| 290.156 | Firms have traditionally provided to their audit clients a range of non-assurance services that are consistent with their skills and expertise. Providing non-assurance services may, however, create threats to the independence of the firm or members of the audit team. The threats created are most often self-review, self-interest and advocacy threats. |
| 290.157 | New developments in business, the evolution of financial markets and changes in information technology make it impossible to draw up an all-inclusive list of non-assurance services that might be provided to an audit client. When specific guidance on a particular non-assurance service is not included in this section, the conceptual framework shall be applied when evaluating the particular circumstances. |
| 290.158 | Before the firm accepts an engagement to provide a non- assurance service to an audit client a determination shall be made as to whether providing such a service would create a threat to independence. In evaluating the significance of any threat created by a particular non-assurance service, consideration shall be given to any threat that the audit team has reason to believe is created by providing other related non-assurance services. If a threat is created that cannot be reduced to an acceptable level by the application of safeguards, the non-assurance service shall not be provided. |
| 290.159 | Providing certain non-assurance services to an audit client may create a threat to independence so significant that no safeguards could reduce the threat to an acceptable level. However, the inadvertent provision of such a service to a related entity, division or in respect of a discrete financial statement item of such a client will be deemed not to compromise independence if any threats have been reduced to an acceptable level by arrangements for that related entity, division or discrete financial statement item to be audited by another firm or when another firm re-performs the non-assurance service to the extent necessary to enable it to take responsibility for that service. |
| 290.160 | A firm may provide non-assurance services that would otherwise be restricted under this section to the following related entities of the audit client: |
| (a) | An entity, which is not an audit client, that has direct or indirect control over the audit client; |
| (b) | An entity, which is not an audit client, with a direct financial interest in the client if that entity has significant influence over the client and the interest in the client is material to such entity; or |
| (c) | An entity, which is not an audit client, that is under common control with the audit client, |
if it is reasonable to conclude that:
| (a) | the services do not create a self-review threat because the results of the services will not be subject to audit procedures; and |
| (b) | any threats that are created by the provision of such services are eliminated or reduced to an acceptable level by the application of safeguards. |
| 290.161 | A non-assurance service provided to an audit client does not compromise the firm's independence when the client becomes a public interest entity if: |
| (a) | The previous non-assurance service complies with the provisions of this section that relate to audit clients that are not public interest entities; |
| (b) | Services that are not permitted under this section for audit clients that are public interest entities are terminated before or as soon as practicable after the client becomes a public interest entity; and |
| (c) | The firm applies safeguards when necessary to eliminate or reduce to an acceptable level any threats to independence arising from the service. |
Management Responsibilities
General provisions
| 290.162 | Management of an entity performs many activities in managing the entity in the best interests of stakeholders of the entity. It is not possible to specify every activity that is a management responsibility. However, management responsibilities involve leading and directing an entity, including making significant decisions regarding the acquisition, deployment and control of human, financial, physical and intangible resources. |
| 290.163 | Whether an activity is a management responsibility depends on the circumstances and requires the exercise of judgment. Examples of activities that would generally be considered a management responsibility include: |
| • | Setting policies and strategic direction; |
| • | Directing and taking responsibility for the actions of the entity's employees; |
| • | Authorising transactions; |
| • | Deciding which recommendations of the firm or other third parties to implement; |
| • | Taking responsibility for the preparation and fair presentation of the financial statements in accordance with the applicable financial reporting framework; and |
| • | Taking responsibility for designing, implementing and maintaining internal control. |
| 290.164 | Activities that are routine and administrative, or involve matters that are insignificant, generally are deemed not to be a management responsibility. For example, executing an insignificant transaction that has been authorised by management or monitoring the dates for filing statutory returns and advising an audit client of those dates is deemed not to be a management responsibility. Further, providing advice and recommendations to assist management in discharging its responsibilities is not assuming a management responsibility. |
