In a review engagement, a public accounting firm
PART 1 — COMPLYING WITH THE CODE, FUNDAMENTAL PRINCIPLES AND CONCEPTUAL FRAMEWORK Show The Fundamental Principles 113 — Professional Competence and Due Care 115 — Professional Behaviour PART 2 — INTENTIONALLY LEFT BLANK PART 3 — PUBLIC ACCOUNTANTS Applying the Conceptual Framework — Public Accountants Professional Appointments Fees and Other Types of Remuneration Inducements, Including Gifts and Hospitality Responding to Non‑compliance with Laws and Regulations INDEPENDENCE STANDARDS (PARTS 4A AND 4B) PART 4A — INDEPENDENCE FOR AUDIT AND REVIEW ENGAGEMENTS Applying the Conceptual Framework to Independence for Audit and Review Engagements Compensation and Evaluation Policies Actual or Threatened Litigation Family and Personal Relationships Recent Service with an Audit Client Serving as a Director or Officer of an Audit Client Employment with an Audit Client Temporary Personnel Assignments Long Association of Personnel (Including Partner Rotation) with an Audit Client Provision of Non‑Assurance Services to an Audit Client 601 — Accounting and Bookkeeping Services 602 — Administrative Services 605 — Internal Audit Services 606 — Information Technology Systems Services 607 — Litigation Support Services 609 — Recruiting Services 610 — Corporate Finance Services Reports on Special Purpose Financial Statements that Include a Restriction on Use and Distribution (Audit and Review Engagements) PART 4B — INDEPENDENCE FOR ASSURANCE ENGAGEMENTS OTHER THAN AUDIT AND REVIEW ENGAGEMENTS Applying the Conceptual Framework to Independence for Assurance Engagements Other than Audit and Review Engagements Actual or Threatened Litigation Family and Personal Relationships Recent Service with an Assurance Client Serving as a Director or Officer of an Assurance Client Employment with an Assurance Client Long Association of Personnel with an Assurance Client Provision of Non‑assurance Services to Assurance Clients Reports that Include a Restriction on Use and Distribution (Assurance Engagements Other than Audit and Review Engagements) GLOSSARY, INCLUDING LISTS OF ABBREVIATIONS This Code of Professional Conduct and Ethics for Public Accountants and Accounting Entities (Code) establishes ethical requirements for public accountants, accounting firms, accounting corporations and accounting LLPs. Compliance with this Code is mandatory for all public accountants, accounting firms, accounting corporations and accounting LLPs and failure to observe the Code may result in disciplinary action. This Code applies to the provision of public accountancy services by public accountants, accounting firms, accounting corporations and accounting LLPs. Under the Accountants Act (Cap. 2), public accountancy services means the audit and reporting on financial statements and the doing of such other acts that are required by any written law to be done by a public accountant. For non-public accountancy services, public accountants should refer to the code of ethics of their professional body. PART 1 — COMPLYING WITH THE CODE, FUNDAMENTAL The Fundamental Principles
PART 1 — COMPLYING WITH THE CODE, FUNDAMENTAL A distinguishing mark of the accountancy profession is its acceptance of the responsibility to act in the public interest. Confidence in the accountancy profession is a reason why businesses, governments and other organisations involve public accountants in a broad range of areas, including financial and corporate reporting, assurance and other professional activities. Public accountants understand and acknowledge that such confidence is based on the skills and values that public accountants bring to the professional activities they undertake, including —
The application of these skills and values enables public accountants to provide advice or other output that meets the purpose for which it was provided, and which can be relied upon by the intended users of such output. The Code sets out high quality standards of ethical behaviour expected of public accountants. The Code establishes five fundamental principles to be complied with by all public accountants. It also includes a conceptual framework that sets out the approach to be taken to identify, evaluate and address threats to compliance with those fundamental principles and, for audits and other assurance engagements, threats to independence. The Code also applies the fundamental principles and the conceptual framework to a range of facts and circumstances that public accountants might encounter. Requirements and Application Material The requirements in the Code, designated with the letter “R”, impose obligations. Application material, designated with the letter “A”, provides context, explanations, suggestions for actions or matters to consider, illustrations and other guidance relevant to a proper understanding of the Code. In particular, the application material is intended to help a public accountant to understand how to apply the conceptual framework to a particular set of circumstances and to understand and comply with a specific requirement. While such application material does not of itself impose a requirement, consideration of the material is necessary to the proper application of the requirements of the Code, including application of the conceptual framework. A public accountant shall comply with the Code. Upholding the fundamental principles and compliance with the specific requirements of the Code enable public accountants to meet their responsibility to act in the public interest. Complying with the Code includes giving appropriate regard to the aim and intent of the specific requirements. Compliance with the requirements of the Code does not mean that public accountants will have always met their responsibility to act in the public interest. There might be unusual or exceptional circumstances in which a public accountant believes that complying with a requirement or requirements of the Code might not be in the public interest or would lead to a disproportionate outcome. In those circumstances, the public accountant is encouraged to consult with an appropriate body such as a professional or regulatory body. In acting in the public interest, a public accountant considers not only the preferences or requirements of an individual client, but also the interests of other stakeholders when performing professional activities. If there are circumstances where laws or regulations preclude a public accountant from complying with certain parts of the Code, those laws and regulations prevail, and the public accountant shall comply with all other parts of the Code. The principle of professional behaviour requires a public accountant to comply with relevant laws and regulations. Some jurisdictions might have provisions that differ from or go beyond those set out in the Code. Accountants in those jurisdictions need to be aware of those differences and comply with the more stringent provisions unless prohibited by law or regulation. Paragraphs R400.80 to R400.89 and R900.50 to R900.55 address a breach of Independence Standards. A public accountant who identifies a breach of any other provision of the Code shall evaluate the significance of the breach and its impact on the public accountant’s ability to comply with the fundamental principles. The public accountant shall also —
Relevant parties to whom such a breach might be reported include those who might have been affected by it, a professional or regulatory body or an oversight authority. THE FUNDAMENTAL PRINCIPLES There are five fundamental principles of ethics for public accountants —
A public accountant shall comply with each of the fundamental principles. The fundamental principles of ethics establish the standard of behaviour expected of a public accountant. The conceptual framework establishes the approach which a public accountant is required to apply in complying with those fundamental principles. Subsections 111 to 115 set out requirements and application material related to each of the fundamental principles. A public accountant might face a situation in which complying with one fundamental principle conflicts with complying with one or more other fundamental principles. In such a situation, the public accountant might consider consulting, on an anonymous basis if necessary, with —
However, such consultation does not relieve the public accountant from the responsibility to exercise professional judgment to resolve the conflict or, if necessary, and unless prohibited by law or regulation, disassociate from the matter creating the conflict. The public accountant is encouraged to document the substance of the issue, the details of any discussions, the decisions made and the rationale for those decisions. SUBSECTION 111 — INTEGRITY A public accountant shall comply with the principle of integrity, which requires a public accountant to be straightforward and honest in all professional and business relationships. Integrity involves fair dealing, truthfulness and having the strength of character to act appropriately, even when facing pressure to do otherwise or when doing so might create potential adverse personal or organisational consequences. Acting appropriately involves —
in a manner appropriate to the circumstances. A public accountant shall not knowingly be associated with reports, returns, communications or other information where the public accountant believes that the information —
If a public accountant provides a modified report in respect of such a report, return, communication or other information, the public accountant is not in breach of paragraph R111.2. When a public accountant becomes aware of having been associated with information described in paragraph R111.2, the public accountant shall take steps to be disassociated from that information. SUBSECTION 112 — OBJECTIVITY A public accountant shall comply with the principle of objectivity, which requires a public accountant to exercise professional or business judgment without being compromised by —
A public accountant shall not undertake a professional activity if a circumstance or relationship unduly influences the public accountant’s professional judgment regarding that activity. SUBSECTION 113 — PROFESSIONAL COMPETENCE AND DUE CARE A public accountant shall comply with the principle of professional competence and due care, which requires a public accountant to —
Serving clients with professional competence requires the exercise of sound judgment in applying professional knowledge and skill when undertaking professional activities. Maintaining professional competence requires a continuing awareness and an understanding of relevant technical, professional, business and technology-related developments. Continuing professional development enables a public accountant to develop and maintain the capabilities to perform competently within the professional environment. Diligence encompasses the responsibility to act in accordance with the requirements of an assignment, carefully, thoroughly and on a timely basis. In complying with the principle of professional competence and due care, a public accountant shall take reasonable steps to ensure that those working in a professional capacity under the public accountant’s authority have appropriate training and supervision. Where appropriate, a public accountant shall make clients, or other users of the public accountant’s professional services or activities, aware of the limitations inherent in the services or activities. SUBSECTION 114 — CONFIDENTIALITY A public accountant shall comply with the principle of confidentiality, which requires a public accountant to respect the confidentiality of information acquired as a result of professional and business relationships. A public accountant shall —
Confidentiality serves the public interest because it facilitates the free flow of information from the public accountant’s client to the public accountant in the knowledge that the information will not be disclosed to a third party. Nevertheless, the following are circumstances where public accountants are or might be required to disclose confidential information or when such disclosure might be appropriate:
In deciding whether to disclose confidential information, factors to consider, depending on the circumstances, include —
A public accountant shall continue to comply with the principle of confidentiality even after the end of the relationship between the public accountant and a client. When changing employment or acquiring a new client, the public accountant is entitled to use prior experience but shall not use or disclose any confidential information acquired or received as a result of a professional or business relationship. SUBSECTION 115 — PROFESSIONAL BEHAVIOUR A public accountant shall comply with the principle of professional behaviour, which requires a public accountant to —
A public accountant shall not knowingly engage in any business, occupation or activity that impairs or might impair the integrity, objectivity or good reputation of the profession, and as a result would be incompatible with the fundamental principles. Conduct that might discredit the profession includes conduct that a reasonable and informed third party would be likely to conclude adversely affects the good reputation of the profession. When undertaking marketing or promotional activities, a public accountant shall not bring the profession into disrepute. A public accountant shall be honest and truthful and shall not make —
If a public accountant is in doubt about whether a form of advertising or marketing is appropriate, the public accountant is encouraged to consult with the relevant professional body. The circumstances in which public accountants operate might create threats to compliance with the fundamental principles. Section 120 sets out requirements and application material, including a conceptual framework, to assist public accountants in complying with the fundamental principles and meeting their responsibility to act in the public interest. Such requirements and application material accommodate the wide range of facts and circumstances, including the various professional activities, interests and relationships, that create threats to compliance with the fundamental principles. In addition, they deter public accountants from concluding that a situation is permitted solely because that situation is not specifically prohibited by the Code. The conceptual framework specifies an approach for a public accountant to —
Requirements and Application Material The public accountant shall apply the conceptual framework to identify, evaluate and address threats to compliance with the fundamental principles set out in Section 110. Additional requirements and application material that are relevant to the application of the conceptual framework are set out in —
When dealing with an ethics issue, the public accountant shall consider the context in which the issue has arisen or might arise. When applying the conceptual framework, the public accountant shall —
An inquiring mind is a prerequisite to obtaining an understanding of known facts and circumstances necessary for the proper application of the conceptual framework. Having an inquiring mind involves —
When considering the source, relevance and sufficiency of information obtained, the public accountant might consider, among other matters, whether —
Paragraph R120.5 requires all public accountants to have an inquiring mind when identifying, evaluating and addressing threats to the fundamental principles. This prerequisite for applying the conceptual framework applies to all public accountants regardless of the professional activity undertaken. Under auditing, review and other assurance standards, including those issued by the Institute of Singapore Chartered Accountants, public accountants are also required to exercise professional scepticism, which includes a critical assessment of evidence. Exercising Professional Judgment Professional judgment involves the application of relevant training, professional knowledge, skill and experience commensurate with the facts and circumstances, taking into account the nature and scope of the particular professional activities, and the interests and relationships involved. Professional judgment is required when the public accountant applies the conceptual framework in order to make informed decisions about the courses of actions available, and to determine whether such decisions are appropriate in the circumstances. In making this determination, the public accountant might consider matters such as whether —
Reasonable and Informed Third Party The reasonable and informed third party test is a consideration by the public accountant about whether the same conclusions would likely be reached by another party. Such consideration is made from the perspective of a reasonable and informed third party, who weighs all the relevant facts and circumstances that the public accountant knows, or could reasonably be expected to know, at the time the conclusions are made. The reasonable and informed third party does not need to be a public accountant, but would possess the relevant knowledge and experience to understand and evaluate the appropriateness of the public accountant’s conclusions in an impartial manner. The public accountant shall identify threats to compliance with the fundamental principles. An understanding of the facts and circumstances, including any professional activities, interests and relationships that might compromise compliance with the fundamental principles, is a prerequisite to the public accountant’s identification of threats to such compliance. The existence of certain conditions, policies and procedures established by the profession, legislation, regulation or the firm that can enhance the public accountant acting ethically might also help identify threats to compliance with the fundamental principles. Paragraph 120.8 A2 includes general examples of such conditions, policies and procedures which are also factors that are relevant in evaluating the level of threats. Threats to compliance with the fundamental principles might be created by a broad range of facts and circumstances. It is not possible to define every situation that creates threats. In addition, the nature of engagements and work assignments might differ and, consequently, different types of threats might be created. Threats to compliance with the fundamental principles fall into one or more of the following categories:
A circumstance might create more than one threat, and a threat might affect compliance with more than one fundamental principle. When the public accountant identifies a threat to compliance with the fundamental principles, the public accountant shall evaluate whether such a threat is at an acceptable level. An acceptable level is a level at which a public accountant using the reasonable and informed third party test would likely conclude that the public accountant complies with the fundamental principles. Factors Relevant in Evaluating the Level of Threats The consideration of qualitative as well as quantitative factors is relevant in the public accountant’s evaluation of threats, as is the combined effect of multiple threats, if applicable. The existence of conditions, policies and procedures described in paragraph 120.6 A1 might also be factors that are relevant in evaluating the level of threats to compliance with the fundamental principles. Examples of such conditions, policies and procedures include —
Consideration of New Information or Changes in Facts and Circumstances If the public accountant becomes aware of new information or changes in facts and circumstances that might impact whether a threat has been eliminated or reduced to an acceptable level, the public accountant shall re‑evaluate and address that threat accordingly. Remaining alert throughout the professional activity assists the public accountant in determining whether new information has emerged or changes in facts and circumstances have occurred that —
If new information results in the identification of a new threat, the public accountant is required to evaluate and, as appropriate, address this threat. (Ref: paragraphs R120.7 and R120.10). If the public accountant determines that the identified threats to compliance with the fundamental principles are not at an acceptable level, the public accountant shall address the threats by eliminating them or reducing them to an acceptable level. The public accountant shall do so by —
Actions to Eliminate Threats Depending on the facts and circumstances, a threat might be addressed by eliminating the circumstance creating the threat. However, there are some situations in which threats can only be addressed by declining or ending the specific professional activity. This is because the circumstances that created the threats cannot be eliminated and safeguards are not capable of being applied to reduce the threat to an acceptable level. Safeguards are actions, individually or in combination, that the public accountant takes that effectively reduce threats to compliance with the fundamental principles to an acceptable level. Consideration of Significant Judgments Made and Overall Conclusions Reached The public accountant shall form an overall conclusion about whether the actions that the public accountant takes, or intends to take, to address the threats created will eliminate those threats or reduce them to an acceptable level. In forming the overall conclusion, the public accountant shall —
Other Considerations when Applying the Conceptual Framework Conscious or unconscious bias affects the exercise of professional judgment when identifying, evaluating and addressing threats to compliance with the fundamental principles. Examples of potential bias to be aware of when exercising professional judgment include —
Actions that might mitigate the effect of bias include —
The effective application of the conceptual framework by a public accountant is enhanced when the importance of ethical values that align with the fundamental principles and other provisions set out in the Code is promoted through the internal culture of the public accountant’s organisation. The promotion of an ethical culture within an organisation is most effective when —
Public accountants are expected to encourage and promote an ethics-based culture in their organisation, taking into account their position and seniority. Considerations for Audits, Reviews, Other Assurance and Related Services Engagements Singapore Standard on Quality Management 1* sets out requirements and application material relating to firm culture in the context of a firm’s responsibilities to design, implement and operate a system of quality management for audits or reviews of financial statements, or other assurance or related services engagements. * Systems of quality management in compliance with Singapore Standard on Quality Management 1 are required to be designed and implemented by 15 December 2022. Public accountants are required by Independence Standards to be independent when performing audits, reviews, or other assurance engagements. Independence is linked to the fundamental principles of objectivity and integrity. It comprises —
Independence Standards set out requirements and application material on how to apply the conceptual framework to maintain independence when performing audits, reviews or other assurance engagements. Public accountants and firms are required to comply with these standards in order to be independent when conducting such engagements. The conceptual framework to identify, evaluate and address threats to compliance with the fundamental principles applies in the same way to compliance with independence requirements. The categories of threats to compliance with the fundamental principles described in paragraph 120.6 A3 are also the categories of threats to compliance with independence requirements. Under auditing, review and other assurance standards, including those issued by the Institute of Singapore Chartered Accountants, public accountants are required to exercise professional scepticism when planning and performing audits, reviews and other assurance engagements. Professional scepticism and the fundamental principles that are described in Section 110 are inter-related concepts. In an audit of financial statements, compliance with the fundamental principles, individually and collectively, supports the exercise of professional scepticism, as shown in the following examples:
PART 2 — INTENTIONALLY LEFT BLANK PART 3 — PUBLIC ACCOUNTANTS Applying the Conceptual Framework — Public Accountants Professional Appointments Fees and Other Types of Remuneration Inducements, Including Gifts and Hospitality Responding to Non‑compliance with Laws and Regulations PART 3 — PUBLIC ACCOUNTANTS APPLYING THE CONCEPTUAL FRAMEWORK — PUBLIC ACCOUNTANTS This Part of the Code sets out requirements and application material for public accountants when applying the conceptual framework set out in Section 120. It does not describe all of the facts and circumstances, including professional activities, interests and relationships, that could be encountered by public accountants, which create or might create threats to compliance with the fundamental principles. Therefore, the conceptual framework requires public accountants to be alert for such facts and circumstances. The requirements and application material that apply to public accountants are set out in —
In this Part, the term “public accountant” refers to individual public accountants and their firms. Requirements and Application Material A public accountant shall comply with the fundamental principles set out in Section 110 and apply the conceptual framework set out in Section 120 to identify, evaluate and address threats to compliance with the fundamental principles. When dealing with an ethics issue, the public accountant shall consider the context in which the issue has arisen or might arise. Threats to compliance with the fundamental principles might be created by a broad range of facts and circumstances. The categories of threats are described in paragraph 120.6 A3. The following are examples of facts and circumstances within each of those categories of threats that might create threats for a public accountant when undertaking a professional service:
The conditions, policies and procedures described in paragraphs 120.6 A1 and 120.8 A2 might impact the evaluation of whether a threat to compliance with the fundamental principles is at an acceptable level. Such conditions, policies and procedures might relate to —
