| 290.30 | Independence from the audit client is required both during the engagement period and the period covered by the financial statements. The engagement period starts when the audit team begins to perform audit services. The engagement period ends when the audit report is issued. When the engagement is of a recurring nature, it ends at the later of the notification by either party that the professional relationship has terminated or the issuance of the final audit report. |
| 290.31 | When an entity becomes an audit client during or after the period covered by the financial statements on which the firm will express an opinion, the firm shall determine whether any threats to independence are created by: |
| • | Financial or business relationships with the audit client during or after the period covered by the financial statements but before accepting the audit engagement; or |
| • | Previous services provided to the audit client. |
| 290.32 | If a non-assurance service was provided to the audit client during or after the period covered by the financial statements but before the audit team begins to perform audit services and the service would not be permitted during the period of the audit engagement, the firm shall evaluate any threat to independence created by the service. If a threat is not at an acceptable level, the audit engagement shall only be accepted if safeguards are applied to eliminate any threats or reduce them to an acceptable level. Examples of such safeguards include: |
| • | Not including personnel who provided the non-assurance service as members of the audit team; |
| • | Having a registered auditor review the audit and non- assurance work as appropriate; or |
| • | Engaging another firm to evaluate the results of the non-assurance service or having another firm re-perform the non-assurance service to the extent necessary to enable it to take responsibility for the service. |
Mergers and Acquisitions
| 290.33 | When, as a result of a merger or acquisition, an entity becomes a related entity of an audit client, the firm shall identify and evaluate previous and current interests and relationships with the related entity that, taking into account available safeguards, could affect its independence and therefore its ability to continue the audit engagement after the effective date of the merger or acquisition. |
| 290.34 | The firm shall take steps necessary to terminate, by the effective date of the merger or acquisition, any current interests or relationships that are not permitted under this Code. However, if such a current interest or relationship cannot reasonably be terminated by the effective date of the merger or acquisition, for example, because the related entity is unable by the effective date to effect an orderly transition to another service provider of a non-assurance service provided by the firm, the firm shall evaluate the threat that is created by such interest or relationship. The more significant the threat, the more likely the firm's objectivity will be compromised and it will be unable to continue as auditor. The significance of the threat will depend upon factors such as: |
| • | The nature and significance of the interest or relationship; |
| • | The nature and significance of the related entity relationship (for example, whether the related entity is a subsidiary or parent); and |
| • | The length of time until the interest or relationship can reasonably be terminated. |
The firm shall discuss with those charged with governance the reasons why the interest or relationship cannot reasonably be terminated by the effective date of the merger or acquisition and the evaluation of the significance of the threat.
| 290.35 | If those charged with governance request the firm to continue as auditor, the firm shall do so only if: |
| (a) | the interest or relationship will be terminated as soon as reasonably possible and in all cases within six months of the effective date of the merger or acquisition; |
| (b) | any individual who has such an interest or relationship, including one that has arisen through performing a non-assurance service that would not be permitted under this section, will not be a member of the engagement team for the audit or the individual responsible for the engagement quality control review; and |
| (c) | appropriate transitional measures will be applied, as necessary, and discussed with those charged with governance. Examples of transitional measures include: |
| • | Having a registered auditor review the audit or non- assurance work as appropriate; |
| • | Having a registered auditor, who is not a member of the firm expressing the opinion on the financial statements, perform a review that is equivalent to an engagement quality control review; or |
| • | Engaging another firm to evaluate the results of the non-assurance service or having another firm re-perform the non-assurance service to the extent necessary to enable it to take responsibility for the service. |
| 290.36 | The firm may have completed a significant amount of work on the audit prior to the effective date of the merger or acquisition and may be able to complete the remaining audit procedures within a short period of time. In such circumstances, if those charged with governance request the firm to complete the audit while continuing with an interest or relationship identified in 290.33, the firm shall do so only if it: |
| (a) | Has evaluated the significance of the threat created by such interest or relationship and discussed the evaluation with those charged with governance; |
| (b) | Complies with the requirements of paragraph 290.35(a) and (b); and |
| (c) | Ceases to be the auditor no later than the issuance of the audit report. |
| 290.37 | When addressing previous and current interests and relationships covered by paragraphs 290.33 to 290.36, the firm shall determine whether, even if all the requirements could be met, the interests and relationships create threats that would remain so significant that objectivity would be compromised and, if so, the firm shall cease to be the auditor. |
| 290.38 | The registered auditor shall document any interests or relationships covered by paragraphs 290.34 and 36 that will not be terminated by the effective date of the merger or acquisition and the reasons why they will not be terminated, the transitional measures applied, the results of the discussion with those charged with governance, and the rationale as to why the previous and current interests and relationships do not create threats that would remain so significant that objectivity would be compromised. |