| 290.165 | If a firm were to assume a management responsibility for an audit client, the threats created would be so significant that no safeguards could reduce the threats to an acceptable level. For example, deciding which recommendations of the firm to implement will create self- review and self-interest threats. Further, assuming a management responsibility creates a familiarity threat because the firm becomes too closely aligned with the views and interests of management. Therefore, the firm shall not assume a management responsibility for an audit client. |
| 290.166 | To avoid the risk of assuming a management responsibility when providing non-assurance services to an audit client, the firm shall be satisfied that a member of management is responsible for making the significant judgments and decisions that are the proper responsibility of management, evaluating the results of the service and accepting responsibility for the actions to be taken arising from the results of the service. This reduces the risk of the firm inadvertently making any significant judgments or decisions on behalf of management. The risk is further reduced when the firm gives the client the opportunity to make judgments and decisions based on an objective and transparent analysis and presentation of the issues. |
Preparing Accounting Records and Financial Statements
General Provisions
| 290.167 | Management is responsible for the preparation and fair presentation of the financial statements in accordance with the applicable financial reporting framework. These responsibilities include: |
| • | Originating or changing journal entries, or determining the account classifications of transactions; and |
| • | Preparing or changing source documents or originating data, in electronic or other form, evidencing the occurrence of a transaction (for example, purchase orders, payroll time records, and customer orders). |
| 290.168 | Providing an audit client with accounting and bookkeeping services, such as preparing accounting records or financial statements, creates a self-review threat when the firm subsequently audits the financial statements. |
| 290.169 | The audit process, however, necessitates dialogue between the firm and management of the audit client, which may involve: |
| (a) | the application of accounting standards or policies and financial statement disclosure requirements, |
| (b) | the appropriateness of financial and accounting control and the methods used in determining the stated amounts of assets and liabilities, or |
| (c) | proposing adjusting journal entries. |
These activities are considered to be a normal part of the audit process and do not, generally, create threats to independence.
| 290.170 | Similarly, the client may request technical assistance from the firm on matters such as resolving account reconciliation problems or analyzing and accumulating information for regulatory reporting. In addition, the client may request technical advice on accounting issues such as the conversion of existing financial statements from one financial reporting framework to another (for example, to comply with group accounting policies or to transition to a different financial reporting framework such as International Financial Reporting Standards). Such services do not, generally, create threats to independence provided the firm does not assume a management responsibility for the client. |
Audit Clients that are Not Public Interest Entities
| 290.171 | The firm may provide services related to the preparation of accounting records and financial statements to an audit client that is not a public interest entity where the services are of a routine or mechanical nature, so long as any self-review threat created is reduced to an acceptable level. Examples of such services include: |
| • | Providing payroll services based on client-originated data; |
| • | Recording transactions for which the client has determined or approved the appropriate account classification; |
| • | Posting transactions coded by the client to the general ledger; |
| • | Posting client-approved entries to the trial balance; and |
| • | Preparing financial statements based on information in the trial balance. |
In all cases, the significance of any threat created shall be evaluated and safeguards applied when necessary to eliminate the threat or reduce it to an acceptable level. Examples of such safeguards include:
| • | Arranging for such services to be performed by an individual who is not a member of the audit team; or |
| • | If such services are performed by a member of the audit team, using a partner or senior staff member with appropriate expertise who is not a member of the audit team to review the work performed. |
Audit Clients that are Public Interest Entities
General Provisions
| 290.172 | Except in emergency situations, a firm shall not provide to an audit client that is a public interest entity accounting and bookkeeping services, including payroll services, or prepare financial statements on which the firm will express an opinion or financial information which forms the basis of the financial statements. |