The public accountant’s evaluation of the level of a threat is also impacted by the nature and scope of the professional service. The Client and its Operating Environment The public accountant’s evaluation of the level of a threat might be impacted by whether the client is —
For example, providing a non-assurance service to an audit client that is a public interest entity might be perceived to result in a higher level of threat to compliance with the principle of objectivity with respect to the audit. The corporate governance structure, including the leadership of a client might promote compliance with the fundamental principles. Accordingly, a public accountant’s evaluation of the level of a threat might also be impacted by a client’s operating environment. For example —
The Firm and its Operating Environment A public accountant’s evaluation of the level of a threat might be impacted by the work environment within the public accountant’s firm and its operating environment. For example —
Consideration of New Information or Changes in Facts and Circumstances New information or changes in facts and circumstances might —
In these situations, actions that were already implemented as safeguards might no longer be effective in addressing threats. Accordingly, the application of the conceptual framework requires that the public accountant re‑evaluate and address the threats accordingly. (Ref: paragraphs R120.9 and R120.10). Examples of new information or changes in facts and circumstances that might impact the level of a threat include —
Paragraphs R120.10 to 120.10 A2 set out requirements and application material for addressing threats that are not at an acceptable level. Safeguards vary depending on the facts and circumstances. Examples of actions that in certain circumstances might be safeguards to address threats include —
The remaining sections of Part 3 and Independence Standards describe certain threats that might arise during the course of performing professional services and include examples of actions that might address threats. An appropriate reviewer is a professional with the necessary knowledge, skills, experience and authority to review, in an objective manner, the relevant work performed or service provided. Such an individual might be a professional accountant. Communicating with Those Charged with Governance When communicating with those charged with governance in accordance with the Code, a public accountant shall determine the appropriate individual(s) within the entity’s governance structure with whom to communicate. If the public accountant communicates with a subgroup of those charged with governance, the public accountant shall determine whether communication with all of those charged with governance is also necessary so that they are adequately informed. In determining with whom to communicate, a public accountant might consider —
Examples of a subgroup of those charged with governance include an audit committee or an individual member of those charged with governance. If a public accountant communicates with individuals who have management responsibilities as well as governance responsibilities, the public accountant shall be satisfied that communication with those individuals adequately informs all of those in a governance role with whom the public accountant would otherwise communicate. In some circumstances, all of those charged with governance are involved in managing the entity, for example, a small business where a single owner manages the entity and no one else has a governance role. In these cases, if matters are communicated to individual(s) with management responsibilities, and those individual(s) also have governance responsibilities, the public accountant has satisfied the requirement to communicate with those charged with governance. Public accountants are required to comply with the fundamental principles and apply the conceptual framework set out in Section 120 to identify, evaluate and address threats. A conflict of interest creates threats to compliance with the principle of objectivity and might create threats to compliance with the other fundamental principles. Such threats might be created when —
This section sets out specific requirements and application material relevant to applying the conceptual framework to conflicts of interest. When a public accountant provides an audit, review or other assurance service, independence is also required in accordance with Independence Standards. Requirements and Application Material A public accountant shall not allow a conflict of interest to compromise professional or business judgment. Examples of circumstances that might create a conflict of interest include —
Before accepting a new client relationship, engagement, or business relationship, a public accountant shall take reasonable steps to identify circumstances that might create a conflict of interest, and therefore a threat to compliance with one or more of the fundamental principles. Such steps shall include identifying —
An effective conflict identification process assists a public accountant when taking reasonable steps to identify interests and relationships that might create an actual or potential conflict of interest, both before determining whether to accept an engagement and throughout the engagement. Such a process includes considering matters identified by external parties, for example clients or potential clients. The earlier an actual or potential conflict of interest is identified, the greater the likelihood of the public accountant being able to address threats created by the conflict of interest. An effective process to identify actual or potential conflicts of interest will take into account factors such as —
More information on client acceptance is set out in Section 320, Professional Appointments. A public accountant shall remain alert to changes over time in the nature of services, interests and relationships that might create a conflict of interest while performing an engagement. The nature of services, interests and relationships might change during the engagement. This is particularly true when a public accountant is asked to conduct an engagement in a situation that might become adversarial, even though the parties who engage the public accountant initially might not be involved in a dispute. If the firm is a member of a network, a public accountant shall consider conflicts of interest that the public accountant has reason to believe might exist or arise due to interests and relationships of a network firm. Factors to consider when identifying interests and relationships involving a network firm include —
Threats Created by Conflicts of Interest In general, the more direct the connection between the professional service and the matter on which the parties’ interests conflict, the more likely the level of the threat is not at an acceptable level. Factors that are relevant in evaluating the level of a threat created by a conflict of interest include measures that prevent unauthorised disclosure of confidential information when performing professional services related to a particular matter for two or more clients whose interests with respect to that matter are in conflict. These measures include —
Examples of actions that might be safeguards to address threats created by a conflict of interest include —
A public accountant shall exercise professional judgment to determine whether the nature and significance of a conflict of interest are such that specific disclosure and explicit consent are necessary when addressing the threat created by the conflict of interest. Factors to consider when determining whether specific disclosure and explicit consent are necessary include —
Disclosure and consent might take different forms, for example —
It is generally necessary —
If such disclosure or consent is not in writing, the public accountant is encouraged to document —
When Explicit Consent is Refused If a public accountant has determined that explicit consent is necessary in accordance with paragraph R310.9 and the client has refused to provide consent, the public accountant shall either —
A public accountant shall remain alert to the principle of confidentiality, including when making disclosures or sharing information within the firm or network and seeking guidance from third parties. Subsection 114 sets out requirements and application material relevant to situations that might create a threat to compliance with the principle of confidentiality. When Disclosure to Obtain Consent would Breach Confidentiality When making specific disclosure for the purpose of obtaining explicit consent would result in a breach of confidentiality, and such consent cannot therefore be obtained, the firm shall only accept or continue an engagement if —
A breach of confidentiality might arise, for example, when seeking consent to perform —
In the circumstances set out in paragraph R310.12, the public accountant shall document —
PROFESSIONAL APPOINTMENTS Public accountants are required to comply with the fundamental principles and apply the conceptual framework set out in Section 120 to identify, evaluate and address threats. Acceptance of a new client relationship or changes in an existing engagement might create a threat to compliance with one or more of the fundamental principles. This section sets out specific requirements and application material relevant to applying the conceptual framework in such circumstances. Requirements and Application Material Client and Engagement Acceptance Threats to compliance with the principles of integrity or professional behaviour might be created, for example, from questionable issues associated with the client (its owners, management or activities). Issues that, if known, might create such a threat include client involvement in illegal activities, dishonesty, questionable financial reporting practices or other unethical behaviour. Factors that are relevant in evaluating the level of such a threat include —
A self‑interest threat to compliance with the principle of professional competence and due care is created if the engagement team does not possess, or cannot acquire, the competencies to perform the professional services. Factors that are relevant in evaluating the level of such a threat include —
Examples of actions that might be safeguards to address a self‑interest threat include —
Changes in a Professional Appointment A public accountant shall determine whether there are any reasons for not accepting an engagement when the public accountant —
There might be reasons for not accepting an engagement. One such reason might be if a threat created by the facts and circumstances cannot be addressed by applying safeguards. For example, there might be a self-interest threat to compliance with the principle of professional competence and due care if a public accountant accepts the engagement before knowing all the relevant facts. If a public accountant is asked to undertake work that is complementary or additional to the work of an existing or predecessor accountant, a self-interest threat to compliance with the principle of professional competence and due care might be created, for example, as a result of incomplete information. A factor that is relevant in evaluating the level of such a threat is whether tenders state that, before accepting the engagement, contact with the existing or predecessor accountant will be requested. This contact gives the proposed public accountant the opportunity to inquire whether there are any reasons why the engagement should not be accepted. Examples of actions that might be safeguards to address such a self-interest threat include —
Communicating with the Existing or Predecessor Accountant A proposed public accountant will usually need the client’s permission, preferably in writing, to initiate discussions with the existing or predecessor accountant. If unable to communicate with the existing or predecessor accountant, the proposed public accountant shall take other reasonable steps to obtain information about any possible threats. Communicating with the Proposed Public Accountant When an existing or predecessor accountant is asked to respond to a communication from a proposed public accountant, the existing or predecessor accountant shall —
An existing or predecessor accountant is bound by confidentiality. Whether the existing or predecessor accountant is permitted or required to discuss the affairs of a client with a proposed public accountant will depend on the nature of the engagement and —
Circumstances where a public accountant is or might be required to disclose confidential information, or when disclosure might be appropriate, are set out in paragraph 114.1 A1 of the Code. Changes in Audit or Review Appointments In the case of an audit or review of financial statements, a public accountant shall request the existing or predecessor accountant to provide known information regarding any facts or other information of which, in the existing or predecessor accountant’s opinion, the proposed public accountant needs to be aware before deciding whether to accept the engagement. Except for the circumstances involving non‑compliance or suspected non‑compliance with laws and regulations set out in paragraphs R360.21 and R360.22 —
The existing or predecessor accountant shall, on receipt of any request referred to in paragraph R320.8, reply to the proposed public accountant in writing within a reasonable time. If the proposed public accountant does not receive a reply from the existing or predecessor accountant to his or her request within a reasonable time and the proposed public accountant has no reason to believe that there are any exceptional circumstances surrounding the proposed change, the proposed public accountant shall use such other reasonable means to communicate with the existing or predecessor accountant. If the proposed public accountant is unable to obtain a satisfactory outcome pursuant to paragraph SG320.8B, the proposed public accountant shall send a final letter by registered post to the existing or predecessor accountant, stating that he or she assumes there is no professional or other reason why he or she should not accept the appointment and that he or she intends to do so. The proposed public accountant may accept the engagement if he or she is satisfied that there are no professional or other reasons for the proposed change after taking into account guidance set out in paragraphs R320.4 to R320.8. Client and Engagement Continuance For a recurring client engagement, a public accountant shall periodically review whether to continue with the engagement. Potential threats to compliance with the fundamental principles might be created after acceptance which, had they been known earlier, would have caused the public accountant to decline the engagement. For example, a self-interest threat to compliance with the principle of integrity might be created by improper earnings management or balance sheet valuations. Using the Work of an Expert When a public accountant intends to use the work of an expert, the public accountant shall determine whether the use is warranted. Factors to consider when a public accountant intends to use the work of an expert include the reputation and expertise of the expert, the resources available to the expert, and the professional and ethics standards applicable to the expert. This information might be gained from prior association with the expert or from consulting others. Public accountants are required to comply with the fundamental principles and apply the conceptual framework set out in Section 120 to identify, evaluate and address threats. Providing a second opinion to an entity that is not an existing client might create a self-interest or other threat to compliance with one or more of the fundamental principles. This section sets out specific requirements and application material relevant to applying the conceptual framework in such circumstances. Requirements and Application Material A public accountant might be asked to provide a second opinion on the application of accounting, auditing, reporting or other standards or principles to (a) specific circumstances, or (b) transactions by or on behalf of a company or an entity that is not an existing client. A threat, for example, a self-interest threat to compliance with the principle of professional competence and due care, might be created if the second opinion is not based on the same facts that the existing or predecessor accountant had, or is based on inadequate evidence. A factor that is relevant in evaluating the level of such a self-interest threat is the circumstances of the request and all the other available facts and assumptions relevant to the expression of a professional judgment. Examples of actions that might be safeguards to address such a self-interest threat include —
When Permission to Communicate is Not Provided If an entity seeking a second opinion from a public accountant will not permit the public accountant to communicate with the existing or predecessor accountant, the public accountant shall determine whether the public accountant may provide the second opinion sought. FEES AND OTHER TYPES OF REMUNERATION Public accountants are required to comply with the fundamental principles and apply the conceptual framework set out in Section 120 to identify, evaluate and address threats. The level and nature of fee and other remuneration arrangements might create a self-interest threat to compliance with one or more of the fundamental principles. This section sets out specific application material relevant to applying the conceptual framework in such circumstances. The level of fees quoted might impact a public accountant’s ability to perform professional services in accordance with professional standards. A public accountant might quote whatever fee is considered appropriate. Quoting a fee lower than another public accountant is not in itself unethical. However, the level of fees quoted creates a self-interest threat to compliance with the principle of professional competence and due care if the fee quoted is so low that it might be difficult to perform the engagement in accordance with applicable technical and professional standards. Factors that are relevant in evaluating the level of such a threat include —
Examples of actions that might be safeguards to address such a self-interest threat include —
Contingent fees are used for certain types of non‑assurance services. However, contingent fees might create threats to compliance with the fundamental principles, particularly a self-interest threat to compliance with the principle of objectivity, in certain circumstances. Factors that are relevant in evaluating the level of such threats include —
Examples of actions that might be safeguards to address such a self-interest threat include —
Requirements and application material related to contingent fees for services provided to audit or review clients and other assurance clients are set out in Independence Standards. Referral Fees or Commissions A self-interest threat to compliance with the principles of objectivity and professional competence and due care is created if a public accountant pays or receives a referral fee or receives a commission relating to a client. Such referral fees or commissions include, for example —
Examples of actions that might be safeguards to address such a self-interest threat include —
Purchase or Sale of a Firm A public accountant may purchase all or part of another firm on the basis that payments will be made to individuals formerly owning the firm or to their heirs or estates. Such payments are not referral fees or commissions for the purposes of this section. INDUCEMENTS, INCLUDING GIFTS AND HOSPITALITY Public accountants are required to comply with the fundamental principles and apply the conceptual framework set out in Section 120 to identify, evaluate and address threats. Offering or accepting inducements might create a self‑interest, familiarity or intimidation threat to compliance with the fundamental principles, particularly the principles of integrity, objectivity and professional behaviour. This section sets out requirements and application material relevant to applying the conceptual framework in relation to the offering and accepting of inducements when performing professional services that does not constitute non‑compliance with laws and regulations. This section also requires a public accountant to comply with relevant laws and regulations when offering or accepting inducements. Requirements and Application Material An inducement is an object, situation, or action that is used as a means to influence another individual’s behaviour, but not necessarily with the intent to improperly influence that individual’s behaviour. Inducements can range from minor acts of hospitality between public accountants and existing or prospective clients to acts that result in non-compliance with laws and regulations. An inducement can take many different forms, for example —
Inducements Prohibited by Laws and Regulations In many jurisdictions, there are laws and regulations, such as those related to bribery and corruption, that prohibit the offering or accepting of inducements in certain circumstances. The public accountant shall obtain an understanding of relevant laws and regulations and comply with them when the public accountant encounters such circumstances. Inducements Not Prohibited by Laws and Regulations The offering or accepting of inducements that is not prohibited by laws and regulations might still create threats to compliance with the fundamental principles. Inducements with Intent to Improperly Influence Behaviour A public accountant shall not offer, or encourage others to offer, any inducement that is made, or which the public accountant considers a reasonable and informed third party would be likely to conclude is made, with the intent to improperly influence the behaviour of the recipient or of another individual. A public accountant shall not accept, or encourage others to accept, any inducement that the public accountant concludes is made, or considers a reasonable and informed third party would be likely to conclude is made, with the intent to improperly influence the behaviour of the recipient or of another individual. An inducement is considered as improperly influencing an individual’s behaviour if it causes the individual to act in an unethical manner. Such improper influence can be directed either towards the recipient or towards another individual who has some relationship with the recipient. The fundamental principles are an appropriate frame of reference for a public accountant in considering what constitutes unethical behaviour on the part of the public accountant and, if necessary by analogy, other individuals. A breach of the fundamental principle of integrity arises when a public accountant offers or accepts, or encourages others to offer or accept, an inducement where the intent is to improperly influence the behaviour of the recipient or of another individual. The determination of whether there is actual or perceived intent to improperly influence behaviour requires the exercise of professional judgment. Relevant factors to consider might include —
Consideration of Further Actions If the public accountant becomes aware of an inducement offered with actual or perceived intent to improperly influence behaviour, threats to compliance with the fundamental principles might still be created even if the requirements in paragraphs R340.7 and R340.8 are met. Examples of actions that might be safeguards to address such threats include —
Inducements with No Intent to Improperly Influence Behaviour The requirements and application material set out in the conceptual framework apply when a public accountant has concluded there is no actual or perceived intent to improperly influence the behaviour of the recipient or of another individual. If such an inducement is trivial and inconsequential, any threats created will be at an acceptable level. Examples of circumstances where offering or accepting such an inducement might create threats even if the public accountant has concluded there is no actual or perceived intent to improperly influence behaviour include —
Relevant factors in evaluating the level of such threats created by offering or accepting such an inducement include the same factors set out in paragraph 340.9 A3 for determining intent. Examples of actions that might eliminate threats created by offering or accepting such an inducement include —
Examples of actions that might be safeguards to address such threats created by offering or accepting such an inducement include —
Immediate or Close Family Members A public accountant shall remain alert to potential threats to the public accountant’s compliance with the fundamental principles created by the offering of an inducement —
Where the public accountant becomes aware of an inducement being offered to or made by an immediate or close family member and concludes there is intent to improperly influence the behaviour of the public accountant or of an existing or prospective client of the public accountant, or considers a reasonable and informed third party would be likely to conclude such intent exists, the public accountant shall advise the immediate or close family member not to offer or accept the inducement. The factors set out in paragraph 340.9 A3 are relevant in determining whether there is actual or perceived intent to improperly influence the behaviour of the public accountant or of the existing or prospective client. Another factor that is relevant is the nature or closeness of the relationship, between —
For example, the offer of employment, outside of the normal recruitment process, to the spouse of the public accountant by a client for whom the public accountant is providing a business valuation for a prospective sale might indicate such intent. The application material in paragraph 340.10 A2 is also relevant in addressing threats that might be created when there is actual or perceived intent to improperly influence the behaviour of the public accountant, or of the existing or prospective client even if the immediate or close family member has followed the advice given pursuant to paragraph R340.13. Application of the Conceptual Framework Where the public accountant becomes aware of an inducement offered in the circumstances addressed in paragraph R340.12, threats to compliance with the fundamental principles might be created where —
