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Part 4A Independence for audit and review engagements (Section 510:…
Part 4A Independence for audit and review engagements
Section 410
: Fees
Size of fees
PIE - if for more than 15% of total fees received by firm in 2 consecutive years (disclose, discuss, EQCR)
Overdue fees
Contingent fees
Section 400:
PIE (when deemed PIE)
Related entities
Period under consideraton
Network firms
Mergers and acquisitions
Breach
Section 411:
Compensation and evaluation policies
Based on
selling non-assurance services
to audit client
Key audit partner?
Section 420
Gifts and hospitality
Self-interest/familiarity/intimidation threat
Link to section 340
Intent to improperly influence? Do not accept
If not intention, may accept if value trivial/inconsequential
Section 510:
Financial interests
Depends on:
1) Role of individual
2) Direct vs indirect
3) Consideration of materiality
Direct or material indirect financial interest in audit client shall not be held by:
firm/network firm
audit team member/immediate family of member
other partner in office of engagement partner/immediate family member of that partner (exception to this) or
other partner/managerial employee that provides non-assurance services to audit client or immediate family member of that individual (exception to this)
Financial interest held in
1) entity
controlling
audit client
2) trust for which firm acts as trustee
3) in common entity (both audit client and firm have interest)
Considerations:
if received unintentionally through inheritance/gift/result of merger
Other circumstances
Immediate family = spouse or dependent
Close family = parent/child/sibling not immediate family
Section 511:
Loans and guarantees
Loan/guarantee to/from audit client (directors or officers) by/to firm/network firm/audit team member (immediate family) not allowed unless immaterial to all parties (provider and recipient of loan/guarantee)
If client = financial institution, acceptable if under normal lending terms and conditions
Section 520:
Business relationships between audit client and firm/network firm/audit team member
Close business relationship not allowed unless immaterial and insignificant
Purchase of goods/services from audit client: allowed if in normal course of business and at arm's length (consider nature and magnitude)
Section 521:
Family and personal relationships
Between audit team member and director/officer
Depends on
Role/responsibilities of audit team member
Role of other individual within firm (able to exert significant influence over AFS)
Closeness of relationship (immediate family member, close family or other relationship)
Employment relationship
with audit client
Section 552: recent service with audit client
Audit team may not include individual who during period related to audit report:
Served as director/officer at audit client
Was in position to exert significant influence over AFS
Section 553: Serving as director/officer of audit client
Partner/employee of firm/network firm may not serve as director/officer of audit client
Serve as company secretary? No, unless...
Section 554: Employment with an audit client
Ensure no significant connection remains
Audit team member enters employment negotiations with audit client - notification policies and procedures
PIE - considerations?
Section 525: Temporary personnel assignments
Only allowed if:
short period of time
personnel not involved in provision of non-assurance services not permitted under section 600
Do not assume management responsibilities
Section 600:
Provision of
non-assurance services
to audit client
Section 540:
Long association of personnel (partner rotation)
PIE
May not act in role or combination thereof for more than 7 cumulative years (engagement parter; EQCR partner; other key audit partner role)
Exception if key audit partner is important to audit quality/limited individuals with necessary knowledge/experience
If become PIE, take into account period prior to entity becoming public in determining rotation
Cooling off period =
5 consecutive years (if engagement partner)
3 consecutive years (if EQCR partner)
2 consecutive years (if key audit partner)
Specific years if fulfilled combination of roles