| 290.173 | Despite paragraph 290.172, a firm may provide accounting and bookkeeping services, including payroll services and the preparation of financial statements or other financial information, of a routine or mechanical nature for divisions or related entities of an audit client that is a public interest entity if the personnel providing the services are not members of the audit team and: |
| • | The divisions or related entities for which the service is provided are collectively immaterial to the financial statements on which the registered auditor will express an opinion; or |
| • | The services relate to matters that are collectively immaterial to the financial statements of the division or related entity. |
Emergency Situations
| 290.174 | Accounting and bookkeeping services, which would otherwise not be permitted under this section, may be provided to audit clients in emergency or other unusual situations when it is impractical for the audit client to make other arrangements. This may be the case when: |
| (a) | only the firm has the resources and necessary knowledge of the client's systems and procedures to assist the client in the timely preparation of its accounting records and financial statements, and |
| (b) | a restriction on the firm's ability to provide the services would result in significant difficulties for the client (for example, as might result from a failure to meet regulatory reporting requirements). |
In such situations, the following conditions shall be met:
| (a) | Those who provide the services are not members of the audit team; |
| (b) | The services are provided for only a short period of time and are not expected to recur; and |
| (c) | The situation is discussed with those charged with governance. |
Valuation Services
General Provisions
| 290.175 | A valuation comprises the making of assumptions with regard to future developments, the application of appropriate methodologies and techniques, and the combination of both to compute a certain value, or range of values, for an asset, a liability or for a business as a whole. |
| 290.176 | Performing valuation services for an audit client may create a self-review threat. The existence and significance of any threat will depend on factors such as: |
| • | Whether the valuation will have a material effect on the financial statements. |
| • | The extent of the client's involvement in determining and approving the valuation methodology and other significant matters of judgment. |
| • | The availability of established methodologies and professional guidelines. |
| • | For valuations involving standard or established methodologies, the degree of subjectivity inherent in the item. |
| • | The reliability and extent of the underlying data. |
| • | The degree of dependence on future events of a nature that could create significant volatility inherent in the amounts involved. |
| • | The extent and clarity of the disclosures in the financial statements. |
The significance of any threat created shall be evaluated and safeguards applied when necessary to eliminate the threat or reduce it to an acceptable level. Examples of such safeguards include:
| • | Having a professional who was not involved in providing the valuation service review the audit or valuation work performed; or |
| • | Making arrangements so that personnel providing such services do not participate in the audit engagement. |
| 290.177 | Certain valuations do not involve a significant degree of subjectivity. This is likely the case where the underlying assumptions are either established by law or regulation, or are widely accepted and when the techniques and methodologies to be used are based on generally accepted standards or prescribed by law or regulation. In such circumstances, the results of a valuation performed by two or more parties are not likely to be materially different. |
| 290.178 | If a firm is requested to perform a valuation to assist an audit client with its tax reporting obligations or for tax planning purposes and the results of the valuation will not have a direct effect on the financial statements, the provisions included in paragraph 290.191 apply. |
Audit Clients that are Not Public Interest Entities
| 290.179 | In the case of an audit client that is not a public interest entity, if the valuation service has a material effect on the financial statements on which the registered auditor will express an opinion and the valuation involves a significant degree of subjectivity, no safeguards could reduce the self-review threat to an acceptable level. Accordingly a firm shall not provide such a valuation service to an audit client. |
Audit Clients that are Public Interest Entities
| 290.180 | A firm shall not provide valuation services to an audit client that is a public interest entity if the valuations would have a material effect, separately or in the aggregate, on the financial statements on which the firm will express an opinion. |
Taxation Services
| 290.181 | Taxation services comprise a broad range of services, including: |
| • | Tax calculations for the purpose of preparing the accounting entries; |
| • | Tax planning and other tax advisory services; and |
| • | Assistance in the resolution of tax disputes. |
While taxation services provided by a firm to an audit client are addressed separately under each of these broad headings; in practice, these activities are often interrelated.