The application material in paragraphs 340.11 A1 to 340.11 A6 is relevant for the purposes of identifying, evaluating and addressing such threats. Factors that are relevant in evaluating the level of threats in these circumstances also include the nature or closeness of the relationships set out in paragraph 340.13 A1. If a public accountant encounters or is made aware of inducements that might result in non-compliance or suspected non-compliance with laws and regulations by a client or individuals working for or under the direction of the client, the requirements and application material in Section 360 apply. If a firm, network firm or an audit team member is being offered gifts or hospitality from an audit client, the requirement and application material set out in Section 420 apply. If a firm or an assurance team member is being offered gifts or hospitality from an assurance client, the requirement and application material set out in Section 906 apply. Public accountants are required to comply with the fundamental principles and apply the conceptual framework set out in Section 120 to identify, evaluate and address threats. Holding client assets creates a self-interest or other threat to compliance with the principles of professional behaviour and objectivity. This section sets out specific requirements and application material relevant to applying the conceptual framework in such circumstances. Requirements and Application Material A public accountant shall not assume custody of client money or other assets unless permitted to do so by law and in accordance with any conditions under which such custody may be taken. A public accountant may hold non-assurance client money or other assets for the purpose of providing accounting-related, corporate secretarial and regulated financial services, provided that such money or other assets are held in accordance with this section and other relevant sections of this Code and all relevant laws and regulations relevant to the holding of and accounting for such assets. As part of client and engagement acceptance procedures related to assuming custody of client money or assets, a public accountant shall —
Inquiries about the source of client assets might reveal, for example, that the assets were derived from illegal activities, such as money laundering. In such circumstances, a threat would be created and the provisions of Section 360 would apply. A public accountant entrusted with money or other assets belonging to others shall —
RESPONDING TO NON-COMPLIANCE WITH LAWS AND REGULATIONS Public accountants are required to comply with the fundamental principles and apply the conceptual framework set out in Section 120 to identify, evaluate and address threats. A self-interest or intimidation threat to compliance with the principles of integrity and professional behaviour is created when a public accountant becomes aware of non-compliance or suspected non-compliance with laws and regulations. A public accountant might encounter or be made aware of non-compliance or suspected non-compliance in the course of providing a professional service to a client. This section guides the public accountant in assessing the implications of the matter and the possible courses of action when responding to non-compliance or suspected non‑compliance with —
Objectives of the Public Accountant in Relation to Non-compliance with Laws and Regulations A distinguishing mark of the accountancy profession is its acceptance of the responsibility to act in the public interest. When responding to non-compliance or suspected non‑compliance, the objectives of the public accountant are —
Requirements and Application Material Non-compliance with laws and regulations (“non‑compliance”) comprises acts of omission or commission, intentional or unintentional, which are contrary to the prevailing laws or regulations committed by the following parties:
Examples of laws and regulations which this section addresses include those that deal with —
Non-compliance might result in fines, litigation or other consequences for the client, potentially materially affecting its financial statements. Importantly, such non-compliance might have wider public interest implications in terms of potentially substantial harm to investors, creditors, employees or the general public. For the purposes of this section, an act that causes substantial harm is one that results in serious adverse consequences to any of these parties in financial or non-financial terms. Examples include the perpetration of a fraud resulting in significant financial losses to investors, and breaches of environmental laws and regulations endangering the health or safety of employees or the public. In some jurisdictions, there are legal or regulatory provisions governing how public accountants should address non-compliance or suspected non-compliance. These legal or regulatory provisions might differ from or go beyond the provisions in this section. When encountering such non-compliance or suspected non‑compliance, the public accountant shall obtain an understanding of those legal or regulatory provisions and comply with them, including —
A prohibition on alerting the client might arise, for example, pursuant to anti-money laundering legislation. This section applies regardless of the nature of the client, including whether or not it is a public interest entity. A public accountant who encounters or is made aware of matters that are clearly inconsequential is not required to comply with this section. Whether a matter is clearly inconsequential is to be judged with respect to its nature and its impact, financial or otherwise, on the client, its stakeholders and the general public. This section does not address —
The public accountant might nevertheless find the guidance in this section helpful in considering how to respond in these situations. Responsibilities of Management and Those Charged with Governance Management, with the oversight of those charged with governance, is responsible for ensuring that the client’s business activities are conducted in accordance with laws and regulations. Management and those charged with governance are also responsible for identifying and addressing any non-compliance by —
Responsibilities of All Public Accountants Where a public accountant becomes aware of a matter to which this section applies, the steps that the public accountant takes to comply with this section shall be taken on a timely basis. In taking timely steps, the public accountant shall have regard to the nature of the matter and the potential harm to the interests of the entity, investors, creditors, employees or the general public. Audits of Financial Statements Obtaining an Understanding of the Matter If a public accountant engaged to perform an audit of financial statements becomes aware of information concerning non-compliance or suspected non-compliance, the public accountant shall obtain an understanding of the matter. This understanding shall include the nature of the non-compliance or suspected non-compliance and the circumstances in which it has occurred or might occur. The public accountant might become aware of the non‑compliance or suspected non-compliance in the course of performing the engagement or through information provided by other parties. The public accountant is expected to apply knowledge and expertise, and exercise professional judgment. However, the public accountant is not expected to have a level of knowledge of laws and regulations greater than that which is required to undertake the engagement. Whether an act constitutes non-compliance is ultimately a matter to be determined by a court or other appropriate adjudicative body. Depending on the nature and significance of the matter, the public accountant might consult on a confidential basis with others within the firm, a network firm or a professional body, or with legal counsel. If the public accountant identifies or suspects that non‑compliance has occurred or might occur, the public accountant shall discuss the matter with the appropriate level of management and, where appropriate, those charged with governance. The purpose of the discussion is to clarify the public accountant’s understanding of the facts and circumstances relevant to the matter and its potential consequences. The discussion also might prompt management or those charged with governance to investigate the matter. The appropriate level of management with whom to discuss the matter is a question of professional judgment. Relevant factors to consider include —
The appropriate level of management is usually at least one level above the individual or individuals involved or potentially involved in the matter. In the context of a group, the appropriate level might be management at an entity that controls the client. The public accountant might also consider discussing the matter with internal auditors, where applicable. If the public accountant believes that management is involved in the non-compliance or suspected non‑compliance, the public accountant shall discuss the matter with those charged with governance. In discussing the non-compliance or suspected non‑compliance with management and, where appropriate, those charged with governance, the public accountant shall advise them to take appropriate and timely actions, if they have not already done so, to —
The public accountant shall consider whether management and those charged with governance understand their legal or regulatory responsibilities with respect to the non‑compliance or suspected non-compliance. If management and those charged with governance do not understand their legal or regulatory responsibilities with respect to the matter, the public accountant might suggest appropriate sources of information or recommend that they obtain legal advice. The public accountant shall comply with applicable —
Some laws and regulations might stipulate a period within which reports of non-compliance or suspected non‑compliance are to be made to an appropriate authority. Communication with Respect to Groups Where a public accountant becomes aware of non‑compliance or suspected non-compliance in relation to a component of a group in either of the following two situations, the public accountant shall communicate the matter to the group engagement partner unless prohibited from doing so by law or regulation:
The communication to the group engagement partner shall be in addition to responding to the matter in accordance with the provisions of this section. The purpose of the communication is to enable the group engagement partner to be informed about the matter and to determine, in the context of the group audit, whether and, if so, how to address it in accordance with the provisions in this section. The communication requirement in paragraph R360.16 applies regardless of whether the group engagement partner’s firm or network is the same as or different from the public accountant’s firm or network. Where the group engagement partner becomes aware of non-compliance or suspected non-compliance in the course of an audit of group financial statements, the group engagement partner shall consider whether the matter might be relevant to one or more components —
This consideration shall be in addition to responding to the matter in the context of the group audit in accordance with the provisions of this section. If the non-compliance or suspected non-compliance might be relevant to one or more of the components specified in paragraph R360.17(a) and (b), the group engagement partner shall take steps to have the matter communicated to those performing work at the components, unless prohibited from doing so by law or regulation. If necessary, the group engagement partner shall arrange for appropriate inquiries to be made (either of management or from publicly available information) as to whether the relevant component(s) specified in paragraph R360.17(b) is subject to audit and, if so, to ascertain to the extent practicable the identity of the auditor. The purpose of the communication is to enable those responsible for work at the components to be informed about the matter and to determine whether and, if so, how to address it in accordance with the provisions in this section. The communication requirement applies regardless of whether the group engagement partner’s firm or network is the same as or different from the firms or networks of those performing work at the components. Determining Whether Further Action is Needed The public accountant shall assess the appropriateness of the response of management and, where applicable, those charged with governance. Relevant factors to consider in assessing the appropriateness of the response of management and, where applicable, those charged with governance include whether —
In light of the response of management and, where applicable, those charged with governance, the public accountant shall determine if further action is needed in the public interest. The determination of whether further action is needed, and the nature and extent of it, will depend on various factors, including —
Examples of circumstances that might cause the public accountant no longer to have confidence in the integrity of management and, where applicable, those charged with governance include situations where —
The public accountant shall exercise professional judgment in determining the need for, and nature and extent of, further action. In making this determination, the public accountant shall take into account whether a reasonable and informed third party would be likely to conclude that the public accountant has acted appropriately in the public interest. Further action that the public accountant might take includes —
Withdrawing from the engagement and the professional relationship is not a substitute for taking other actions that might be needed to achieve the public accountant’s objectives under this section. In some jurisdictions, however, there might be limitations as to the further actions available to the public accountant. In such circumstances, withdrawal might be the only available course of action. Where the public accountant has withdrawn from the professional relationship pursuant to paragraphs R360.20 and 360.21 A1, the public accountant shall, on request by the proposed public accountant pursuant to paragraph R320.8, provide all relevant facts and other information concerning the identified or suspected non‑compliance to the proposed public accountant. The predecessor accountant shall do so, even in the circumstances addressed in paragraph R320.8(b) where the client fails or refuses to grant the predecessor accountant permission to discuss the client’s affairs with the proposed public accountant, unless prohibited by law or regulation. The facts and other information to be provided are those that, in the predecessor accountant’s opinion, the proposed public accountant needs to be aware of before deciding whether to accept the audit appointment. Section 320 addresses communications from proposed public accountants. If the proposed public accountant is unable to communicate with the predecessor accountant, the proposed public accountant shall take reasonable steps to obtain information about the circumstances of the change of appointment by other means. Other means to obtain information about the circumstances of the change of appointment include inquiries of third parties or background investigations of management or those charged with governance. As assessment of the matter might involve complex analysis and judgments, the public accountant might consider —
Determining Whether to Disclose the Matter to an Appropriate Authority Disclosure of the matter to an appropriate authority would be precluded if doing so would be contrary to law or regulation. Otherwise, the purpose of making disclosure is to enable an appropriate authority to cause the matter to be investigated and action to be taken in the public interest. The determination of whether to make such a disclosure depends in particular on the nature and extent of the actual or potential harm that is or might be caused by the matter to investors, creditors, employees or the general public. For example, the public accountant might determine that disclosure of the matter to an appropriate authority is an appropriate course of action if —
The determination of whether to make such a disclosure will also depend on external factors such as —
If the public accountant determines that disclosure of the non-compliance or suspected non-compliance to an appropriate authority is an appropriate course of action in the circumstances, that disclosure is permitted pursuant to paragraph R114.1(d) of the Code. When making such disclosure, the public accountant shall act in good faith and exercise caution when making statements and assertions. The public accountant shall also consider whether it is appropriate to inform the client of the public accountant’s intentions before disclosing the matter. In exceptional circumstances, the public accountant might become aware of actual or intended conduct that the public accountant has reason to believe would constitute an imminent breach of a law or regulation that would cause substantial harm to investors, creditors, employees or the general public. Having first considered whether it would be appropriate to discuss the matter with management or those charged with governance of the entity, the public accountant shall exercise professional judgment and determine whether to disclose the matter immediately to an appropriate authority in order to prevent or mitigate the consequences of such imminent breach. If disclosure is made, that disclosure is permitted pursuant to paragraph R114.1(d) of the Code. In relation to non‑compliance or suspected non‑compliance that falls within the scope of this section, the public accountant shall document —
This documentation is in addition to complying with the documentation requirements under applicable auditing standards. Singapore Standards on Auditing (SSAs), for example, require a public accountant performing an audit of financial statements to —
Professional Services Other than Audits of Financial Statements Obtaining an Understanding of the Matter and Addressing It with Management and Those Charged with Governance If a public accountant engaged to provide a professional service other than an audit of financial statements becomes aware of information concerning non-compliance or suspected non-compliance, the public accountant shall seek to obtain an understanding of the matter. This understanding shall include the nature of the non-compliance or suspected non‑compliance and the circumstances in which it has occurred or might be about to occur. The public accountant is expected to apply knowledge and expertise, and exercise professional judgment. However, the public accountant is not expected to have a level of understanding of laws and regulations beyond that which is required for the professional service for which the public accountant was engaged. Whether an act constitutes actual non‑compliance is ultimately a matter to be determined by a court or other appropriate adjudicative body. Depending on the nature and significance of the matter, the public accountant might consult on a confidential basis with others within the firm, a network firm or a professional body, or with legal counsel. If the public accountant identifies or suspects that non‑compliance has occurred or might occur, the public accountant shall discuss the matter with the appropriate level of management. If the public accountant has access to those charged with governance, the public accountant shall also discuss the matter with them where appropriate. The purpose of the discussion is to clarify the public accountant’s understanding of the facts and circumstances relevant to the matter and its potential consequences. The discussion also might prompt management or those charged with governance to investigate the matter. The appropriate level of management with whom to discuss the matter is a question of professional judgment. Relevant factors to consider include —
Communicating the Matter to the Entity’s External Auditor If the public accountant is performing a non-audit service for —
the public accountant shall communicate the non‑compliance or suspected non-compliance within the firm, unless prohibited from doing so by law or regulation. The communication shall be made in accordance with the firm’s protocols or procedures. In the absence of such protocols and procedures, it shall be made directly to the audit engagement partner. If the public accountant is performing a non-audit service for —
the public accountant shall consider whether to communicate the non-compliance or suspected non-compliance to the network firm. Where the communication is made, it shall be made in accordance with the network’s protocols or procedures. In the absence of such protocols and procedures, it shall be made directly to the audit engagement partner. If the public accountant is performing a non-audit service for a client that is not —
the public accountant shall consider whether to communicate the non-compliance or suspected non‑compliance to the firm that is the client’s external auditor, if any. Relevant Factors to Consider Factors relevant to considering the communication in accordance with paragraphs R360.31 to R360.33 include —
In the circumstances addressed in paragraphs R360.31 to R360.33, the purpose of the communication is to enable the audit engagement partner to be informed about the non‑compliance or suspected non-compliance and to determine whether and, if so, how to address it in accordance with the provisions of this section. Considering Whether Further Action is Needed The public accountant shall also consider whether further action is needed in the public interest. Whether further action is needed, and the nature and extent of it, will depend on factors such as —
Further action by the public accountant might include —
In considering whether to disclose to an appropriate authority, relevant factors to take into account include —
If the public accountant determines that disclosure of the non‑compliance or suspected non-compliance to an appropriate authority is an appropriate course of action in the circumstances, that disclosure is permitted pursuant to paragraph R114.1(d) of the Code. When making such disclosure, the public accountant shall act in good faith and exercise caution when making statements and assertions. The public accountant shall also consider whether it is appropriate to inform the client of the public accountant’s intentions before disclosing the matter. In exceptional circumstances, the public accountant might become aware of actual or intended conduct that the public accountant has reason to believe would constitute an imminent breach of a law or regulation that would cause substantial harm to investors, creditors, employees or the general public. Having first considered whether it would be appropriate to discuss the matter with management or those charged with governance of the entity, the public accountant shall exercise professional judgment and determine whether to disclose the matter immediately to an appropriate authority in order to prevent or mitigate the consequences of such imminent breach of law or regulation. If disclosure is made, that disclosure is permitted pursuant to paragraph R114.1(d) of the Code. The public accountant might consider —
In relation to non-compliance or suspected non‑compliance that falls within the scope of this section, the public accountant is encouraged to document —
PART 4A — INDEPENDENCE FOR AUDIT AND Applying the Conceptual Framework to Independence for Audit and Review Engagements Compensation and Evaluation Policies Actual or Threatened Litigation Family and Personal Relationships Recent Service with an Audit Client Serving as a Director or Officer of an Audit Client Employment with an Audit Client Temporary Personnel Assignments Long Association of Personnel (Including Partner Rotation) with an Audit Client Provision of Non-assurance Services to an Audit Client
Reports on Special Purpose Financial Statements that Include a Restriction on Use and Distribution (Audit and Review Engagements) INDEPENDENCE STANDARDS PART 4A — INDEPENDENCE FOR AUDIT AND APPLYING THE CONCEPTUAL FRAMEWORK TO INDEPENDENCE FOR AUDIT AND REVIEW ENGAGEMENTS It is in the public interest and required by the Code that public accountants be independent when performing audit or review engagements. This Part applies to both audit and review engagements. The terms “audit”, “audit team”, “audit engagement”, “audit client” and “audit report” apply equally to review, review team, review engagement, review client, and review engagement report. In this Part, the term “public accountant” refers to individual public accountants and their firms. Singapore Standards on Quality Control (SSQC 1) requires a firm to establish policies and procedures designed to provide it with reasonable assurance that the firm, its personnel and, where applicable, others subject to independence requirements (including network firm personnel), maintain independence where required by relevant ethics requirements. SSAs and Singapore Standards on Review Engagements (SSREs) establish responsibilities for engagement partners and engagement teams at the level of the engagement for audits and reviews, respectively. The allocation of responsibilities within a firm will depend on its size, structure and organisation. Many of the provisions of this Part do not prescribe the specific responsibility of individuals within the firm for actions related to independence, instead referring to “firm” for ease of reference. Firms assign responsibility for a particular action to an individual or a group of individuals (such as an audit team), in accordance with SSQC 1. In addition, an individual public accountant remains responsible for compliance with any provisions that apply to that public accountant’s activities, interests or relationships. Independence is linked to the principles of objectivity and integrity. It comprises —
In this Part, references to an individual or firm being “independent” mean that the individual or firm has complied with the provisions of this Part. When performing audit engagements, the Code requires firms to comply with the fundamental principles and be independent. This Part sets out specific requirements and application material on how to apply the conceptual framework to maintain independence when performing such engagements. The conceptual framework set out in Section 120 applies to independence as it does to the fundamental principles set out in Section 110.
