisory.1 b. The board does not appear to make decisions for the attest client. c. The advisory board and any decision-making boards are separate and distinct bodies. d. Common membership between the advisory board and any decision-making groups is minimal. 1 When evaluating your independence, you should examine the applicable board or committee charter to determine whether it is consistent with the “Independence Rule” (ET sec. 1.200.001). 29 The SEC prohibits direct or material indirect business relationships with an SEC audit client (or persons associated with client), except when the firm is acting as a consumer in the ordinary course of business (for example, purchasing goods or services from a client at normal commercial terms, and these goods or services will be consumed by the firm). Examples of prohibited business relationships include joint business ventures, limited partnership agreements, and certain leasing interests. 30