| 290.182 | Performing certain tax services creates self-review and advocacy threats. The existence and significance of any threats will depend on factors such as: |
| • | the system by which the tax authorities assess and administer the tax in question and the role of the firm in that process, |
| • | the complexity of the relevant tax regime and the degree of judgment necessary in applying it, |
| • | the particular characteristics of the engagement, and |
| • | the level of tax expertise of the client's employees. |
Tax Return Preparation
| 290.183 | Tax return preparation services involve assisting clients with their tax reporting obligations by drafting and completing information, including the amount of tax due (usually on standardized forms) required to be submitted to the applicable tax authorities. Such services also include advising on the tax return treatment of past transactions and responding on behalf of the audit client to the tax authorities' requests for additional information and analysis (including providing explanations of and technical support for the approach being taken). Tax return preparation services are generally based on historical information and principally involve analysis and presentation of such historical information under existing tax law, including precedents and established practice. Further, the tax returns are subject to whatever review or approval process the tax authority deems appropriate. Accordingly, providing such services do not generally create a threat to independence if management takes responsibility for the returns including any significant judgments made. |
Tax Calculations for the Purpose of Preparing Accounting Entries
Audit Clients that are Not Public Interest Entities
| 290.184 | Preparing calculations of current and deferred tax liabilities (or assets) for an audit client for the purpose of preparing accounting entries that will be subsequently audited by the firm creates a self-review threat. The significance of the threat will depend on; |
| (a) | the complexity of the relevant tax law and regulation and the degree of judgment necessary in applying them, |
| (b) | the level of tax expertise of the client's personnel, and |
| (c) | the materiality of the amounts to the financial statements. |
Safeguards shall be applied when necessary to eliminate the threat or reduce it to an acceptable level. Examples of such safeguards include:
| • | Using professionals who are not members of the audit team to perform the service; |
| • | If the service is performed by a member of the audit team, using a partner or senior staff member with appropriate expertise who is not a member of the audit team to review the tax calculations; or |
| • | Obtaining advice on the service from an external tax professional |
Audit Clients that are Public Interest Entities
| 290.185 | Except in emergency situations, in the case of an audit client that is a public interest entity, a firm shall not prepare tax calculations of current and deferred tax liabilities (or assets) for the purpose of preparing accounting entries that are material to the financial statements on which the firm will express an opinion. |
| 290.186 | The preparation of calculations of current and deferred tax liabilities (or assets) for an audit client for the purpose of the preparation of accounting entries, which would otherwise not be permitted under this section, may be provided to audit clients in emergency or other unusual situations when it is impractical for the audit client to make other arrangements. This may be the case when |
| (a) | only the firm has the resources and necessary knowledge of the client's business to assist the client in the timely preparation of its calculations of current and deferred tax liabilities (or assets), and |
| (b) | a restriction on the firm's ability to provide the services would result in significant difficulties for the client (for example, as might result from a failure to meet regulatory reporting requirements). |
In such situations, the following conditions shall be met:
| (a) | Those who provide the services are not members of the audit team; |
| (b) | The services are provided for only a short period of time and are not expected to recur; and |
| (c) | The situation is discussed with those charged with governance. |
Tax Planning and Other Tax Advisory Services
| 290.187 | Tax planning or other tax advisory services comprise a broad range of services, such as advising the client how to structure its affairs in a tax efficient manner or advising on the application of a new tax law or regulation. |
| 290.188 | A self-review threat may be created where the advice will affect matters to be reflected in the financial statements. The existence and significance of any threat will depend on factors such as: |
| • | The degree of subjectivity involved in determining the appropriate treatment for the tax advice in the financial statements; |
| • | The extent to which the outcome of the tax advice will have a material effect on the financial statements; |
| • | Whether the effectiveness of the tax advice depends on the accounting treatment or presentation in the financial statements and there is doubt as to the appropriateness of the accounting treatment or presentation under the relevant financial reporting framework; |
| • | The level of tax expertise of the client's employees; |
| • | The extent to which the advice is supported by tax law or regulation, other precedent or established practice; and |
| • | Whether the tax treatment is supported by a private ruling or has otherwise been cleared by the tax authority before the preparation of the financial statements. |
For example, providing tax planning and other tax advisory services where the advice is clearly supported by tax authority or other precedent, by established practice or has a basis in tax law that is likely to prevail does not generally create a threat to independence.
| 290.189 | The significance of any threat shall be evaluated and safeguards applied when necessary to eliminate the threat or reduce it to an acceptable level. Examples of such safeguards include: |
| • | Using professionals who are not members of the audit team to perform the service; |
| • | Having a tax professional, who was not involved in providing the tax service, advise the audit team on the service and review the financial statement treatment; |
| • | Obtaining advice on the service from an external tax professional; or |
| • | Obtaining pre-clearance or advice from the tax authorities. |
| 290.190 | Where the effectiveness of the tax advice depends on a particular accounting treatment or presentation in the financial statements and: |
| (a) | The audit team has reasonable doubt as to the appropriateness of the related accounting treatment or presentation under the relevant financial reporting framework; and |
| (b) | The outcome or consequences of the tax advice will have a material effect on the financial statements on which the firm will express an opinion; |
the self-review threat would be so significant that no safeguards could reduce the threat to an acceptable level. Accordingly, a firm shall not provide such tax advice to an audit client.