Some of the requirements and application material set out in this Part reflect the extent of public interest in certain entities which are defined to be public interest entities. Firms are encouraged to determine whether to treat additional entities, or certain categories of entities, as public interest entities because they have a large number and wide range of stakeholders. Factors to be considered include —
Reports that Include a Restriction on Use and Distribution An audit report might include a restriction on use and distribution. If it does and the conditions set out in Section 800 are met, then the independence requirements in this Part may be modified as provided in Section 800. Assurance Engagements other than Audit and Review Engagements Independence standards for assurance engagements that are not audit or review engagements are set out in Part 4B — Independence for Assurance Engagements Other than Audit and Review Engagements. Requirements and Application Material A firm performing an audit engagement shall be independent. A firm shall apply the conceptual framework set out in Section 120 to identify, evaluate and address threats to independence in relation to an audit engagement. [Paragraphs 400.13 to 400.19 are intentionally left blank] As defined, an audit client that is a listed entity includes all of its related entities. For all other entities, references to an audit client in this Part include related entities over which the client has direct or indirect control. When the audit team knows, or has reason to believe, that a relationship or circumstance involving any other related entity of the client is relevant to the evaluation of the firm’s independence from the client, the audit team shall include that related entity when identifying, evaluating and addressing threats to independence. [Paragraphs 400.21 to 400.29 are intentionally left blank] Period During which Independence is Required Independence, as required by this Part, shall be maintained during both —
The engagement period starts when the audit team begins to perform the audit. 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 ended or the issuance of the final audit report. If 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 —
Threats to independence are created if a non‑assurance service was provided to an audit client during, or after the period covered by the financial statements, but before the audit team begins to perform the audit, and the service would not be permitted during the engagement period. Examples of actions that might be safeguards to address such threats include —
[Paragraphs 400.32 to 400.39 are intentionally left blank] Communication with those Charged with Governance Paragraphs R300.9 and R300.10 set out requirements with respect to communicating with those charged with governance. Even when not required by the Code, applicable professional standards, laws or regulations, regular communication is encouraged between a firm and those charged with governance of the client regarding relationships and other matters that might, in the firm’s opinion, reasonably bear on independence. Such communication enables those charged with governance to —
Such an approach can be particularly helpful with respect to intimidation and familiarity threats. [Paragraphs 400.41 to 400.49 are intentionally left blank] Firms frequently form larger structures with other firms and entities to enhance their ability to provide professional services. Whether these larger structures create a network depends on the particular facts and circumstances. It does not depend on whether the firms and entities are legally separate and distinct. A network firm shall be independent of the audit clients of the other firms within the network as required by this Part. The independence requirements in this Part that apply to a network firm apply to any entity that meets the definition of a network firm. It is not necessary for the entity also to meet the definition of a firm. For example, a consulting practice or professional law practice might be a network firm but not a firm. When associated with a larger structure of other firms and entities, a firm shall —
When determining whether a network is created by a larger structure of firms and other entities, a firm shall conclude that a network exists when such a larger structure is aimed at co-operation and —
There might be other arrangements between firms and entities within a larger structure that constitute a network, in addition to those arrangements described in paragraph R400.53. However, a larger structure might be aimed only at facilitating the referral of work, which in itself does not meet the criteria necessary to constitute a network. The sharing of immaterial costs does not in itself create a network. In addition, if the sharing of costs is limited only to those costs related to the development of audit methodologies, manuals or training courses, this would not in itself create a network. Further, an association between a firm and an otherwise unrelated entity jointly to provide a service or develop a product does not in itself create a network. (Ref: paragraph R400.53(a)). Common ownership, control or management might be achieved by contract or other means. (Ref: paragraph R400.53(b)). Common quality control policies and procedures are those designed, implemented and monitored across the larger structure. (Ref: paragraph R400.53(c)). Sharing a common business strategy involves an agreement by the entities to achieve common strategic objectives. An entity is not a network firm merely because it co‑operates with another entity solely to respond jointly to a request for a proposal for the provision of a professional service. (Ref: paragraph R400.53(d)). A common brand name includes common initials or a common name. A firm is using a common brand name if it includes, for example, the common brand name as part of, or along with, its firm name when a partner of the firm signs an audit report. (Ref: paragraph R400.53(e)). Even if a firm does not belong to a network and does not use a common brand name as part of its firm name, it might appear to belong to a network if its stationery or promotional materials refer to the firm being a member of an association of firms. Accordingly, if care is not taken in how a firm describes such membership, a perception might be created that the firm belongs to a network. (Ref: paragraph R400.53(e)). Professional resources include —
Whether the shared professional resources are significant depends on the circumstances. For example —
If a firm or a network sells a component of its practice, and the component continues to use all or part of the firm’s or network’s name for a limited time, the relevant entities shall determine how to disclose that they are not network firms when presenting themselves to outside parties. The agreement for the sale of a component of a practice might provide that, for a limited period of time, the sold component can continue to use all or part of the name of the firm or the network, even though it is no longer connected to the firm or the network. In such circumstances, while the two entities might be practicing under a common name, the facts are such that they do not belong to a larger structure aimed at cooperation. The two entities are therefore not network firms. [Paragraphs 400.55 to 400.59 are intentionally left blank] General Documentation of Independence for Audit and Review Engagements A firm shall document conclusions regarding compliance with this Part, and the substance of any relevant discussions that support those conclusions. In particular —
Documentation provides evidence of the firm’s judgments in forming conclusions regarding compliance with this Part. However, a lack of documentation does not determine whether a firm considered a particular matter or whether the firm is independent. [Paragraphs 400.61 to 400.69 are intentionally left blank] When a Client Merger Creates a Threat An entity might become a related entity of an audit client because of a merger or acquisition. A threat to independence and, therefore, to the ability of a firm to continue an audit engagement might be created by previous or current interests or relationships between a firm or network firm and such a related entity. In the circumstances set out in paragraph 400.70 A1 —
As an exception to paragraph R400.71(b), if the interest or relationship cannot reasonably be ended by the effective date of the merger or acquisition, the firm shall —
In some circumstances, it might not be reasonably possible to end an interest or relationship creating a threat by the effective date of the merger or acquisition. This might be because the firm provides a non-assurance service to the related entity, which the entity is not able to transition in an orderly manner to another provider by that date. Factors that are relevant in evaluating the level of a threat created by mergers and acquisitions when there are interests and relationships that cannot reasonably be ended include —
If, following the discussion set out in paragraph R400.72(b), those charged with governance request the firm to continue as the auditor, the firm shall do so only if —
Examples of such transitional measures include —
The firm might have completed a significant amount of work on the audit prior to the effective date of the merger or acquisition and might 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 paragraph 400.70 A1, the firm shall only do so if it —
If Objectivity Remains Compromised Even if all the requirements of paragraphs R400.71 to R400.74 could be met, the firm shall determine whether the circumstances identified in paragraph 400.70 A1 create a threat that cannot be addressed such that objectivity would be compromised. If so, the firm shall cease to be the auditor. The firm shall document —
[Paragraphs 400.77 to 400.79 are intentionally left blank] Breach of an Independence Provision for Audit and Review Engagements When a Firm Identifies a Breach If a firm concludes that a breach of a requirement in this Part has occurred, the firm shall —
In making this determination, the firm shall exercise professional judgment and take into account whether a reasonable and informed third party would be likely to conclude that the firm’s objectivity would be compromised, and therefore, the firm would be unable to issue an audit report. A breach of a provision of this Part might occur despite the firm having policies and procedures designed to provide it with reasonable assurance that independence is maintained. It might be necessary to end the audit engagement because of the breach. The significance and impact of a breach on the firm’s objectivity and ability to issue an audit report will depend on factors such as —
Depending upon the significance of the breach, examples of actions that the firm might consider to address the breach satisfactorily include —
If the firm determines that action cannot be taken to address the consequences of the breach satisfactorily, the firm shall inform those charged with governance as soon as possible and take the steps necessary to end the audit engagement in compliance with any applicable legal or regulatory requirements. Where ending the engagement is not permitted by laws or regulations, the firm shall comply with any reporting or disclosure requirements. If the firm determines that action can be taken to address the consequences of the breach satisfactorily, the firm shall discuss with those charged with governance —
Such discussion shall take place as soon as possible unless an alternative timing is specified by those charged with governance for reporting less significant breaches. Communication of Breaches to Those Charged with Governance Paragraphs R300.9 and R300.10 set out requirements with respect to communicating with those charged with governance. With respect to breaches, the firm shall communicate in writing to those charged with governance —
If those charged with governance do not concur that the action proposed by the firm in accordance with paragraph R400.80(e)(ii) satisfactorily addresses the consequences of the breach, the firm shall take the steps necessary to end the audit engagement in accordance with paragraph R400.81. Breaches Before the Previous Audit Report was Issued If the breach occurred prior to the issuance of the previous audit report, the firm shall comply with the provisions of Part 4A in evaluating the significance of the breach and its impact on the firm’s objectivity and its ability to issue an audit report in the current period.
In complying with the requirements in paragraphs R400.80 to R400.87, the firm shall document —
If the firm continues with the audit engagement, it shall document —
Firms are required to comply with the fundamental principles, be independent and apply the conceptual framework set out in Section 120 to identify, evaluate and address threats to independence. The nature and level of fees or other types of remuneration might create a self-interest or intimidation threat. This section sets out specific requirements and application material relevant to applying the conceptual framework in such circumstances. Requirements and Application Material When the total fees generated from an audit client by the firm expressing the audit opinion represent a large proportion of the total fees of that firm, the dependence on that client and concern about losing the client create a self‑interest or intimidation threat. Factors that are relevant in evaluating the level of such threats include —
An example of an action that might be a safeguard to address such a self-interest or intimidation threat is increasing the client base in the firm to reduce dependence on the audit client. A self-interest or intimidation threat is also created when the fees generated by a firm from an audit client represent a large proportion of the revenue of one partner or one office of the firm. Factors that are relevant in evaluating the level of such threats include —
Examples of actions that might be safeguards to address such self-interest or intimidation threats include —
Audit Clients that are Public Interest Entities Where an audit client is a public interest entity and, for two consecutive years, the total fees from the client and its related entities represent more than 15% of the total fees received by the firm expressing the opinion on the financial statements of the client, the firm shall —
When the total fees described in paragraph R410.4 significantly exceed 15%, the firm shall determine whether the level of the threat is such that a post‑issuance review would not reduce the threat to an acceptable level. If so, the firm shall have a pre‑issuance review performed. If the fees described in paragraph R410.4 continue to exceed 15%, the firm shall each year —
Audit Clients that are Listed Entities or Public Companies Where an audit client is a listed entity or a public company and the amount of annual fees received for non‑audit services compared to the total annual audit fees from the audit client is 50% or more, the firm shall disclose to those charged with governance of the audit client the fact that the total of such fees represent 50% or more of total annual audit fees received by the firm and discuss the safeguards it will apply to reduce the threat to an acceptable level. Examples of safeguards that could be considered and applied include —
A self-interest threat might be created if a significant part of fees is not paid before the audit report for the following year is issued. It is generally expected that the firm will require payment of such fees before such audit report is issued. The requirements and application material set out in Section 511 with respect to loans and guarantees might also apply to situations where such unpaid fees exist. Examples of actions that might be safeguards to address such a self-interest threat include —
When a significant part of fees due from an audit client remains unpaid for a long time, the firm shall determine —
Contingent fees are fees calculated on a predetermined basis relating to the outcome of a transaction or the result of the services performed. A contingent fee charged through an intermediary is an example of an indirect contingent fee. In this section, a fee is not regarded as being contingent if established by a court or other public authority. A firm shall not charge directly or indirectly a contingent fee for an audit engagement. A firm or network firm shall not charge directly or indirectly a contingent fee for a non-assurance service provided to an audit client, if —
Paragraphs R410.10 and R410.11 preclude a firm or a network firm from entering into certain contingent fee arrangements with an audit client. Even if a contingent fee arrangement is not precluded when providing a non‑assurance service to an audit client, a self‑interest threat might still be created. Factors that are relevant in evaluating the level of such a threat include —
Examples of actions that might be safeguards to address such a self-interest threat include —
COMPENSATION AND EVALUATION POLICIES Firms are required to comply with the fundamental principles, be independent and apply the conceptual framework set out in Section 120 to identify, evaluate and address threats to independence. A firm’s evaluation or compensation policies might create a self‑interest threat. This section sets out specific requirements and application material relevant to applying the conceptual framework in such circumstances. Requirements and Application Material When an audit team member for a particular audit client is evaluated on or compensated for selling non‑assurance services to that audit client, the level of the self‑interest threat will depend on —
Examples of actions that might eliminate such a self‑interest threat include —
An example of an action that might be a safeguard to address such a self-interest threat is having an appropriate reviewer review the work of the audit team member. A firm shall not evaluate or compensate a key audit partner based on that partner’s success in selling non‑assurance services to the partner’s audit client. This requirement does not preclude normal profit-sharing arrangements between partners of a firm. Firms are required to comply with the fundamental principles, be independent and apply the conceptual framework set out in Section 120 to identify, evaluate and address threats to independence. Accepting gifts and hospitality from an audit client might create a self-interest, familiarity or intimidation threat. This section sets out a specific requirement and application material relevant to applying the conceptual framework in such circumstances. Requirement and Application Material A firm, network firm or an audit team member shall not accept gifts and hospitality from an audit client, unless the value is trivial and inconsequential. Where a firm, network firm or audit team member is offering or accepting an inducement to or from an audit client, the requirements and application material set out in Section 340 apply and non-compliance with these requirements might create threats to independence. The requirements set out in Section 340 relating to offering or accepting inducements do not allow a firm, network firm or audit team member to accept gifts and hospitality where the intent is to improperly influence behaviour even if the value is trivial and inconsequential. ACTUAL OR THREATENED LITIGATION Firms are required to comply with the fundamental principles, be independent and apply the conceptual framework set out in Section 120 to identify, evaluate and address threats to independence. When litigation with an audit client occurs, or appears likely, self-interest and intimidation threats are created. This section sets out specific application material relevant to applying the conceptual framework in such circumstances. The relationship between client management and audit team members must be characterised by complete candour and full disclosure regarding all aspects of a client’s operations. Adversarial positions might result from actual or threatened litigation between an audit client and the firm, a network firm or an audit team member. Such adversarial positions might affect management’s willingness to make complete disclosures and create self-interest and intimidation threats. Factors that are relevant in evaluating the level of such threats include —
If the litigation involves an audit team member, an example of an action that might eliminate such self‑interest and intimidation threats is removing that individual from the audit team. An example of an action that might be a safeguard to address such self-interest and intimidation threats is to have an appropriate reviewer review the work performed. Firms are required to comply with the fundamental principles, be independent and apply the conceptual framework set out in Section 120 to identify, evaluate and address threats to independence. Holding a financial interest in an audit client might create a self‑interest threat. This section sets out specific requirements and application material relevant to applying the conceptual framework in such circumstances. Requirements and Application Material A financial interest might be held directly or indirectly through an intermediary such as a collective investment vehicle, an estate or a trust. When a beneficial owner has control over the intermediary or ability to influence its investment decisions, the Code defines that financial interest to be direct. Conversely, when a beneficial owner has no control over the intermediary or ability to influence its investment decisions, the Code defines that financial interest to be indirect. This section contains references to the “materiality” of a financial interest. In determining whether such an interest is material to an individual, the combined net worth of the individual and the individual’s immediate family members may be taken into account. Factors that are relevant in evaluating the level of a self‑interest threat created by holding a financial interest in an audit client include —
Financial Interests Held by the Firm, a Network Firm, Audit Team Members and Others Subject to paragraph R510.5, a direct financial interest or a material indirect financial interest in the audit client shall not be held by —
The office in which the engagement partner practices in connection with an audit engagement is not necessarily the office to which that partner is assigned. When the engagement partner is located in a different office from that of the other audit team members, professional judgment is needed to determine the office in which the partner practices in connection with the engagement. As an exception to paragraph R510.4, an immediate family member identified in paragraph R510.4(c) or (d) may hold a direct or material indirect financial interest in an audit client, provided that —
Financial Interests in an Entity Controlling an Audit Client When an entity has a controlling interest in an audit client and the client is material to the entity, neither the firm, nor a network firm, nor an audit team member, nor any of that individual’s immediate family shall hold a direct or material indirect financial interest in that entity. Financial Interests Held as Trustee Paragraph R510.4 shall also apply to a financial interest in an audit client held in a trust for which the firm, network firm or individual acts as trustee, unless —
Financial Interests in Common with the Audit Client
Financial Interests Received Unintentionally If a firm, a network firm or a partner or employee of the firm or a network firm, or any of that individual’s immediate family, receives a direct financial interest or a material indirect financial interest in an audit client by way of an inheritance, gift, as a result of a merger or in similar circumstances and the interest would not otherwise be permitted to be held under this section, then —
Financial Interests — Other Circumstances A self-interest, familiarity, or intimidation threat might be created if an audit team member, or any of that individual’s immediate family, or the firm or a network firm has a financial interest in an entity when a director or officer or controlling owner of the audit client is also known to have a financial interest in that entity. Factors that are relevant in evaluating the level of such threats include —
