Court filing
Exhibit A — Agent Fee Litigation (Dkt. 46.1)
Summary
Exhibit A (Dkt. 46.1) in the agent fee litigation is a Special Report dated April 22, 2020 from the Center for Plain English Accounting of AICPA's National A&A Resource Center on small business loans under the Payroll Protection Program and issues related to CPA involvement. It lists who can be an agent under a Treasury Q&A document, including an accountant, and quotes an AICPA statement of April 13, 2020 that members may assist attest clients provided they do not prepare or sign the application form itself. The report says banks differ on whether they will pay CPAs agent fees and advises written agreements with lenders. It states the AICPA view that the lender-paid fee is not a contingent fee under ET section 302, and cautions that some state boards of accountancy could believe otherwise. It also covers independence, CPA firms applying for PPP loans and loan forgiveness work.
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Exhibit A
Special Report
April 22, 2020
Center for Plain English Accounting
AICPA’s National A&A Resource Center
Small Business Loans Under the Payroll Protection Program
Issues Related to CPA Involvement
By: Kristy Illuzzi and Jim Brackens
The CPEA has received several questions regarding CPAs assisting clients with
applications, including working as Agents under the definition of the CARES Act and the
Paycheck Protection Program (PPP), which provides forgivable loans to help small
businesses cover fees including payroll, mortgage expenses, rent, and utilities.
We know there is frustration around providing services to small business clients as they
apply for PPP loans being issued through the Small Business Administration (SBA). The
AICPA’s Private Companies Practice Section (PCPS) has been adding developments
daily to their webpages, but we wanted to cover some of the more commonly asked
questions and complexities that we have been hearing from members, including those
related to acting as agents and whether performing certain services in association with
these PPP loans would violate independence, create a conflict of interest, or result in
receipt of a contingent fee.
First Things First: See the Bigger Picture and Advise Clients
Before we begin with the common issues surrounding the PPP loans, we want to offer
this counsel to our members:
As clients deal with a cauldron of pandemic-imposed problems and uncertainties, and as
they attempt to navigate a sea of government relief programs, CPAs must act as a trusted
source of advice and guidance. Providing advice and guidance during challenging times
is nothing new for CPAs. Businesses and organizations have deep relationships with their
CPAs and normally look to them for assistance and reassurance. CPAs should step back
and consider the best course of action for each client. Not every relief program or every
course to maneuver through the arduous effects of the pandemic will fit every client. CPAs
should take a thoughtful approach in helping each client find the financial assistance, loan
and tax credit relief programs, and other solutions that make the most sense for each
client’s unique circumstances. We encourage CPAs to provide these advisory services
which are deemed to be outside the scope of loan processing application assistance as
referred to within this report.
Acting as Agents and Agent Fees
One of the hottest topics related to these PPP loans is exactly what is intended by the
term “agent” as used on the loan application. According to a Q&A document issued by
the Treasury, an agent is an authorized representative and can be:
• An attorney
• An accountant
• A consultant
• Someone who prepares an applicant’s application for financial assistance and is
employed and compensated by the applicant
• Someone who assists a lender with originating, disbursing, servicing, liquidating,
or litigating SBA loans
• A loan broker
• Any other individual or entity representing an applicant by conducting business
with the SBA
There has been a lot of confusion as to whether CPA firms can act as agents for attest
clients, and what acting as agents really entail. One of the key issues points to the fact
that the Treasury defines an agent as an “authorized representative,” which could imply
that an agent is taking on a level of management responsibility.
There has been much discussion about whether acting as an agent for purposes of PPP
loans was intended to meet a legal definition of agent (acting on behalf of another) or was
meant to be a broader definition that would scope in CPAs providing nonattest services
to clients. The AICPA ethics division has been carefully monitoring developments and
continues to answer questions, and the Professional Ethics Executive Committee (PEEC)
was recently asked to weigh in on the issue from an independence perspective.
As posted in an update on April 13, 2020, the AICPA made the following statement (in
part):
“While the AICPA understands that a fee paid by a lender is referred to as an ‘agent
fee’, we don’t believe this should be an impediment to allowing CPAs to fulfill the
intent of the CARES Act. Rather, the AICPA’s Professional Ethics Executive
Committee (PEEC) believes members may advise and assist their attest clients in
understanding the information required to be submitted and in the determination
of amounts to be included on the application, provided the member does not
prepare or sign the application form itself or perform other management
responsibilities on behalf of the applicant.”
Practice Note: CPAs should note, that even though the Treasury has outlined guidelines
related to agency fees, there is a possibility that you will not be paid for your services,
even when noting you are an agent to the application. Every bank seems to understand
the rules regarding agents and fees a bit differently, and some are agreeing to pay CPAs
for assisting while others are not agreeing to pay CPAs for assisting. It is important to
discuss this issue with clients and the banks to ensure there is an understanding,
preferably in writing, as to how and when any fees will be paid.