| 290.191 | In providing tax services to an audit client, a firm may be requested to perform a valuation to assist the client with its tax reporting obligations or for tax planning purposes. Where the result of the valuation will have a direct effect on the financial statements, the provisions included in paragraphs 290.175 to 290.180 relating to valuation services are applicable. Where the valuation is performed for tax purposes only and the result of the valuation will not have a direct effect on the financial statements (i.e. the financial statements are only affected through accounting entries related to tax), this would not generally create threats to independence if such effect on the financial statements is immaterial or if the valuation is subject to external review by a tax authority or similar regulatory authority. If the valuation is not subject to such an external review and the effect is material to the financial statements, the existence and significance of any threat created will depend upon factors such as: |
| • | The extent to which the valuation methodology is supported by tax law or regulation, other precedent or established practice and the degree of subjectivity inherent in the valuation. |
| • | The reliability and extent of the underlying data. |
The significance of any threat created shall be evaluated and safeguards applied when necessary to eliminate the threat or reduce it to an acceptable level. Examples of such safeguards include:
| • | Using professionals who are not members of the audit team to perform the service; |
| • | Having a professional review the audit work or the result of the tax service; or |
| • | Obtaining pre-clearance or advice from the tax authorities. |
Assistance in the Resolution of Tax Disputes
| 290.192 | An advocacy or self-review threat may be created when the firm represents an audit client in the resolution of a tax dispute once the tax authorities have notified the client that they have rejected the client's arguments on a particular issue and either the tax authority or the client is referring the matter for determination in a formal proceeding, for example before a tribunal or court. The existence and significance of any threat will depend on factors such as: |
| • | Whether the firm has provided the advice which is the subject of the tax dispute; |
| • | The extent to which the outcome of the dispute will have a material effect on the financial statements on which the firm will express an opinion; |
| • | The extent to which the matter is supported by tax law or regulation, other precedent, or established practice; |
| • | Whether the proceedings are conducted in public; and |
| • | The role management plays in the resolution of the dispute. |
The significance of any threat created shall be evaluated and safeguards applied when necessary to eliminate the threat or reduce it to an acceptable level. Examples of such safeguards include:
| • | Using professionals who are not members of the audit team to perform the service; |
| • | Having a tax professional, who was not involved in providing the tax service, advise the audit team on the services and review the financial statement treatment; or |
| • | Obtaining advice on the service from an external tax professional. |
| 290.193 | Where the taxation services involve acting as an advocate for an audit client before a public tribunal or court in the resolution of a tax matter and the amounts involved are material to the financial statements on which the registered auditor will express an opinion, the advocacy threat created would be so significant that no safeguards could eliminate or reduce the threat to an acceptable level. Therefore, the firm shall not perform this type of service for an audit client. What constitutes a "public tribunal or court" shall be determined according to how tax proceedings are heard in the particular jurisdiction. |
| 290.194 | The firm is not, however, precluded from having a continuing advisory role (for example, responding to specific requests for information, providing factual accounts or testimony about the work performed or assisting the client in analysing the tax issues) for the audit client in relation to the matter that is being heard before a public tribunal or court. |
Internal Audit Services
General Provisions
| 290.195 | The scope and objectives of internal audit activities vary widely and depend on the size and structure of the entity and the requirements of management and those charged with governance. Internal audit activities may include: |
| (a) | Monitoring of internal control - reviewing controls, monitoring their operation and recommending improvements thereto; |
| (b) | Examination of financial and operating information - reviewing the means used to identify, measure, classify and report financial and operating information, and specific inquiry into individual items including detailed testing of transactions, balances and procedures; |
| (c) | Review of the economy, efficiency and effectiveness of operating activities including non-financial activities of an entity; and |
| (d) | Review of compliance with laws, regulations and other external requirements, and with management policies and directives and other internal requirements. |
| 290.196 | Internal audit services involve assisting the audit client in the performance of its internal audit activities. The provision of internal audit services to an audit client creates a self-review threat to independence if the firm uses the internal audit work in the course of a subsequent external audit. Performing a significant part of the client's internal audit activities increases the possibility that firm personnel providing internal audit services will assume a management responsibility. If the firm's personnel assume a management responsibility when providing internal audit services to an audit client, the threat created would be so significant that no safeguards could reduce the threat to an acceptable level. Accordingly, a firm's personnel shall not assume a management responsibility when providing internal audit services to an audit client. |
| 290.197 | Examples of internal audit services that involve assuming management responsibilities include: |