An example of an action that might eliminate such a self‑interest, familiarity, or intimidation threat is removing the audit team member with the financial interest from the audit team. An example of an action that might be a safeguard to address such a self-interest threat is having an appropriate reviewer review the work of the audit team member. A self-interest threat might be created if an audit team member knows that a close family member has a direct financial interest or a material indirect financial interest in the audit client. Factors that are relevant in evaluating the level of such a threat include —
Examples of actions that might eliminate such a self‑interest threat include —
An example of an action that might be a safeguard to address such a self-interest threat is having an appropriate reviewer review the work of the audit team member. A self-interest threat might be created if an audit team member knows that a financial interest in the audit client is held by individuals such as —
Factors that are relevant in evaluating the level of such a threat include —
An example of an action that might eliminate such a self‑interest threat is removing the audit team member with the personal relationship from the audit team. Examples of actions that might be safeguards to address such a self-interest threat include —
Retirement Benefit Plan of a Firm or Network Firm A self-interest threat might be created if a retirement benefit plan of a firm or a network firm holds a direct or material indirect financial interest in an audit client. Firms are required to comply with the fundamental principles, be independent and apply the conceptual framework set out in Section 120 to identify, evaluate and address threats to independence. A loan or a guarantee of a loan with an audit client might create a self-interest threat. This section sets out specific requirements and application material relevant to applying the conceptual framework in such circumstances. Requirements and Application Material This section contains references to the “materiality” of a loan or guarantee. In determining whether such a loan or guarantee is material to an individual, the combined net worth of the individual and the individual’s immediate family members may be taken into account. Loans and Guarantees with an Audit Client A firm, a network firm, an audit team member, or any of that individual’s immediate family shall not make or guarantee a loan to an audit client unless the loan or guarantee is immaterial to —
Loans and Guarantees with an Audit Client that is a Bank or Similar Institution A firm, a network firm, an audit team member, or any of that individual’s immediate family shall not accept a loan, or a guarantee of a loan, from an audit client that is a bank or a similar institution unless the loan or guarantee is made under normal lending procedures, terms and conditions. Examples of loans include mortgages, bank overdrafts, car loans, and credit card balances. Even if a firm or network firm receives a loan from an audit client that is a bank or similar institution under normal lending procedures, terms and conditions, the loan might create a self-interest threat if it is material to the audit client or firm receiving the loan. An example of an action that might be a safeguard to address such a self-interest threat is having the work reviewed by an appropriate reviewer, who is not an audit team member, from a network firm that is not a beneficiary of the loan. Deposits or Brokerage Accounts A firm, a network firm, an audit team member, or any of that individual’s immediate family shall not have deposits or a brokerage account with an audit client that is a bank, broker or similar institution, unless the deposit or account is held under normal commercial terms. Loans and Guarantees with an Audit Client that is Not a Bank or Similar Institution A firm, a network firm, an audit team member, or any of that individual’s immediate family shall not accept a loan from, or have a borrowing guaranteed by, an audit client that is not a bank or similar institution, unless the loan or guarantee is immaterial to —
Firms are required to comply with the fundamental principles, be independent and apply the conceptual framework set out in Section 120 to identify, evaluate and address threats to independence. A close business relationship with an audit client or its management might create a self-interest or intimidation threat. This section sets out specific requirements and application material relevant to applying the conceptual framework in such circumstances. Requirements and Application Material This section contains references to the “materiality” of a financial interest and the “significance” of a business relationship. In determining whether such a financial interest is material to an individual, the combined net worth of the individual and the individual’s immediate family members may be taken into account. Examples of a close business relationship arising from a commercial relationship or common financial interest include —
Firm, Network Firm, Audit Team Member or Immediate Family Business Relationships A firm, a network firm or an audit team member shall not have a close business relationship with an audit client or its management unless any financial interest is immaterial and the business relationship is insignificant to the client or its management and the firm, the network firm or the audit team member, as applicable. A self-interest or intimidation threat might be created if there is a close business relationship between the audit client or its management and the immediate family of an audit team member. Common Interests in Closely-Held Entities A firm, a network firm, an audit team member, or any of that individual’s immediate family shall not have a business relationship involving the holding of an interest in a closely‑held entity when an audit client or a director or officer of the client, or any group thereof, also holds an interest in that entity, unless —
The purchase of goods and services from an audit client by a firm, a network firm, an audit team member, or any of that individual’s immediate family does not usually create a threat to independence if the transaction is in the normal course of business and at arm’s length. However, such transactions might be of such a nature and magnitude that they create a self-interest threat. Examples of actions that might eliminate such a self‑interest threat include —
FAMILY AND PERSONAL RELATIONSHIPS Firms are required to comply with the fundamental principles, be independent and apply the conceptual framework set out in Section 120 to identify, evaluate and address threats to independence. Family or personal relationships with client personnel might create a self‑interest, familiarity or intimidation threat. This section sets out specific requirements and application material relevant to applying the conceptual framework in such circumstances. Requirements and Application Material A self-interest, familiarity or intimidation threat might be created by family and personal relationships between an audit team member and a director or officer or, depending on their role, certain employees of the audit client. Factors that are relevant in evaluating the level of such threats include —
Immediate Family of an Audit Team Member A self-interest, familiarity or intimidation threat is created when an immediate family member of an audit team member is an employee in a position to exert significant influence over the client’s financial position, financial performance or cash flows. Factors that are relevant in evaluating the level of such threats include —
An example of an action that might eliminate such a self‑interest, familiarity or intimidation threat is removing the individual from the audit team. An example of an action that might be a safeguard to address such a self-interest, familiarity or intimidation threat is structuring the responsibilities of the audit team so that the audit team member does not deal with matters that are within the responsibility of the immediate family member. An individual shall not participate as an audit team member when any of that individual’s immediate family —
Close Family of an Audit Team Member A self-interest, familiarity or intimidation threat is created when a close family member of an audit team member is —
Factors that are relevant in evaluating the level of such threats include —
An example of an action that might eliminate such a self‑interest, familiarity or intimidation threat is removing the individual from the audit team. An example of an action that might be a safeguard to address such a self-interest, familiarity or intimidation threat is structuring the responsibilities of the audit team so that the audit team member does not deal with matters that are within the responsibility of the close family member. Other Close Relationships of an Audit Team Member An audit team member shall consult in accordance with firm policies and procedures if the audit team member has a close relationship with an individual who is not an immediate or close family member, but who is —
Factors that are relevant in evaluating the level of a self‑interest, familiarity or intimidation threat created by such a relationship include —
An example of an action that might eliminate such a self‑interest, familiarity or intimidation threat is removing the individual from the audit team. An example of an action that might be a safeguard to address such a self-interest, familiarity or intimidation threat is structuring the responsibilities of the audit team so that the audit team member does not deal with matters that are within the responsibility of the individual with whom the audit team member has a close relationship. Relationships of Partners and Employees of the Firm Partners and employees of the firm shall consult in accordance with firm policies and procedures if they are aware of a personal or family relationship between —
Factors that are relevant in evaluating the level of a self‑interest, familiarity or intimidation threat created by such a relationship include —
Examples of actions that might be safeguards to address such self-interest, familiarity or intimidation threats include —
RECENT SERVICE WITH AN AUDIT CLIENT Firms are required to comply with the fundamental principles, be independent and apply the conceptual framework set out in Section 120 to identify, evaluate and address threats to independence. If an audit team member has recently served as a director or officer, or employee of the audit client, a self-interest, self‑review or familiarity threat might be created. This section sets out specific requirements and application material relevant to applying the conceptual framework in such circumstances. Requirements and Application Material Service During Period Covered by the Audit Report The audit team shall not include an individual who, during the period covered by the audit report —
Service Prior to Period Covered by the Audit Report A self-interest, self-review or familiarity threat might be created if, before the period covered by the audit report, an audit team member —
For example, a threat would be created if a decision made or work performed by the individual in the prior period, while employed by the client, is to be evaluated in the current period as part of the current audit engagement. Factors that are relevant in evaluating the level of such threats include —
An example of an action that might be a safeguard to address such a self-interest, self-review or familiarity threat is having an appropriate reviewer review the work performed by the audit team member. SERVING AS A DIRECTOR OR OFFICER OF AN AUDIT CLIENT Firms are required to comply with the fundamental principles, be independent and apply the conceptual framework set out in Section 120 to identify, evaluate and address threats to independence. Serving as a director or officer of an audit client creates self‑review and self-interest threats. This section sets out specific requirements and application material relevant to applying the conceptual framework in such circumstances. Requirements and Application Material Service as Director or Officer A partner or employee of the firm or a network firm shall not serve as a director or officer of an audit client of the firm. Service as Company Secretary A partner or employee of the firm or a network firm shall not serve as Company Secretary for an audit client of the firm, unless —
The position of Company Secretary has different implications in different jurisdictions. Duties might range from: administrative duties (such as personnel management and the maintenance of company records and registers) to duties as diverse as ensuring that the company complies with regulations or providing advice on corporate governance matters. Usually this position is seen to imply a close association with the entity. Therefore, a threat is created if a partner or employee of the firm or a network firm serves as Company Secretary for an audit client. (More information on providing non-assurance services to an audit client is set out in Section 600, Provision of Non‑assurance Services to an Audit Client.) EMPLOYMENT WITH AN AUDIT CLIENT Firms are required to comply with the fundamental principles, be independent and apply the conceptual framework set out in Section 120 to identify, evaluate and address threats to independence. Employment relationships with an audit client might create a self-interest, familiarity or intimidation threat. This section sets out specific requirements and application material relevant to applying the conceptual framework in such circumstances. Requirements and Application Material A familiarity or intimidation threat might be created if any of the following individuals have been an audit team member or partner of the firm or a network firm:
Former Partner or Audit Team Member Restrictions The firm shall ensure that no significant connection remains between the firm or a network firm and —
if either has joined the audit client as —
A significant connection remains between the firm or a network firm and the individual, unless —
Even if the requirements of paragraph R524.4 are met, a familiarity or intimidation threat might still be created. A familiarity or intimidation threat might also be created if a former partner of the firm or network firm has joined an entity in one of the positions described in paragraph 524.3 A1 and the entity subsequently becomes an audit client of the firm. Factors that are relevant in evaluating the level of such threats include —
Examples of actions that might be safeguards to address such familiarity or intimidation threats include —
Audit Team Members Entering Employment with a Client A firm or network firm shall have policies and procedures that require audit team members to notify the firm or network firm when entering employment negotiations with an audit client. A self-interest threat is created when an audit team member participates in the audit engagement while knowing that the audit team member will, or might, join the client at some time in the future. An example of an action that might eliminate such a self‑interest threat is removing the individual from the audit team. An example of an action that might be a safeguard to address such a self-interest threat is having an appropriate reviewer review any significant judgments made by that individual while on the team. Audit Clients that are Public Interest Entities Subject to paragraph R524.8, if an individual who was a key audit partner with respect to an audit client that is a public interest entity joins the client as —
independence is compromised unless, subsequent to the individual ceasing to be a key audit partner —
Senior or Managing Partner (Chief Executive or Equivalent) of the Firm Subject to paragraph R524.8, if an individual who was the Senior or Managing Partner (Chief Executive or equivalent) of the firm joins an audit client that is a public interest entity as —
independence is compromised, unless twelve months have passed since the individual was the Senior or Managing Partner (Chief Executive or equivalent) of the firm. As an exception to paragraphs R524.6 and R524.7, independence is not compromised if the circumstances set out in those paragraphs arise as a result of a business combination and —
TEMPORARY PERSONNEL ASSIGNMENTS Firms are required to comply with the fundamental principles, be independent and apply the conceptual framework set out in Section 120 to identify, evaluate and address threats to independence. The loan of personnel to an audit client might create a self‑review, advocacy or familiarity threat. This section sets out specific requirements and application material relevant to applying the conceptual framework in such circumstances. Requirements and Application Material Examples of actions that might be safeguards to address threats created by the loan of personnel by a firm or a network firm to an audit client include —
When familiarity and advocacy threats are created by the loan of personnel by a firm or a network firm to an audit client, such that the firm or the network firm becomes too closely aligned with the views and interests of management, safeguards are often not available. A firm or network firm shall not loan personnel to an audit client unless —
LONG ASSOCIATION OF PERSONNEL (INCLUDING PARTNER ROTATION) WITH AN AUDIT CLIENT Firms are required to comply with the fundamental principles, be independent and apply the conceptual framework set out in Section 120 to identify, evaluate and address threats to independence. When an individual is involved in an audit engagement over a long period of time, familiarity and self-interest threats might be created. This section sets out requirements and application material relevant to applying the conceptual framework in such circumstances. Requirements and Application Material Although an understanding of an audit client and its environment is fundamental to audit quality, a familiarity threat might be created as a result of an individual’s long association as an audit team member with —
A self-interest threat might be created as a result of an individual’s concern about losing a longstanding client or an interest in maintaining a close personal relationship with a member of senior management or those charged with governance. Such a threat might influence the individual’s judgment inappropriately. Factors that are relevant to evaluating the level of such familiarity or self-interest threats include —
The combination of two or more factors might increase or reduce the level of the threats. For example, familiarity threats created over time by the increasingly close relationship between an individual and a member of the client’s senior management would be reduced by the departure of that member of the client’s senior management. An example of an action that might eliminate the familiarity and self-interest threats created by an individual being involved in an audit engagement over a long period of time would be rotating the individual off the audit team. Examples of actions that might be safeguards to address such familiarity or self-interest threats include —
If a firm decides that the level of the threats created can only be addressed by rotating the individual off the audit team, the firm shall determine an appropriate period during which the individual shall not —
The period shall be of sufficient duration to allow the familiarity and self-interest threats to be addressed. In the case of a public interest entity, paragraphs R540.5 to R540.20 also apply. Audit Clients that are Public Interest Entities Subject to paragraphs R540.7 to R540.9, in respect of an audit of a public interest entity, an individual shall not act in any of the following roles, or a combination of such roles, for a period of more than seven cumulative years (the “time‑on” period):
After the time-on period, the individual shall serve a “cooling‑off” period in accordance with the provisions in paragraphs R540.11 to R540.19. In calculating the time-on period, the count of years shall not be restarted unless the individual ceases to act in any one of the roles in paragraph R540.5(a) to (c) for a minimum period. This minimum period is a consecutive period equal to at least the cooling-off period determined in accordance with paragraphs R540.11 to R540.13 as applicable to the role in which the individual served in the year immediately before ceasing such involvement. For example, an individual who served as engagement partner for four years followed by three years off can only act thereafter as a key audit partner on the same audit engagement for three further years (making a total of seven cumulative years). Thereafter, that individual is required to cool off in accordance with paragraph R540.14. As an exception to paragraph R540.5, key audit partners whose continuity is especially important to audit quality may, in rare cases due to unforeseen circumstances outside the firm’s control, and with the concurrence of those charged with governance, be permitted to serve an additional year as a key audit partner as long as the threat to independence can be eliminated or reduced to an acceptable level. For example, a key audit partner may remain in that role on the audit team for up to one additional year in circumstances where, due to unforeseen events, a required rotation was not possible, as might be the case due to serious illness of the intended engagement partner. In such circumstances, this will involve the firm discussing with those charged with governance the reasons why the planned rotation cannot take place and the need for any safeguards to reduce any threat created. If an audit client becomes a public interest entity, a firm shall take into account the length of time an individual has served the audit client as a key audit partner before the client becomes a public interest entity in determining the timing of the rotation. If the individual has served the audit client as a key audit partner for a period of five cumulative years or less when the client becomes a public interest entity, the number of years the individual may continue to serve the client in that capacity before rotating off the engagement is seven years less the number of years already served. As an exception to paragraph R540.5, if the individual has served the audit client as a key audit partner for a period of six or more cumulative years when the client becomes a public interest entity, the individual may continue to serve in that capacity with the concurrence of those charged with governance for a maximum of two additional years before rotating off the engagement. When a firm has only a few people with the necessary knowledge and experience to serve as a key audit partner on the audit of a public interest entity, rotation of key audit partners might not be possible. As an exception to paragraph R540.5, if an independent regulatory body in the relevant jurisdiction has provided an exemption from partner rotation in such circumstances, an individual may remain a key audit partner for more than seven years, in accordance with such exemption. This is provided that the independent regulatory body has specified other requirements which are to be applied, such as the length of time that the key audit partner may be exempted from rotation or a regular independent external review. Other Considerations Relating to the Time-on Period In evaluating the threats created by an individual’s long association with an audit engagement, a firm shall give particular consideration to the roles undertaken and the length of an individual’s association with the audit engagement prior to the individual becoming a key audit partner. There might be situations where the firm, in applying the conceptual framework, concludes that it is not appropriate for an individual who is a key audit partner to continue in that role even though the length of time served as a key audit partner is less than seven years. If the individual acted as the engagement partner for seven cumulative years, the cooling-off period shall be five consecutive years. Where the individual has been appointed as responsible for the engagement quality control review and has acted in that capacity for seven cumulative years, the cooling-off period shall be three consecutive years. If the individual has acted as a key audit partner other than in the capacities set out in paragraphs R540.11 and R540.12 for seven cumulative years, the cooling-off period shall be two consecutive years. Service in a Combination of Key Audit Partner Roles If the individual acted in a combination of key audit partner roles and served as the engagement partner for four or more cumulative years, the cooling-off period shall be five consecutive years. Subject to paragraph R540.16(a), if the individual acted in a combination of key audit partner roles and served as the key audit partner responsible for the engagement quality control review for four or more cumulative years, the cooling‑off period shall be three consecutive years. If an individual has acted in a combination of engagement partner and engagement quality control review roles for four or more cumulative years during the time-on period, the cooling-off period shall —
