Provision of non-assurance services to audit client

Prohibition on assuming mgt responsibilities

Mgt responsibility

  • controlling, leading & directing an entity

create self-review (will affect FS subject to audit), self-int (fee dependency, cover up one's own mistake), familiarity, advocacy threat

Ex of actv tht considered mgt responsibility tht require prof judgement:

  • setting polices & strategic direction
  • hiring / dismissing employees
  • directing & taking responsibility for the actions of employees
  • authorizing trans
  • controlling / managing bank a/c / invst
  • deciding which recommendations of the firm / network firm / other 3rd parties
  • reporting to those charged with governance on behalf of mgt
  • responsible for preparation & fair presentation of FS
  • responsible for designing, implementing, monitoring / maintaining internal ctrl

client mgt shld makes all judgements & decisions

Safeguard

  • designate an indv who possesses suitable skill, knowledge & experience
  • provides oversight of the service & evaluate the adequacy of the results of service performed
  • accept responsibility for the actions

Accounting & bookkeeping

Audit clients tht are ❌PIE

Audit clients tht are PIE

Routine / mechanical

  • require little / no prof judgement

❌provide to audit client tht the firm will express opinion, unless:

  • the services are routine / mechanical nature
  • any threats created tht are not an acceptable lvl

Safeguard

  • using prof who not audit team members
  • appropriate reviewer not involved in non-assurance services review audit work / service performed

❌provide to audit client tht the firm will express opinion, unless:

  • the services are routine / mechanical nature for divisions / related entities
    • immaterial to FS
    • services relates to matters tht are collectively immaterial to FS of division / related entity

Administrative services

  • usually ❌create threat

All audit clients

  • assisting their routine / mechanical tasks
  • require little / no prof judgement

Valuation service

All audit clients

Audit clients tht are PIE

  • making assumptions relate to future developments, application of appropriate methodologies & techniques, compute certain value / range of values for an asset, liability / for biz as whole

Factors in evaluating the lvl of such threat

  • the extent of client's involvement in determining & approving the valuation & methodology
  • degree of subjectivity inherent in the items for valuations
  • whether the valuation will have material effect on FS
  • the extent & clarity of disclosures related to the valuation
  • degree od dependency on future events

Safeguard

  • using prof who are not audit team members
  • appropriate reviewer not involved in non-assurance service review audit work / service performed

❌provide to audit client if:

  • involve significant degree of subjectivity
  • material effect on FS

Valuation ❌involve significant degree of subjectivity

  • underlying assumption established by law / regulations
  • techniques & methodology used are based on generally accpeted stds / prescribed by law / regulations
  • results performed by 2 / more parties not likely to be materially different

❌provide to audit client if have material effect on FS tht the firm will express opinion