| (a) | Setting internal audit policies or the strategic direction of internal audit activities; |
| (b) | Directing and taking responsibility for the actions of the entity's internal audit employees; |
| (c) | Deciding which recommendations resulting from internal audit activities shall be implemented; |
| (d) | Reporting the results of the internal audit activities to those charged with governance on behalf of management; |
| (e) | Performing procedures that form part of the internal control, such as reviewing and approving changes to employee data access privileges; |
| (f) | Taking responsibility for designing, implementing and maintaining internal control; and |
| (g) | Performing outsourced internal audit services, comprising all or a substantial portion of the internal audit function, where the firm is responsible for determining the scope of the internal audit work and may have responsibility for one or more of the matters noted in (a)-(f). |
| 290.198 | To avoid assuming a management responsibility, the firm shall only provide internal audit services to an audit client if it is satisfied that: |
| (a) | The client designates an appropriate and competent resource, preferably within senior management, to be responsible at all times for internal audit activities and to acknowledge responsibility for designing, implementing, and maintaining internal control; |
| (b) | The client's management or those charged with governance reviews, assesses and approves the scope, risk and frequency of the internal audit services; |
| (c) | The client's management evaluates the adequacy of the internal audit services and the findings resulting from their performance; |
| (d) | The client's management evaluates and determines which recommendations resulting from internal audit services to implement and manages the implementation process; and |
| (e) | The client's management reports to those charged with governance the significant findings and recommendations resulting from the internal audit services. |
| 290.199 | When a firm uses the work of an internal audit function, International Standards on Auditing require the performance of procedures to evaluate the adequacy of that work. When a firm accepts an engagement to provide internal audit services to an audit client, and the results of those services will be used in conducting the external audit, a self- review threat is created because of the possibility that the audit team will use the results of the internal audit service without appropriately evaluating those results or exercising the same level of professional scepticism as would be exercised when the internal audit work is performed by individuals who are not members of the firm. The significance of the threat will depend on factors such as: |
| • | The materiality of the related financial statement amounts; |
| • | The risk of misstatement of the assertions related to those financial statement amounts; and |
| • | The degree of reliance that will be placed on the internal audit service. |
The significance of the threat shall be evaluated and safeguards applied when necessary to eliminate the threat or reduce it to an acceptable level. An example of such a safeguard is using professionals who are not members of the audit team to perform the internal audit service.
Audit Clients that are Public Interest Entities
| 290.200 | In the case of an audit client that is a public interest entity, a firm shall not provide internal audit services that relate to: |
| (a) | A significant part of the internal controls over financial reporting; |
| (b) | Financial accounting systems that generate information that is, separately or in the aggregate, significant to the client's accounting records or financial statements on which the firm will express an opinion; or |
| (c) | Amounts or disclosures that are, separately or in the aggregate, material to the financial on which the firm will express an opinion. |
IT Systems Services
General Provisions
| 290.201 | Services related to information technology (IT) systems include the design or implementation of hardware or software systems. The systems may aggregate source data, form part of the internal control over financial reporting or generate information that affects the accounting records or financial statements, or the systems may be unrelated to the audit client's accounting records, the internal control over financial reporting or financial statements. Providing systems services may create a self-review threat depending on the nature of the services and the IT systems. |
| 290.202 | The following IT systems services are deemed not to create a threat to independence as long as the firm's personnel do not assume a management responsibility: |
| (a) | Design or implementation of IT systems that are unrelated to internal control over financial reporting; |
| (b) | Design or implementation of IT systems that do not generate information forming a significant part of the accounting records or financial statements; |
| (c) | Implementation of "off-the-shelf accounting or financial information reporting software that was not developed by the firm if the customization required to meet the client's needs is not significant; and |
| (d) | Evaluating and making recommendations with respect to a system designed, implemented or operated by another service provider or the client. |
Audit Clients that are Not Public Interest Entities
| 290.203 | Providing services to an audit client that is not a public interest entity involving the design or implementation of IT systems that |
| (a) | form a significant part of the internal control over financial reporting; or |
| (b) | generate information that is significant to the client's accounting records or financial statements on which the firm will express an opinion creates a self-review threat. |
| 290.204 | The self-review threat is too significant to permit such services unless appropriate safeguards are put in place ensuring that: |
| (a) | The client acknowledges its responsibility for establishing and monitoring a system of internal controls; |
| (b) | The client assigns the responsibility to make all management decisions with respect to the design and implementation of the hardware or software system to a competent employee, preferably within senior management; |