If the individual acted in any combination of key audit partner roles other than those addressed in paragraphs R540.14 to R540.16, the cooling‑off period shall be two consecutive years. In determining the number of years that an individual has been a key audit partner as set out in paragraph R540.5, the length of the relationship shall, where relevant, include time while the individual was a key audit partner on that engagement at a prior firm. [Paragraph R540.19 is intentionally left blank] Restrictions on Activities During the Cooling-off Period For the duration of the relevant cooling-off period, the individual shall not —
The provisions of paragraph R540.20 are not intended to prevent the individual from assuming a leadership role in the firm or a network firm, such as that of the Senior or Managing Partner (Chief Executive or equivalent). Effective Date and Transitional Provision Subject to the transitional provision below, paragraphs 540.1 to 540.20 A1 are effective for audits of financial statements for periods beginning on or after 15 December 2018. For audits of financial statements for periods beginning prior to 15 December 2023, three consecutive years is substituted for the cooling-off period of five consecutive years specified in paragraphs R540.11, R540.14 and R540.16(a) provided that the applicable time‑on period does not exceed seven years. For audits of financial statements for periods beginning on or after 15 December 2023, three consecutive years is substituted for the cooling-off period of five consecutive years specified in paragraphs R540.11, R540.14 and R540.16(a) provided that the applicable cooling-off period starts prior to 15 December 2023 and the applicable time‑on period does not exceed seven years. PROVISION OF NON-ASSURANCE SERVICES TO AN AUDIT CLIENT Firms are required to comply with the fundamental principles, be independent, and apply the conceptual framework set out in Section 120 to identify, evaluate and address threats to independence. Firms and network firms might provide a range of non‑assurance services to their audit clients, consistent with their skills and expertise. Providing non-assurance services to audit clients might create threats to compliance with the fundamental principles and threats to independence. This section sets out requirements and application material relevant to applying the conceptual framework to identify, evaluate and address threats to independence when providing non-assurance services to audit clients. The subsections that follow set out specific requirements and application material relevant when a firm or network firm provides certain non-assurance services to audit clients and indicate the types of threats that might be created as a result. Some of the subsections include requirements that expressly prohibit a firm or network firm from providing certain services to an audit client in certain circumstances because the threats created cannot be addressed by applying safeguards. Requirements and Application Material Before a firm or a network firm accepts an engagement to provide a non-assurance service to an audit client, the firm shall determine whether providing such a service might create a threat to independence. The requirements and application material in this section assist the firm in analysing certain types of non‑assurance services and the related threats that might be created if a firm or network firm provides non-assurance services to an audit client. New business practices, the evolution of financial markets and changes in information technology, are among the developments that make it impossible to draw up an all‑inclusive list of non-assurance services that might be provided to an audit client. As a result, the Code does not include an exhaustive list of all non-assurance services that might be provided to an audit client. Factors that are relevant in evaluating the level of threats created by providing a non-assurance service to an audit client include —
Subsections 601 to 610 include examples of additional factors that are relevant in evaluating the level of threats created by providing the non-assurance services set out in those subsections. Materiality in Relation to Financial Statements Subsections 601 to 610 refer to materiality in relation to an audit client’s financial statements. The concept of materiality in relation to an audit is addressed in SSA 320, Materiality in Planning and Performing an Audit, and in relation to a review in SSRE 2400 (Revised), Engagements to Review Historical Financial Statements. The determination of materiality involves the exercise of professional judgment and is impacted by both quantitative and qualitative factors. It is also affected by perceptions of the financial information needs of users. Multiple Non-assurance Services Provided to the Same Audit Client A firm or network firm might provide multiple non‑assurance services to an audit client. In these circumstances the consideration of the combined effect of threats created by providing those services is relevant to the firm’s evaluation of threats. Subsections 601 to 610 include examples of actions, including safeguards, that might address threats to independence created by providing those non‑assurance services when threats are not at an acceptable level. Those examples are not exhaustive. Some of the subsections include requirements that expressly prohibit a firm or network firm from providing certain services to an audit client in certain circumstances because the threats created cannot be addressed by applying safeguards. Paragraph 120.10 A2 includes a description of safeguards. In relation to providing non-assurance services to audit clients, safeguards are actions, individually or in combination, that the firm takes that effectively reduce threats to independence to an acceptable level. In some situations, when a threat is created by providing a non‑assurance service to an audit client, safeguards might not be available. In such situations, the application of the conceptual framework set out in Section 120 requires the firm to decline or end the non-assurance service or the audit engagement. Prohibition on Assuming Management Responsibilities A firm or a network firm shall not assume a management responsibility for an audit client. Management responsibilities involve controlling, leading and directing an entity, including making decisions regarding the acquisition, deployment and control of human, financial, technological, physical and intangible resources. Providing a non-assurance service to an audit client creates self‑review and self-interest threats if the firm or network firm assumes a management responsibility when performing the service. Assuming a management responsibility also creates a familiarity threat and might create an advocacy threat because the firm or network firm becomes too closely aligned with the views and interests of management. Determining whether an activity is a management responsibility depends on the circumstances and requires the exercise of professional judgment. Examples of activities that would be considered a management responsibility include —
Providing advice and recommendations to assist the management of an audit client in discharging its responsibilities is not assuming a management responsibility. (Ref: paragraphs R600.7 to 600.7 A3). To avoid assuming a management responsibility when providing any non-assurance service to an audit client, the firm shall be satisfied that client management makes all judgments and decisions that are the proper responsibility of management. This includes ensuring that the client’s management —
Providing Non-Assurance Services to an Audit Client that Later Becomes a Public Interest Entity A non-assurance service provided, either currently or previously, by a firm or a network firm to an audit client compromises the firm’s independence when the client becomes a public interest entity unless —
Considerations for Certain Related Entities This section includes requirements that prohibit firms and network firms from assuming management responsibilities or providing certain non‑assurance services to audit clients. As an exception to those requirements, a firm or network firm may assume management responsibilities or provide certain non‑assurance services that would otherwise be prohibited to the following related entities of the client on whose financial statements the firm will express an opinion:
provided that all of the following conditions are met:
SUBSECTION 601 — ACCOUNTING AND BOOKKEEPING SERVICES Providing accounting and bookkeeping services to an audit client might create a self-review threat. In addition to the specific requirements and application material in this subsection, the requirements and application material in paragraphs 600.1 to R600.10 are relevant to applying the conceptual framework when providing an audit client with accounting and bookkeeping services. This subsection includes requirements that prohibit firms and network firms from providing certain accounting and bookkeeping services to audit clients in some circumstances because the threats created cannot be addressed by applying safeguards. Requirements and Application Material Accounting and bookkeeping services comprise a broad range of services including —
Management is responsible for the preparation and fair presentation of the financial statements in accordance with the applicable financial reporting framework. These responsibilities include —
The audit process necessitates dialogue between the firm and the management of the audit client, which might involve —
These activities are considered to be a normal part of the audit process and do not usually create threats as long as the client is responsible for making decisions in the preparation of accounting records and financial statements. Similarly, the client might request technical assistance on matters such as resolving account reconciliation problems or analysing and accumulating information for regulatory reporting. In addition, the client might request technical advice on accounting issues such as the conversion of existing financial statements from one financial reporting framework to another. Examples include —
Such services do not usually create threats provided neither the firm nor network firm assumes a management responsibility for the client. Accounting and Bookkeeping Services that are Routine or Mechanical Accounting and bookkeeping services that are routine or mechanical in nature require little or no professional judgment. Some examples of these services are —
Audit Clients that are Not Public Interest Entities A firm or a network firm shall not provide to an audit client that is not a public interest entity accounting and bookkeeping services including preparing financial statements on which the firm will express an opinion or financial information which forms the basis of such financial statements, unless —
Examples of actions that might be safeguards to address a self‑review threat created when providing accounting and bookkeeping services of a routine and mechanical nature to an audit client include —
Audit Clients that are Public Interest Entities Subject to paragraph R601.7, a firm or a network firm shall not provide to an audit client that is a public interest entity accounting and bookkeeping services including preparing financial statements on which the firm will express an opinion or financial information which forms the basis of such financial statements. As an exception to paragraph R601.6, a firm or network firm may provide accounting and bookkeeping services 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 audit team members and —
SUBSECTION 602 — ADMINISTRATIVE SERVICES Providing administrative services to an audit client does not usually create a threat. In addition to the specific application material in this subsection, the requirements and application material in paragraphs 600.1 to R600.10 are relevant to applying the conceptual framework when providing administrative services. Administrative services involve assisting clients with their routine or mechanical tasks within the normal course of operations. Such services require little to no professional judgment and are clerical in nature. Examples of administrative services include —
SUBSECTION 603 — VALUATION SERVICES Providing valuation services to an audit client might create a self‑review or advocacy threat. In addition to the specific requirements and application material in this subsection, the requirements and application material in paragraphs 600.1 to R600.10 are relevant to applying the conceptual framework when providing valuation services to an audit client. This subsection includes requirements that prohibit firms and network firms from providing certain valuation services to audit clients in some circumstances because the threats created cannot be addressed by applying safeguards. Requirements and Application Material 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. If a firm or network 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 application material set out in paragraphs 604.9 A1 to 604.9 A5, relating to such services, applies. Factors that are relevant in evaluating the level of self‑review or advocacy threats created by providing valuation services to an audit client include —
Examples of actions that might be safeguards to address threats include —
Audit Clients that are Not Public Interest Entities A firm or a network firm shall not provide a valuation service to an audit client that is not a public interest entity if —
Certain valuations do not involve a significant degree of subjectivity. This is likely to be the case when 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. Audit Clients that are Public Interest Entities A firm or a network firm shall not provide a valuation service to an audit client that is a public interest entity if the valuation service would have a material effect, individually or in the aggregate, on the financial statements on which the firm will express an opinion. SUBSECTION 604 — TAX SERVICES Providing tax services to an audit client might create a self‑review or advocacy threat. In addition to the specific requirements and application material in this subsection, the requirements and application material in paragraphs 600.1 to R600.10 are relevant to applying the conceptual framework when providing a tax service to an audit client. This subsection includes requirements that prohibit firms and network firms from providing certain tax services to audit clients in some circumstances because the threats created cannot be addressed by applying safeguards. Requirements and Application Material Tax services comprise a broad range of services, including activities such as —
While this subsection deals with each type of tax service listed above under separate headings, in practice, the activities involved in providing tax services are often inter‑related. Factors that are relevant in evaluating the level of threats created by providing any tax service to an audit client include —
Providing tax return preparation services does not usually create a threat. Tax return preparation services involve —
Tax return preparation services are usually 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 considers appropriate. Tax Calculations for the Purpose of Preparing Accounting Entries 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. In addition to the factors in paragraph 604.3 A2, a factor that is relevant in evaluating the level of the threat created when preparing such calculations for an audit client is whether the calculation might have a material effect on the financial statements on which the firm will express an opinion. Audit Clients that are Not Public Interest Entities Examples of actions that might be safeguards to address such a self-review threat when the audit client is not a public interest entity include —
Audit Clients that are Public Interest Entities A firm or a network firm shall not prepare tax calculations of current and deferred tax liabilities (or assets) for an audit client that is a public interest entity for the purpose of preparing accounting entries that are material to the financial statements on which the firm will express an opinion. The examples of actions that might be safeguards in paragraph 604.5 A3 to address self-review threats are also applicable when preparing tax calculations of current and deferred tax liabilities (or assets) to an audit client that is a public interest entity that are immaterial to the financial statements on which the firm will express an opinion. Tax Planning and Other Tax Advisory Services Providing tax planning and other tax advisory services might create a self-review or advocacy threat. 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. In addition to paragraph 604.3 A2, factors that are relevant in evaluating the level of self-review or advocacy threats created by providing tax planning and other tax advisory services to audit clients include —
Examples of actions that might be safeguards to address such threats include —
When Effectiveness of Tax Advice is Dependent on a Particular Accounting Treatment or Presentation A firm or a network firm shall not provide tax planning and other tax advisory services to an audit client when the effectiveness of the tax advice depends on a particular accounting treatment or presentation in the financial statements and —
Tax Services Involving Valuations Providing tax valuation services to an audit client might create a self-review or advocacy threat. A firm or a network firm might perform a valuation for tax purposes only, where the result of the valuation will not have a direct effect on the financial statements (that is, the financial statements are only affected through accounting entries related to tax). This would not usually create threats if the effect on the financial statements is immaterial or the valuation is subject to external review by a tax authority or similar regulatory authority. If the valuation that is performed for tax purposes is not subject to an external review and the effect is material to the financial statements, in addition to paragraph 604.3 A2, the following factors are relevant in evaluating the level of self‑review or advocacy threats created by providing those services to an audit client:
Examples of actions that might be safeguards to address threats include —
A firm or network firm might also perform a tax valuation to assist an audit 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. In such situations, the requirements and application material set out in subsection 603 relating to valuation services apply. Assistance in the Resolution of Tax Disputes Providing assistance in the resolution of tax disputes to an audit client might create a self-review or advocacy threat. A tax dispute might reach a point when the tax authorities have notified an audit client that arguments on a particular issue have been rejected and either the tax authority or the client refers the matter for determination in a formal proceeding, for example, before a public tribunal or court. In addition to paragraph 604.3 A2, factors that are relevant in evaluating the level of self-review or advocacy threats created by assisting an audit client in the resolution of tax disputes include —
Examples of actions that might be safeguards to address threats include —
Resolution of Tax Matters Involving Acting as An Advocate A firm or a network firm shall not provide tax services that involve assisting in the resolution of tax disputes to an audit client if —
Paragraph R604.11 does not preclude a firm or network firm from having a continuing advisory role in relation to the matter that is being heard before a public tribunal or court, for example —
What constitutes a “public tribunal or court” depends on how tax proceedings are heard in the particular jurisdiction. SUBSECTION 605 — INTERNAL AUDIT SERVICES Providing internal audit services to an audit client might create a self‑review threat. In addition to the specific requirements and application material in this subsection, the requirements and application material in paragraphs 600.1 to R600.10 are relevant to applying the conceptual framework when providing an internal audit service to an audit client. This subsection includes requirements that prohibit firms and network firms from providing certain internal audit services to audit clients in some circumstances because the threats created cannot be addressed by applying safeguards. Requirements and Application Material Internal audit services involve assisting the audit client in the performance of its internal audit activities. Internal audit activities might include —
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. When providing an internal audit service to an audit client, the firm shall be satisfied that —
Paragraph R600.7 precludes a firm or a network firm from assuming a management responsibility. Performing a significant part of the client’s internal audit activities increases the possibility that firm or network firm personnel providing internal audit services will assume a management responsibility. Examples of internal audit services that involve assuming management responsibilities include —
When a firm uses the work of an internal audit function in an audit engagement, SSAs require the performance of procedures to evaluate the adequacy of that work. Similarly, when a firm or network firm accepts an engagement to provide internal audit services to an audit client, the results of those services might be used in conducting the external audit. This creates a self-review threat because it is possible that the audit team will use the results of the internal audit service for purposes of the audit engagement without —
Factors that are relevant in evaluating the level of such a self-review threat include —
An example of an action that might be a safeguard to address such a self-review threat is using professionals who are not audit team members to perform the service. Audit Clients that are Public Interest Entities A firm or a network firm shall not provide internal audit services to an audit client that is a public interest entity, if the services relate to —
SUBSECTION 606 — INFORMATION TECHNOLOGY SYSTEMS SERVICES Providing information technology (IT) systems services to an audit client might create a self-review threat. In addition to the specific requirements and application material in this subsection, the requirements and application material in paragraphs 600.1 to R600.10 are relevant to applying the conceptual framework when providing an IT systems service to an audit client. This subsection includes requirements that prohibit firms and network firms from providing certain IT systems services to audit clients in some circumstances because the threats created cannot be addressed by applying safeguards. Requirements and Application Material Services related to IT systems include the design or implementation of hardware or software systems. The IT systems might —
However, the IT systems might also involve matters that are unrelated to the audit client’s accounting records or the internal control over financial reporting or financial statements. Paragraph R600.7 precludes a firm or a network firm from assuming a management responsibility. Providing the following IT systems services to an audit client does not usually create a threat as long as personnel of the firm or network firm do not assume a management responsibility:
When providing IT systems services to an audit client, the firm or network firm shall be satisfied that —
Factors that are relevant in evaluating the level of a self‑review threat created by providing IT systems services to an audit client include —