It is our understanding that many firms do not intend to charge clients for the PPP
application process for several reasons:
• It is in the firm’s interest that clients weather the economic crisis caused by the
pandemic. Helping clients get any assistance possible will strengthen long-term
relationship with clients.
• The application itself is fairly straight forward and can be completed by the small
business. The only challenge is determining the average monthly payroll cost.
• Average payroll costs can easily be derived by any third-party payroll provider, plus
any benefits the small business pays that comes from the general ledger. Payroll
companies are not charging customers for this work.
• The PPP asks for a self-certification from the business and not any type of
certification from the CPA, as may be the case in other loan packages. CPAs
should not be providing any certification, as it isn’t required according to the
guidelines.
CPEA Observation: An additional complication is whether banks, in agreeing to pay
CPAs for services, infer that CPAs are taking on certain client representations that could
result in placing CPAs at risk. Some banks are agreeing to pay CPAs without requiring
them to sign as authorized representatives (i.e., agents under the Code of Federal
Regulations definition). However, it’s possible those banks may assume CPAs are taking
on certain client representations. The AICPA is working with the SBA, the American
Bankers Association, and other key stakeholders to clarify this issue. However, in the
interim, CPAs could be putting themselves at risk as some banks could make an
assumption that paying CPA firms agent fees means they are acting as “authorized
agents” or “authorized representatives” of attest clients. CPAs are encouraged to consult
with professional liability carriers or legal counsel to understand any legal implications.
Contingent Fee Question Clarified
Some have asked whether fees set by Treasury to be paid to agents could be considered
contingency fees under ET section 302 of the AICPA’s Code of Professional Conduct. As
a refresher, paragraph .01 of ET section 302 indicates the following:
“A contingent fee is a fee established for the performance of any service pursuant
to an arrangement in which no fee will be charged unless a specified finding or
result is attained, or in which the amount of the fee is otherwise dependent upon
the finding or result of such service. Solely for purposes of this rule, fees are not
regarded as being contingent if fixed by courts or other public authorities, or, in tax
matters, if determined based on the results of judicial proceedings or the findings
of governmental agencies.”
The AICPA made a statement on April 13, 2020, that they believe, considering substance
over form, the fee paid by lenders is not a contingent fee. The amount of the loan is an
objective mathematical calculation (based on payroll) with the amount of the fee set by
the CARES Act. In addition, it is Congress’ intent that all loans will be funded, so there is
no need for any advocacy by anyone assisting the attest client to convince the lender to
make the loan.
CPEA Observation: While the AICPA has indicated they do not believe the fee paid by
lenders would be considered a contingent fee, some state boards of accountancy could
believe otherwise. We encourage CPAs to check with state boards before agreeing to
accept agent fees to ensure there is agreement with the AICPA position.
Additional Independence Considerations
As noted earlier, CPAs may advise and assist attest clients in gathering information for
the attest clients to prepare and submit loan applications to lenders without impairing
independence. Additionally, if lenders pay CPAs “agent fees” for those services, CPAs
are not, simply by nature of receiving fees, agents – nor does receipt of these fees
constitute contingent fees.
PEEC believes that, simply advising or assisting attest clients in understanding the
information gathering and lending application process under the PPP, even if “agent fees”
are paid by lenders, would not constitute performing management responsibilities for
purposes of applying the AICPA Code of Professional Conduct if CPAs do not in fact
assume management responsibilities. In other words, assisting attest clients with COVID-
19 PPP loan applications is a nonattest service. If CPAs comply with the interpretations
of the Nonattest Services subtopic, independence will not be impaired.
Special Considerations Related to Assisting Attest Clients
As noted earlier, for attest clients, we suggest not signing as authorized representatives
on PPP loan applications. Also, make no certifications as to the information the small
business is providing with the application (this is covered in more detail in the “Other
Requests of CPAs” section of this report). However, advising clients is totally appropriate,
and we encourage it.
For opportunities to receive “agent fees” from banks for performing nonattest services
related to client loan applications, we suggest considering contacting lenders before
embarking on engagements and getting a written agreement related to the fees. There
should be a conflict waiver in the agreement with the lender, just like there is in the loan
assistance engagement letter with the client. Disclose these arrangements with clients as
well.
The majority of the certifications and authorizations contained in the “Representations,
Authorizations and Certifications” section of the PPP loan application are management
responsibilities; the signature required on page 2 of the application should be made by
the company applying for the loan or its authorized representative.
As noted earlier, signing as a client’s authorized representative will impair independence
because ability to exercise authority on behalf of a client has been accepted. This is a
management responsibility.