| (c) | The client makes all management decisions with respect to the design and implementation process; |
| (d) | The client evaluates the adequacy and results of the design and implementation of the system; and |
| (e) | The client is responsible for operating the system (hardware or software) and for the data it uses or generates. |
| 290.205 | Depending on the degree of reliance that will be placed on the particular IT systems as part of the audit, a determination shall be made as to whether to provide such non-assurance services only with personnel who are not members of the audit team and who have different reporting lines within the firm. The significance of any remaining threat shall be evaluated and safeguards applied when necessary to eliminate the threat or reduce it to an acceptable level. An example of such a safeguard is having a registered auditor review the audit or non-assurance work. |
Audit Clients that are Public Interest Entities
| 290.206 | In the case of an audit client that is a public interest entity, a firm shall not provide services involving the design or implementation of IT systems that |
| (a) | form a significant part of the internal control over financial reporting; or |
| (b) | generate information that is significant to the client's accounting records or financial statements on which the firm will express an opinion. |
Litigation Support Services
| 290.207 | Litigation support services may include activities such as acting as an expert witness, calculating estimated damages or other amounts that might become receivable or payable as the result of litigation or other legal dispute, and assistance with document management and retrieval. These services may create a self-review or advocacy threat. |
| 290.208 | If the firm provides a litigation support service to an audit client and the service involves estimating damages or other amounts that affect the financial statements on which the firm will express an opinion, the valuation service provisions included in paragraphs 290.175 to 290.180 shall be followed. In the case of other litigation support services, the significance of any threat created shall be evaluated and safeguards applied when necessary to eliminate the threat or reduce it to an acceptable level. |
Legal Services
| 290.209 | For the purpose of this section, legal services are defined as any services for which the person providing the services must either be admitted to practice law before the courts of the jurisdiction in which such services are to be provided or have the required legal training to practice law. Such legal services may include, depending on the jurisdiction, a wide and diversified range of areas including both corporate and commercial services to clients, such as contract support, litigation, mergers and acquisition legal advice and support and assistance to clients' internal legal departments. Providing legal services to an entity that is an audit client may create both self-review and advocacy threats. |
| 290.210 | Legal services that support an audit client in executing a transaction (e.g., contract support, legal advice, legal due diligence and restructuring) may create self-review threats. The existence and significance of any threat will depend on factors such as: |
| • | The nature of the service; |
| • | Whether the service is provided by a member of the audit team; and |
| • | The materiality of any matter in relation to the client's financial statements. |
The significance of any threat created shall be evaluated and safeguards applied when necessary to eliminate the threat or reduce it to an acceptable level. Examples of such safeguards include:
| • | Using professionals who are not members of the audit team to perform the service; or |
| • | Having a professional who was not involved in providing the legal services, provide advice to the audit team on the service and review any financial statement treatment. |
| 290.211 | Acting in an advocacy role for an audit client in resolving a dispute or litigation when the amounts involved are material to the financial statements on which the firm will express an opinion would create advocacy and self-review threats so significant that no safeguards could reduce the threat to an acceptable level. Therefore, the firm shall not perform this type of service for an audit client. |
| 290.212 | When a firm is asked to act in an advocacy role for an audit client in resolving a dispute or litigation when the amounts involved are not material to the financial statements on which the firm will express an opinion, the firm shall evaluate the significance of any advocacy and self review threats created and apply safeguards when necessary to eliminate the threat or reduce it to an acceptable level. Examples of such safeguards include: |
| • | Using professionals who are not members of the audit team to perform the service; or |
| • | Having a professional who was not involved in providing the legal services, advise the audit team on the service and review any financial statement treatment. |
| 290.213 | The appointment of a partner or an employee of the firm as a legal adviser for legal affairs of an audit client would create self-review and advocacy threats that are so significant that no safeguards could reduce the threats to an acceptable level. The position of a legal adviser is generally a senior management position with broad responsibility for the legal affairs of a company, and consequently, no member of the firm shall accept such an appointment for an audit client. |
Recruiting Services
General Provisions
| 290.214 | Providing recruiting services to an audit client may create self-interest, familiarity or intimidation threats. The existence and significance of any threat will depend on factors such as: |
| • | The nature of the requested assistance; and |
| • | The role of the person to be recruited. |
The significance of any threat created shall be evaluated and safeguards applied when necessary to eliminate the threat or reduce it to an acceptable level. In all cases, the firm shall not assume management responsibilities, including acting as a negotiator on the client's behalf, and the hiring decision shall be left to the client.