An example of an action that might be a safeguard to address such a self-review threat is using professionals who are not audit team members to perform the service. Audit Clients that are Public Interest Entities A firm or a network firm shall not provide IT systems services to an audit client that is a public interest entity if the services involve designing or implementing IT systems that —
SUBSECTION 607 — LITIGATION SUPPORT SERVICES Providing certain litigation support services to an audit client might create a self-review or advocacy threat. In addition to the specific application material in this subsection, the requirements and application material in paragraphs 600.1 to R600.10 are relevant to applying the conceptual framework when providing a litigation support service to an audit client. Litigation support services might include activities such as —
Factors that are relevant in evaluating the level of self‑review or advocacy threats created by providing litigation support services to an audit client include —
An example of an action that might be a safeguard to address such a self-review or advocacy threat is using a professional who was not an audit team member to perform the service. If a firm or a network 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 requirements and application material set out in subsection 603 related to valuation services apply. SUBSECTION 608 — LEGAL SERVICES Providing legal services to an audit client might create a self-review or advocacy threat. In addition to the specific requirements and application material in this subsection, the requirements and application material in paragraphs 600.1 to R600.10 are relevant to applying the conceptual framework when providing a legal service to an audit client. This subsection includes requirements that prohibit firms and network firms from providing certain legal services to audit clients in some circumstances because the threats cannot be addressed by applying safeguards. Requirements and Application Material Legal services are defined as any services for which the individual providing the services must either —
Acting in an Advisory Role Depending on the jurisdiction, legal advisory services might include a wide and diversified range of service areas including both corporate and commercial services to audit clients, such as —
Factors that are relevant in evaluating the level of self‑review or advocacy threats created by providing legal advisory services to an audit client include —
Examples of actions that might be safeguards to address threats include —
Acting as General Counsel A partner or employee of the firm or the network firm shall not serve as General Counsel for legal affairs of an audit client. The position of General Counsel is usually a senior management position with broad responsibility for the legal affairs of a company. Acting in an Advocacy Role A firm or a network firm shall not act 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. Examples of actions that might be safeguards to address a self-review threat created when acting in an advocacy role for an audit client when the amounts involved are not material to the financial statements on which the firm will express an opinion include —
SUBSECTION 609 — RECRUITING SERVICES Providing recruiting services to an audit client might create a self‑interest, familiarity or intimidation threat. In addition to the specific requirements and application material in this subsection, the requirements and application material in paragraphs 600.1 to R600.10 are relevant to applying the conceptual framework when providing a recruiting service to an audit client. This subsection includes requirements that prohibit firms and network firms from providing certain types of recruiting services to audit clients in some circumstances because the threats created cannot be addressed by applying safeguards. Requirements and Application Material Recruiting services might include activities such as —
Paragraph R600.7 precludes a firm or a network firm from assuming a management responsibility. Providing the following services does not usually create a threat as long as personnel of the firm or network firm does not assume a management responsibility:
When a firm or network firm provides recruiting services to an audit client, the firm shall be satisfied that —
Factors that are relevant in evaluating the level of self‑interest, familiarity or intimidation threats created by providing recruiting services to an audit client include —
An example of an action that might be a safeguard to address such a self-interest, familiarity or intimidation threat is using professionals who are not audit team members to perform the service. Recruiting Services that are Prohibited When providing recruiting services to an audit client, the firm or the network firm shall not act as a negotiator on the client’s behalf. A firm or a network firm shall not provide a recruiting service to an audit client if the service relates to —
with respect to the following positions:
SUBSECTION 610 — CORPORATE FINANCE SERVICES Providing corporate finance services to an audit client might create a self‑review or advocacy threat. In addition to the specific requirements and application material in this subsection, the requirements and application material in paragraphs 600.1 to R600.10 are relevant to applying the conceptual framework when providing a corporate finance service to an audit client. This subsection includes requirements that prohibit firms and network firms from providing certain corporate finance services in some circumstances to audit clients because the threats created cannot be addressed by applying safeguards. Requirements and Application Material Examples of corporate finance services that might create a self-review or advocacy threat include —
Factors that are relevant in evaluating the level of such threats created by providing corporate finance services to an audit client include —
Examples of actions that might be safeguards to address threats include —
Corporate Finance Services that are Prohibited A firm or a network firm shall not provide corporate finance services to an audit client that involve promoting, dealing in, or underwriting the audit client’s shares. A firm or a network firm shall not provide corporate finance advice to an audit client where the effectiveness of such advice depends on a particular accounting treatment or presentation in the financial statements on which the firm will express an opinion and —
REPORTS ON SPECIAL PURPOSE FINANCIAL STATEMENTS THAT INCLUDE A RESTRICTION ON USE AND DISTRIBUTION (AUDIT AND REVIEW ENGAGEMENTS) Firms are required to comply with the fundamental principles, be independent and apply the conceptual framework set out in Section 120 to identify, evaluate and address threats to independence. This section sets out certain modifications to Part 4A which are permitted in certain circumstances involving audits of special purpose financial statements where the report includes a restriction on use and distribution. In this section, an engagement to issue a restricted use and distribution report in the circumstances set out in paragraph R800.3 is referred to as an “eligible audit engagement”. Requirements and Application Material When a firm intends to issue a report on an audit of special purpose financial statements which includes a restriction on use and distribution, the independence requirements set out in Part 4A shall be eligible for the modifications that are permitted by this section, but only if —
The intended users of the report might obtain an understanding of the purpose and limitations of the report by participating, either directly, or indirectly through a representative who has authority to act for the intended users, in establishing the nature and scope of the engagement. In either case, this participation helps the firm to communicate with intended users about independence matters, including the circumstances that are relevant to applying the conceptual framework. It also allows the firm to obtain the agreement of the intended users to the modified independence requirements. Where the intended users are a class of users who are not specifically identifiable by name at the time the engagement terms are established, the firm shall subsequently make such users aware of the modified independence requirements agreed to by their representative. For example, where the intended users are a class of users such as lenders in a syndicated loan arrangement, the firm might describe the modified independence requirements in an engagement letter to the representative of the lenders. The representative might then make the firm’s engagement letter available to the members of the group of lenders to meet the requirement for the firm to make such users aware of the modified independence requirements agreed to by the representative. When the firm performs an eligible audit engagement, any modifications to Part 4A shall be limited to those set out in paragraphs R800.7 to R800.14. The firm shall not apply these modifications when an audit of financial statements is required by law or regulation. If the firm also issues an audit report that does not include a restriction on use and distribution for the same client, the firm shall apply Part 4A to that audit engagement. When the firm performs an eligible audit engagement, the firm does not need to apply the independence requirements set out in Part 4A that apply only to public interest entity audit engagements. When the firm performs an eligible audit engagement, references to “audit client” in Part 4A do not need to include its related entities. However, when the audit team knows or has reason to believe that a relationship or circumstance involving a related entity of the client is relevant to the evaluation of the firm’s independence of the client, the audit team shall include that related entity when identifying, evaluating and addressing threats to independence. Networks and Network Firms When the firm performs an eligible audit engagement, the specific requirements regarding network firms set out in Part 4A do not need to be applied. However, when the firm knows or has reason to believe that threats to independence are created by any interests and relationships of a network firm, the firm shall evaluate and address any such threat. Financial Interests, Loans and Guarantees, Close Business Relationships, and Family and Personal Relationships When the firm performs an eligible audit engagement —
Others within a firm who can directly influence the outcome of the audit engagement include those who recommend the compensation, or who provide direct supervisory, management or other oversight, of the audit engagement partner in connection with the performance of the audit engagement including those at all successively senior levels above the engagement partner through to the individual who is the firm’s Senior or Managing Partner (Chief Executive or equivalent). When the firm performs an eligible audit engagement, the firm shall evaluate and address any threats that the engagement team has reason to believe are created by financial interests in the audit client held by individuals, as set out in paragraphs R510.4(c) and (d), R510.5, R510.7 and 510.10 A5 and A9. When the firm performs an eligible audit engagement, the firm, in applying the provisions set out in paragraphs R510.4(a), R510.6 and R510.7 to interests of the firm, shall not hold a material direct or a material indirect financial interest in the audit client. Employment with an Audit Client When the firm performs an eligible audit engagement, the firm shall evaluate and address any threats created by any employment relationships as set out in paragraphs 524.3 A1 to 524.5 A3. Providing Non-Assurance Services If the firm performs an eligible audit engagement and provides a non-assurance service to the audit client, the firm shall comply with Sections 410 to 430 and Section 600, including its subsections, subject to paragraphs R800.7 to R800.9. PART 4B — INDEPENDENCE FOR ASSURANCE ENGAGEMENTS OTHER THAN AUDIT AND REVIEW ENGAGEMENTS Applying the Conceptual Framework to Independence for Assurance Engagements Other than Audit and Review Engagements Actual or Threatened Litigation Family and Personal Relationships Recent Service with an Assurance Client Serving as a Director or Officer of an Assurance Client Employment with an Assurance Client Long Association of Personnel with an Assurance Client Provision of Non-assurance Services to Assurance Clients Other than Audit and Review Engagement Clients Reports that Include a Restriction on Use and Distribution (Assurance Engagements Other than Audit and Review Engagements) PART 4B — INDEPENDENCE FOR ASSURANCE ENGAGEMENTS OTHER THAN AUDIT AND REVIEW ENGAGEMENTS APPLYING THE CONCEPTUAL FRAMEWORK TO INDEPENDENCE FOR ASSURANCE ENGAGEMENTS OTHER THAN AUDIT AND REVIEW ENGAGEMENTS This Part applies to assurance engagements other than audit engagements and review engagements. Examples of such engagements include —
In this Part, the term “public accountant” refers to individual public accountants and their firms. SSQC 1 requires a firm to establish policies and procedures designed to provide it with reasonable assurance that the firm, its personnel and, where applicable, others subject to independence requirements maintain independence where required by relevant ethics standards. In addition, Singapore Standards on Assurance Engagements (SSAEs) and SSAs establish responsibilities for engagement partners and engagement teams at the level of the engagement. The allocation of responsibilities within a firm will depend on its size, structure and organisation. Many of the provisions of Part 4B do not prescribe the specific responsibility of individuals within the firm for actions related to independence, instead referring to “firm” for ease of reference. Firms assign responsibility for a particular action to an individual or a group of individuals (such as an assurance team) in accordance with SSQC 1. Additionally, an individual public accountant remains responsible for compliance with any provisions that apply to that public accountant’s activities, interests or relationships. Independence is linked to the principles of objectivity and integrity. It comprises —
In this Part, references to an individual or firm being “independent” mean that the individual or firm has complied with the provisions of this Part. When performing assurance engagements, the Code requires firms to comply with the fundamental principles and be independent. This Part sets out specific requirements and application material on how to apply the conceptual framework to maintain independence when performing assurance engagements other than audit or review engagements. The conceptual framework set out in Section 120 applies to independence as it does to the fundamental principles set out in Section 110.
Description of Assurance Engagements In an assurance engagement, the firm aims to obtain sufficient appropriate evidence in order to express a conclusion designed to enhance the degree of confidence of the intended users other than the responsible party about the subject matter information. SSAE 3000 (Revised) describes the elements and objectives of an assurance engagement conducted under that Standard, and the Assurance Framework provides a general description of assurance engagements. An assurance engagement might either be an attestation engagement or a direct engagement. In this Part, the term “assurance engagement” refers to assurance engagements other than audit engagements or review engagements. Reports that Include a Restriction on Use and Distribution An assurance report might include a restriction on use and distribution. If it does and the conditions set out in Section 990 are met, then the independence requirements in this Part may be modified as provided in Section 990. Audit and Review Engagements Independence standards for audit and review engagements are set out in Part 4A — Independence for Audit and Review Engagements. If a firm performs both an assurance engagement and an audit or review engagement for the same client, the requirements in Part 4A continue to apply to the firm, a network firm and the audit or review team members. Requirements and Application Material A firm performing an assurance engagement shall be independent of the assurance client. For the purposes of this Part, the assurance client in an assurance engagement is the responsible party and also, in an attestation engagement, the party taking responsibility for the subject matter information (who might be the same as the responsible party). The roles of the parties involved in an assurance engagement might differ and affect the application of the independence provisions in this Part. In the majority of attestation engagements, the responsible party and the party taking responsibility for the subject matter information are the same. This includes those circumstances where the responsible party involves another party to measure or evaluate the underlying subject matter against the criteria (the measurer or evaluator) where the responsible party takes responsibility for the subject matter information as well as the underlying subject matter. However, the responsible party or the engaging party might appoint another party to prepare the subject matter information on the basis that this party is to take responsibility for the subject matter information. In this circumstance, the responsible party and the party responsible for the subject matter information are both assurance clients for the purposes of this Part. In addition to the responsible party and, in an attestation engagement, the party taking responsibility for the subject matter information, there might be other parties in relation to the engagement. For example, there might be a separate engaging party or a party who is a measurer or evaluator other than the party taking responsibility for the subject matter information. In these circumstances, applying the conceptual framework requires the public accountant to identify and evaluate threats to the fundamental principles created by any interests or relationships with such parties, including whether any conflicts of interest might exist as described in Section 310. A firm shall apply the conceptual framework set out in Section 120 to identify, evaluate and address threats to independence in relation to an assurance engagement. Multiple Responsible Parties and Parties Taking Responsibility for the Subject Matter Information In some assurance engagements, whether an attestation engagement or direct engagement, there might be several responsible parties or, in an attestation engagement, several parties taking responsibility for the subject matter information. In determining whether it is necessary to apply the provisions in this Part to each individual responsible party or each individual party taking responsibility for the subject matter information in such engagements, the firm may take into account certain matters. These matters include whether an interest or relationship between the firm, or an assurance team member, and a particular responsible party or party taking responsibility for the subject matter information would create a threat to independence that is not trivial and inconsequential in the context of the subject matter information. This determination will take into account factors such as —
If the firm determines that the threat created by any such interest or relationship with a particular party would be trivial and inconsequential, it might not be necessary to apply all of the provisions of this section to that party. When a firm knows or has reason to believe that interests and relationships of a network firm create a threat to the firm’s independence, the firm shall evaluate and address any such threat. Network firms are discussed in paragraphs 400.50 A1 to 400.54 A1. When the assurance team knows or has reason to believe that a relationship or circumstance involving a related entity of the assurance client is relevant to the evaluation of the firm’s independence from the client, the assurance team shall include that related entity when identifying, evaluating and addressing threats to independence. [Paragraphs 900.16 to 900.29 are intentionally left blank] Period During which Independence is Required Independence, as required by this Part, shall be maintained during both —
The engagement period starts when the assurance team begins to perform assurance services with respect to the particular engagement. The engagement period ends when the assurance 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 ended or the issuance of the final assurance report. If an entity becomes an assurance client during or after the period covered by the subject matter information on which the firm will express a conclusion, the firm shall determine whether any threats to independence are created by —
Threats to independence are created if a non‑assurance service was provided to the assurance client during, or after the period covered by the subject matter information, but before the assurance team begins to perform assurance services, and the service would not be permitted during the engagement period. In such circumstances, the firm shall evaluate and address any threat to independence created by the service. If the threats are not at an acceptable level, the firm shall only accept the assurance engagement if the threats are reduced to an acceptable level. Examples of actions that might be safeguards to address such threats include —
If a non-assurance service that would not be permitted during the engagement period has not been completed and it is not practical to complete or end the service before the commencement of professional services in connection with the assurance engagement, the firm shall only accept the assurance engagement if —
[Paragraphs 900.34 to 900.39 are intentionally left blank] General Documentation of Independence for Assurance Engagements A firm shall document conclusions regarding compliance with this Part, and the substance of any relevant discussions that support those conclusions. In particular —
Documentation provides evidence of the firm’s judgments in forming conclusions regarding compliance with this Part. However, a lack of documentation does not determine whether a firm considered a particular matter or whether the firm is independent. [Paragraphs 900.41 to 900.49 are intentionally left blank] Breach of an Independence Provision for Assurance Engagements When a Firm Identifies a Breach If a firm concludes that a breach of a requirement in this Part has occurred, the firm shall —
In making this determination, the firm shall exercise professional judgment and take into account whether a reasonable and informed third party would be likely to conclude that the firm’s objectivity would be compromised, and therefore, the firm would be unable to issue an assurance report. If the firm determines that action cannot be taken to address the consequences of the breach satisfactorily, the firm shall, as soon as possible, inform the party that engaged the firm or those charged with governance, as appropriate. The firm shall also take the steps necessary to end the assurance engagement in compliance with any applicable legal or regulatory requirements relevant to ending the assurance engagement. If the firm determines that action can be taken to address the consequences of the breach satisfactorily, the firm shall discuss the breach and the action it has taken or proposes to take with the party that engaged the firm or those charged with governance, as appropriate. The firm shall discuss the breach and the proposed action on a timely basis, taking into account the circumstances of the engagement and the breach. If the party that engaged the firm does not, or those charged with governance do not concur that the action proposed by the firm in accordance with paragraph R900.50(c) satisfactorily addresses the consequences of the breach, the firm shall take the steps necessary to end the assurance engagement in compliance with any applicable legal or regulatory requirements relevant to ending the assurance engagement. In complying with the requirements in paragraphs R900.50 to R900.53, the firm shall document —
If the firm continues with the assurance engagement, it shall document —
