Introduction
| 291.104 | Holding a financial interest in an assurance client may create a self-interest threat. The existence and significance of any threat created depends on: |
| (a) | the role of the person holding the financial interest, |
| (b) | whether the financial interest is direct or indirect, and |
| (c) | the materiality of the financial interest. |
| 291.105 | Financial interests may be held through an intermediary (e.g. a collective investment vehicle, estate or trust). The determination of whether such financial interests are direct or indirect will depend upon whether the beneficial owner has control over the investment vehicle or the ability to influence its investment decisions. When control over the investment vehicle or the ability to influence investment decisions exists, this Code defines that financial interest to be a direct financial interest. Conversely, when the beneficial owner of the financial interest has no control over the investment vehicle or ability to influence its investment decisions, this Code defines that financial interest to be an indirect financial interest. |
Financial interest in an assurance client
| 291.106 | If a member of the assurance team, a member of that individual's immediate family, or a firm, has a direct financial interest or a material indirect financial interest in the assurance client, the self-interest threat created would be so significant that no safeguards could reduce the threat to an acceptable level. Therefore, none of the following shall have such a financial interest: a member of the audit team; a member of that individual's immediate family; and the firm. |
Close family holding a financial interest in an assurance client
| 291.107 | When a member of the assurance team has a close family member who the assurance team member knows has a direct financial interest or a material indirect financial interest in the assurance client, a self- interest threat is created. The significance of the threat will depend on factors such as: |
| • | The nature of the relationship between the member of the assurance team and the close family member; and |
| • | The materiality of the financial interest to the close family member. |
The significance of the 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:
| • | The close family member disposing, as soon as practicable, of all of the financial interest or disposing of a sufficient portion of an indirect financial interest so that the remaining interest is no longer material; |
| • | Having a registered auditor review the work of the member of the assurance team; or |
| • | Removing the individual from the assurance team. |
Financial interest in an entity that is holding a financial interest in an assurance client
| 291.108 | If a member of the assurance team, a member of that individual's immediate family, or a firm has a direct or material indirect financial interest in an entity that has a controlling interest in the assurance client, and the client is material to the entity, the self-interest threat created would be so significant that no safeguards could reduce the threat to an acceptable level. Therefore, none of the following shall have such a financial interest: a member of the assurance team; a member of that individual's immediate family; and the firm. |
Financial interest in an assurance client as a trustee
| 291.109 | The holding by a firm or a member of the assurance team, or a member of that individual's immediate family, of a direct financial interest or a material indirect financial interest in the assurance client as a trustee creates a self-interest threat. Such an interest shall not be held unless: |
| (a) | Neither the trustee, nor an immediate family member of the trustee, nor the firm are beneficiaries of the trust; |
| (b) | The interest in the assurance client held by the trust is not material to the trust; |
| (c) | The trust is not able to exercise significant influence over the assurance client; and |
| (d) | The trustee, an immediate family member of the trustee, or the firm cannot significantly influence any investment decision involving a financial interest in the assurance client. |
| 291.110 | Members of the assurance team shall determine whether a self- interest threat is created by any known financial interests in the assurance client held by other individuals including: |
| • | Partners and professional employees of the firm, other than those referred to above, or their immediate family members; and |
| • | Individuals with a close personal relationship with a member of the assurance team. |
Whether these interests create a self-interest threat will depend on factors such as:
| • | The firm's organisational, operating and reporting structure; and |
| • | The nature of the relationship between the individual and the member of the assurance team. |
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:
| • | Removing the member of the assurance team with the personal relationship from the assurance team; |
| • | Excluding the member of the assurance team from any significant decision-making concerning the assurance engagement; or |
| • | Having a registered auditor review the work of the member of the assurance team. |
Financial interest received by way of an inheritance, gift or as a result of a merger
| 291.111 | If a firm, a member of the assurance team, or an immediate family member of the individual, receives a direct financial interest or a material indirect financial interest in an assurance client, for example, by way of an inheritance, gift or as a result of a merger, and such interest would not be permitted to be held under this section, then: |
| (a) | If the interest is received by the firm, the financial interest shall be disposed of immediately, or a sufficient amount of an indirect financial interest shall be disposed of so that the remaining interest is no longer material, or |
| (b) | If the interest is received by a member of the assurance team, or a member of that individual's immediate family, the individual who received the financial interest shall immediately dispose of the financial interest, or dispose of a sufficient amount of an indirect financial interest so that the remaining interest is no longer material. |
Inadvertent violation
| 291.112 | When an inadvertent violation of this section as it relates to a financial interest in an assurance client occurs, it is deemed not to compromise independence if: |
| (a) | The firm has established policies and procedures that require prompt notification to the firm of any breaches resulting from the purchase, inheritance or other acquisition of a financial interest in the assurance client; |
| (b) | The actions taken in paragraph 291.111(a) - (b) are taken as applicable; and |
| (c) | The firm applies other safeguards when necessary to reduce any remaining threat to an acceptable level. Examples of such safeguards include: |
| • | Having a registered auditor review the work of the member of the assurance team; or |
| • | Excluding the individual from any significant decision-making concerning the assurance engagement. |
The firm shall determine whether to discuss the matter with those charged with governance.