The firm may generally provide such services as reviewing the professional qualifications of a number of applicants and providing advice on their suitability for the post. In addition, the firm may interview candidates and advise on a candidate's competence for financial accounting,
Audit Clients that are Public Interest Entities
| 290.215 | A firm shall not provide the following recruiting services to an audit client that is a public interest entity with respect to a director or officer of the entity or senior management in a position to exert significant influence over the preparation of the client's accounting records or the financial statements on which the firm will express an opinion: |
| • | Searching for or seeking out candidates for such positions; and |
| • | Undertaking reference checks of prospective candidates for such positions. |
Corporate Finance Services
General Provisions
| 290.216 | Providing corporate finance services such as: |
| • | assisting an audit client in developing corporate strategies; |
| • | identifying possible targets for the audit client to acquire; |
| • | advising on disposal transactions; |
| • | assisting finance raising transactions; and |
| • | providing structuring advice may create advocacy and self-review threats. |
The significance of any threat shall be evaluated and safeguards applied when necessary to eliminate the threat or reduce it to an acceptable level. Examples of such safeguards include:
| • | Using professionals who are not members of the audit team to provide the services; or |
| • | Having a professional who was not involved in providing the corporate finance service advise the audit team on the service and review the accounting treatment and any financial statement treatment. |
| 290.217 | Providing a corporate finance service, for example advice on the structuring of a corporate finance transaction or on financing arrangements that will directly affect amounts that will be reported in the financial statements on which the firm will provide an opinion may create a self-review threat. The existence and significance of any threat will depend on factors such as: |
| • | The degree of subjectivity involved in determining the appropriate treatment for the outcome or consequences of the corporate finance advice in the financial statements; |
| • | The extent to which the outcome of the corporate finance advice will directly affect amounts recorded in the financial statements and the extent to which the amounts are material to the financial statements; and |
| • | Whether the effectiveness of the corporate finance advice depends on a particular accounting treatment or presentation in the financial statements and there is doubt as to the appropriateness of the related accounting treatment or presentation under the relevant financial reporting framework. |
The significance of any threat shall be evaluated and safeguards applied when necessary to eliminate the threat or reduce it to an acceptable level.
Examples of such safeguards include:
| • | Using professionals who are not members of the audit team to perform the service; or |
| • | Having a professional who was not involved in providing the corporate finance service to the client advise the audit team on the service and review the accounting treatment and any financial statement treatment. |
| 290.218 | Where the effectiveness of corporate finance advice depends on a particular accounting treatment or presentation in the financial statements and: |
| (a) | The audit team has reasonable doubt as to the appropriateness of the related accounting treatment or presentation under the relevant financial reporting framework; and |
| (b) | The outcome or consequences of the corporate finance advice will have a material effect on the financial statements on which the registered auditor will express an opinion; |
the self-review threat would be so significant that no safeguards could reduce the threat to an acceptable level, in which case the corporate finance advice shall not be provided.
| 290.219 | Providing corporate finance services involving promoting, dealing in, or underwriting an audit client's shares would create an advocacy or self-review threat that is so significant that no safeguards could reduce the threat to an acceptable level. Accordingly, a firm shall not provide such services to an audit client. |