Special Considerations Related to Nonattest Clients
For situations where CPAs choose to act as authorized representatives and receive agent
fees from banks for nonattest clients, we suggest considering the following:
• Contact lenders before embarking on engagements and get written agreements
related to the fees. There should be a conflict waiver in the agreement with the
lender, just like there is in the loan assistance engagement letter with the client.
Disclose these arrangements with clients as well.
• Generally, firms do not sign client loan applications. In instances where firms sign
these applications, hold harmless/indemnification agreements from the clients
related to client-provided information should be obtained, and should indicate the
firm is not making or joining the client in making any of the client’s certifications in
the application. Many professional liability insurance carriers have examples of this
language.
• Whether clients later may ask for attest services to be performed in conjunction
with these PPP loans. See the practice note in the “Loan Reporting
Considerations” section for additional information.
Practice Note: Before signing PPP loan applications for nonattest clients, firms may want
to consult with professional liability carriers or legal counsel to understand any legal
implications there might be for signing these applications. Some professional liability
insurance carriers have even developed sample engagement letters related to these
services that include indemnification clauses.
CPA Firms Applying for PPP Loans
It should be noted that CPA firms may be eligible to apply for PPP loans if all of the SBA
requirements are met, whereby a CPA might be preparing and signing the loan
application on behalf of the firm. As long as the bank is not an attest client of the firm, this
would not result in an independence violation under the Code of Professional Conduct.
Other Requests of CPAs
A small number of banks are requesting some form of third-party verification related to
the PPP loan applications when CPAs are involved. In circumstances where PPP lenders
request this type of service of CPAs, reference should be made to the AICPA’s Third-
Party Verification Toolkit for CPAs.
Loan Forgiveness Considerations
Additional guidance is expected to be provided by Treasury to correctly determine the
information required to substantiate that funds dispersed under these PPP loans were
used in accordance with the SBA guidelines.
It is possible that entities will engage CPA firms to assist on the back end with the
application for loan forgiveness as well, especially in cases where the CPAs assisted in
some way with the initial application.
It could be that clients simply would engage CPAs to perform nonattest services, similar
to how many of the loan applications are being done. However, when nonattest services
are performed for attest clients (for example, an audit client), CPAs would need to follow
Section 1.295, of the AICPA Code of Professional Conduct to not impair independence
for purposes of attest engagements. If CPAs are not engaged to perform nonattest
services, another option for service to attest clients would be to perform Agreed Upon
Procedures (AUP) engagements in accordance with AT-C section 215.
For audits of financial statements for periods during which PPP loan transactions
occurred, it goes without saying that those transactions should be audited and the
auditor’s risk assessment may likely identify heightened fraud risk in this area.
Practice Note: One thing to consider when performing services in association with loan
applications is whether clients would expect any attest services on the back end when
reporting to the bank. CPAs should be aware, if they choose to perform certain services
related to these loan applications that would impair independence, they would not be
permitted to perform any attest services on the back end with regard to reporting on how
the loan proceeds were spent and whether that spending was in accordance with the SBA
guidelines.
Conclusion and Additional Resources
The CPEA will continue to monitor issues and questions related to the A&A impacts of
COVID-19 and stand ready to issue additional guidance as new developments arise. The
AICPA also has a Coronavirus Resource Center to keep the profession up-to-date on
this issue, including information on business continuation, economic impact, workforce
issues and other resources to help members serve their clients. View a list of all available
resources.
As always, the CPEA technical inquiry service is available for all CPEA members to
answer inquiries on this topic as well as most other accounting and assurance topics. The
inquiry service can be accessed on our website. For non-CPEA members, call the AICPA
technical hotline at 1-888-777-7077. Questions related to auditor independence (which
certainly could arise in the current environment) should be directed to the AICPA Ethics
Hotline at 1-888-777-7077 (select option 2, then 3) or ethics@aicpa.org. CPEA refers all
independence questions to the independence hotline.
Center for Plain English Accounting │ aicpa.org/CPEA │ cpea@aicpa.org
The CPEA provides non-authoritative guidance on accounting, auditing, attestation, and SSARS standards.
Official AICPA positions are determined through certain specific committee procedures, due process and
extensive deliberation. The views expressed by CPEA staff in this report are expressed for the purposes of
providing member services and other purposes, but not for the purposes of providing accounting services or
practicing public accounting. The CPEA makes no warranties or representations concerning the accuracy of
any reports issued.
© 2020 Association of International Certified Professional Accountants. All rights reserved. For information
about the procedure for requesting permission to make copies of any part of this work, please e-mail
cpea@aicpa.org with your request. Otherwise, requests should be written and mailed to the Center for Plain
English Accounting, AICPA, 220 Leigh Farm Road, Durham, NC 27707-8110.
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