Firms are required to comply with the fundamental principles, be independent and apply the conceptual framework set out in Section 120 to identify, evaluate and address threats to independence. The nature and level of fees or other types of remuneration might create a self-interest or intimidation threat. This section sets out specific requirements and application material relevant to applying the conceptual framework in such circumstances. Requirements and Application Material When the total fees generated from an assurance client by the firm expressing the conclusion in an assurance engagement represent a large proportion of the total fees of that firm, the dependence on that client and concern about losing the client create a self-interest or intimidation threat. Factors that are relevant in evaluating the level of such threats include —
An example of an action that might be a safeguard to address such a self-interest or intimidation threat is increasing the client base in the firm to reduce dependence on the assurance client. A self-interest or intimidation threat is also created when the fees generated by the firm from an assurance client represent a large proportion of the revenue from an individual partner’s clients. Examples of actions that might be safeguards to address such a self-interest or intimidation threat include —
A self-interest threat might be created if a significant part of fees is not paid before the assurance report, if any, for the following period is issued. It is generally expected that the firm will require payment of such fees before any such report is issued. The requirements and application material set out in Section 911 with respect to loans and guarantees might also apply to situations where such unpaid fees exist. Examples of actions that might be safeguards to address such a self‑interest threat include —
When a significant part of fees due from an assurance client remains unpaid for a long time, the firm shall determine —
Contingent fees are fees calculated on a predetermined basis relating to the outcome of a transaction or the result of the services performed. A contingent fee charged through an intermediary is an example of an indirect contingent fee. In this section, a fee is not regarded as being contingent if established by a court or other public authority. A firm shall not charge directly or indirectly a contingent fee for an assurance engagement. A firm shall not charge directly or indirectly a contingent fee for a non‑assurance service provided to an assurance client if the outcome of the non-assurance service, and therefore, the amount of the fee, is dependent on a future or contemporary judgment related to a matter that is material to the subject matter information of the assurance engagement. Paragraphs R905.7 and R905.8 preclude a firm from entering into certain contingent fee arrangements with an assurance client. Even if a contingent fee arrangement is not precluded when providing a non‑assurance service to an assurance client, a self‑interest threat might still be created. Factors that are relevant in evaluating the level of such a threat include —
Examples of actions that might be safeguards to address such a self-interest threat include —
Firms are required to comply with the fundamental principles, be independent and apply the conceptual framework set out in Section 120 to identify, evaluate and address threats to independence. Accepting gifts and hospitality from an assurance client might create a self-interest, familiarity or intimidation threat. This section sets out a specific requirement and application material relevant to applying the conceptual framework in such circumstances. Requirement and Application Material A firm or an assurance team member shall not accept gifts and hospitality from an assurance client, unless the value is trivial and inconsequential. Where a firm or assurance team member is offering or accepting an inducement to or from an assurance client, the requirements and application material set out in Section 340 apply and non‑compliance with these requirements might create threats to independence. The requirements set out in Section 340 relating to offering or accepting inducements do not allow a firm or assurance team member to accept gifts and hospitality where the intent is to improperly influence behaviour even if the value is trivial and inconsequential. ACTUAL OR THREATENED LITIGATION Firms are required to comply with the fundamental principles, be independent and apply the conceptual framework set out in Section 120 to identify, evaluate and address threats to independence. When litigation with an assurance client occurs, or appears likely, self‑interest and intimidation threats are created. This section sets out specific application material relevant to applying the conceptual framework in such circumstances. The relationship between client management and assurance team members must be characterised by complete candour and full disclosure regarding all aspects of a client’s operations. Adversarial positions might result from actual or threatened litigation between an assurance client and the firm or an assurance team member. Such adversarial positions might affect management’s willingness to make complete disclosures and create self-interest and intimidation threats. Factors that are relevant in evaluating the level of such threats include —
If the litigation involves an assurance team member, an example of an action that might eliminate such self‑interest and intimidation threats is removing that individual from the assurance team. An example of an action that might be a safeguard to address such self-interest and intimidation threats is having an appropriate reviewer review the work performed. Firms are required to comply with the fundamental principles, be independent and apply the conceptual framework set out in Section 120 to identify, evaluate and address threats to independence. Holding a financial interest in an assurance client might create a self-interest threat. This section sets out specific requirements and application material relevant to applying the conceptual framework in such circumstances. Requirements and Application Material A financial interest might be held directly or indirectly through an intermediary such as a collective investment vehicle, an estate or a trust. When a beneficial owner has control over the intermediary or ability to influence its investment decisions, the Code defines that financial interest to be direct. Conversely, when a beneficial owner has no control over the intermediary or ability to influence its investment decisions, the Code defines that financial interest to be indirect. This section contains references to the “materiality” of a financial interest. In determining whether such an interest is material to an individual, the combined net worth of the individual and the individual’s immediate family members may be taken into account. Factors that are relevant in evaluating the level of a self‑interest threat created by holding a financial interest in an assurance client include —
Financial Interests Held by the Firm, Assurance Team Members and Immediate Family A direct financial interest or a material indirect financial interest in the assurance client shall not be held by —
Financial Interests in an Entity Controlling an Assurance Client When an entity has a controlling interest in the assurance client and the client is material to the entity, neither the firm, nor an assurance team member, nor any of that individual’s immediate family shall hold a direct or material indirect financial interest in that entity. Financial Interests Held as Trustee Paragraph R910.4 shall also apply to a financial interest in an assurance client held in a trust for which the firm or individual acts as trustee unless —
Financial Interests Received Unintentionally If a firm, an assurance team member, or any of that individual’s immediate family, receives a direct financial interest or a material indirect financial interest in an assurance client by way of an inheritance, gift, as a result of a merger, or in similar circumstances and the interest would not otherwise be permitted to be held under this section, then —
Financial Interests — Other Circumstances A self-interest threat might be created if an assurance team member knows that a close family member has a direct financial interest or a material indirect financial interest in the assurance client. Factors that are relevant in evaluating the level of such a threat include —
Examples of actions that might eliminate such a self‑interest threat include —
An example of an action that might be a safeguard to address such a self-interest threat is having an appropriate reviewer review the work of the assurance team member. A self-interest threat might be created if an assurance team member knows that a financial interest is held in the assurance client by individuals such as —
An example of an action that might eliminate such a self‑interest threat is removing the assurance team member with the personal relationship from the assurance team. Examples of actions that might be safeguards to address such a self-interest threat include —
Firms are required to comply with the fundamental principles, be independent and apply the conceptual framework set out in Section 120 to identify, evaluate and address threats to independence. A loan or a guarantee of a loan with an assurance client might create a self-interest threat. This section sets out specific requirements and application material relevant to applying the conceptual framework in such circumstances. Requirements and Application Material This section contains references to the “materiality” of a loan or guarantee. In determining whether such a loan or guarantee is material to an individual, the combined net worth of the individual and the individual’s immediate family members may be taken into account. Loans and Guarantees with an Assurance Client A firm, an assurance team member, or any of that individual’s immediate family shall not make or guarantee a loan to an assurance client unless the loan or guarantee is immaterial to both —
Loans and Guarantees with an Assurance Client that is a Bank or Similar Institution A firm, an assurance team member, or any of that individual’s immediate family shall not accept a loan, or a guarantee of a loan, from an assurance client that is a bank or a similar institution unless the loan or guarantee is made under normal lending procedures, terms and conditions. Examples of loans include mortgages, bank overdrafts, car loans and credit card balances. Even if a firm receives a loan from an assurance client that is a bank or similar institution under normal lending procedures, terms and conditions, the loan might create a self-interest threat if it is material to the assurance client or firm receiving the loan. An example of an action that might be a safeguard to address such a self-interest threat is having the work reviewed by an appropriate reviewer, who is not an assurance team member, from a network firm that is not a beneficiary of the loan. Deposit or Brokerage Accounts A firm, an assurance team member, or any of that individual’s immediate family shall not have deposits or a brokerage account with an assurance client that is a bank, broker, or similar institution, unless the deposit or account is held under normal commercial terms. Loans and Guarantees with an Assurance Client that is not a Bank or Similar Institution A firm or an assurance team member, or any of that individual’s immediate family, shall not accept a loan from, or have a borrowing guaranteed by, an assurance client that is not a bank or similar institution, unless the loan or guarantee is immaterial to both —
Firms are required to comply with the fundamental principles, be independent and apply the conceptual framework set out in Section 120 to identify, evaluate and address threats to independence. A close business relationship with an assurance client or its management might create a self-interest or intimidation threat. This section sets out specific requirements and application material relevant to applying the conceptual framework in such circumstances. Requirements and Application Material This section contains references to the “materiality” of a financial interest and the “significance” of a business relationship. In determining whether such a financial interest is material to an individual, the combined net worth of the individual and the individual’s immediate family members may be taken into account. Examples of a close business relationship arising from a commercial relationship or common financial interest include —
Firm, Assurance Team Member or Immediate Family Business Relationships A firm or an assurance team member shall not have a close business relationship with an assurance client or its management unless any financial interest is immaterial and the business relationship is insignificant to the client or its management and the firm or the assurance team member, as applicable. A self-interest or intimidation threat might be created if there is a close business relationship between the assurance client or its management and the immediate family of an assurance team member. The purchase of goods and services from an assurance client by a firm, or an assurance team member, or any of that individual’s immediate family does not usually create a threat to independence if the transaction is in the normal course of business and at arm’s length. However, such transactions might be of such a nature and magnitude that they create a self-interest threat. Examples of actions that might eliminate such a self‑interest threat include —
FAMILY AND PERSONAL RELATIONSHIPS Firms are required to comply with the fundamental principles, be independent and apply the conceptual framework set out in Section 120 to identify, evaluate and address threats to independence. Family or personal relationships with client personnel might create a self-interest, familiarity or intimidation threat. This section sets out specific requirements and application material relevant to applying the conceptual framework in such circumstances. Requirements and Application Material A self-interest, familiarity or intimidation threat might be created by family and personal relationships between an assurance team member and a director or officer or, depending on their role, certain employees of the assurance client. Factors that are relevant in evaluating the level of such threats include —
Immediate Family of an Assurance Team Member A self-interest, familiarity or intimidation threat is created when an immediate family member of an assurance team member is an employee in a position to exert significant influence over the underlying subject matter of the assurance engagement. Factors that are relevant in evaluating the level of such threats include —
An example of an action that might eliminate such a self-interest, familiarity or intimidation threat is removing the individual from the assurance team. An example of an action that might be a safeguard to address such a self-interest, familiarity or intimidation threat is structuring the responsibilities of the assurance team so that the assurance team member does not deal with matters that are within the responsibility of the immediate family member. An individual shall not participate as an assurance team member when any of that individual’s immediate family —
Close Family of an Assurance Team Member A self-interest, familiarity or intimidation threat is created when a close family member of an assurance team member is —
Factors that are relevant in evaluating the level of such threats include —
An example of an action that might eliminate such a self‑interest, familiarity or intimidation threat is removing the individual from the assurance team. An example of an action that might be a safeguard to address such a self-interest, familiarity or intimidation threat is structuring the responsibilities of the assurance team so that the assurance team member does not deal with matters that are within the responsibility of the close family member. Other Close Relationships of an Assurance Team Member An assurance team member shall consult in accordance with firm policies and procedures if the assurance team member has a close relationship with an individual who is not an immediate or close family member, but who is —
Factors that are relevant in evaluating the level of a self‑interest, familiarity or intimidation threat created by such relationships include —
An example of an action that might eliminate such a self‑interest, familiarity or intimidation threat is removing the individual from the assurance team. An example of an action that might be a safeguard to address such a self-interest, familiarity or intimidation threat is structuring the responsibilities of the assurance team so that the assurance team member does not deal with matters that are within the responsibility of the individual with whom the assurance team member has a close relationship. Relationships of Partners and Employees of the Firm A self-interest, familiarity or intimidation threat might be created by a personal or family relationship between —
Factors that are relevant in evaluating the level of such threats include —
Examples of actions that might be safeguards to address such self‑interest, familiarity or intimidation threats include —
RECENT SERVICE WITH AN ASSURANCE CLIENT Firms are required to comply with the fundamental principles, be independent and apply the conceptual framework set out in Section 120 to identify, evaluate and address threats to independence. If an assurance team member has recently served as a director or officer or employee of the assurance client, a self‑interest, self-review or familiarity threat might be created. This section sets out specific requirements and application material relevant to applying the conceptual framework in such circumstances. Requirements and Application Material Service During the Period Covered by the Assurance Report The assurance team shall not include an individual who, during the period covered by the assurance report —
Service Prior to the Period Covered by the Assurance Report A self-interest, self-review or familiarity threat might be created if, before the period covered by the assurance report, an assurance team member —
For example, a threat would be created if a decision made or work performed by the individual in the prior period, while employed by the client, is to be evaluated in the current period as part of the current assurance engagement. Factors that are relevant in evaluating the level of such threats include —
An example of an action that might be a safeguard to address such a self-interest, self-review or familiarity threat is having an appropriate reviewer review the work performed by the assurance team member. SERVING AS A DIRECTOR OR OFFICER OF AN ASSURANCE CLIENT Firms are required to comply with the fundamental principles, be independent and apply the conceptual framework set out in Section 120 to identify, evaluate and address threats to independence. Serving as a director or officer of an assurance client creates self‑review and self-interest threats. This section sets out specific requirements and application material relevant to applying the conceptual framework in such circumstances. Requirements and Application Material Service as Director or Officer A partner or employee of the firm shall not serve as a director or officer of an assurance client of the firm. Service as Company Secretary A partner or employee of the firm shall not serve as Company Secretary for an assurance client of the firm unless —
The position of Company Secretary has different implications in different jurisdictions. Duties might range from: administrative duties (such as personnel management and the maintenance of company records and registers) to duties as diverse as ensuring that the company complies with regulations or providing advice on corporate governance matters. Usually this position is seen to imply a close association with the entity. Therefore, a threat is created if a partner or employee of the firm serves as Company Secretary for an assurance client. (More information on providing non-assurance services to an assurance client is set out in Section 950, Provision of Non-assurance Services to an Assurance Client.) EMPLOYMENT WITH AN ASSURANCE CLIENT Firms are required to comply with the fundamental principles, be independent and apply the conceptual framework set out in Section 120 to identify, evaluate and address threats to independence. Employment relationships with an assurance client might create a self‑interest, familiarity or intimidation threat. This section sets out specific requirements and application material relevant to applying the conceptual framework in such circumstances. Requirements and Application Material A familiarity or intimidation threat might be created if any of the following individuals have been an assurance team member or partner of the firm:
Former Partner or Assurance Team Member Restrictions If a former partner has joined an assurance client of the firm or a former assurance team member has joined the assurance client as —
the individual shall not continue to participate in the firm’s business or professional activities. Even if one of the individuals described in paragraph R924.4 has joined the assurance client in such a position and does not continue to participate in the firm’s business or professional activities, a familiarity or intimidation threat might still be created. A familiarity or intimidation threat might also be created if a former partner of the firm has joined an entity in one of the positions described in paragraph 924.3 A1 and the entity subsequently becomes an assurance client of the firm. Factors that are relevant in evaluating the level of such threats include —
Examples of actions that might be safeguards to address such a familiarity or intimidation threat include —
Assurance Team Members Entering Employment Negotiations with a Client A firm shall have policies and procedures that require assurance team members to notify the firm when entering employment negotiations with an assurance client. A self-interest threat is created when an assurance team member participates in the assurance engagement while knowing that the assurance team member will, or might, join the client sometime in the future. An example of an action that might eliminate such a self‑interest threat is removing the individual from the assurance engagement. An example of an action that might be a safeguard to address such a self-interest threat is having an appropriate reviewer review any significant judgments made by that assurance team member while on the team. LONG ASSOCIATION OF PERSONNEL WITH AN ASSURANCE CLIENT Firms are required to comply with the fundamental principles, be independent and apply the conceptual framework set out in Section 120 to identify, evaluate and address threats to independence. When an individual is involved in an assurance engagement of a recurring nature over a long period of time, familiarity and self-interest threats might be created. This section sets out requirements and application material relevant to applying the conceptual framework in such circumstances. Requirements and Application Material A familiarity threat might be created as a result of an individual’s long association with —
A self-interest threat might be created as a result of an individual’s concern about losing a longstanding assurance client or an interest in maintaining a close personal relationship with a member of senior management or those charged with governance. Such a threat might influence the individual’s judgment inappropriately. Factors that are relevant to evaluating the level of such familiarity or self-interest threats include —
The combination of two or more factors might increase or reduce the level of the threats. For example, familiarity threats created over time by the increasingly close relationship between an assurance team member and an individual at the assurance client who is in a position to exert significant influence over the underlying subject matter or, in an attestation engagement, the subject matter information, would be reduced by the departure of that individual from the client. An example of an action that might eliminate the familiarity and self-interest threats in relation to a specific engagement would be rotating the individual off the assurance team. Examples of actions that might be safeguards to address such familiarity or self-interest threats include —
If a firm decides that the level of the threats created can only be addressed by rotating the individual off the assurance team, the firm shall determine an appropriate period during which the individual shall not —
The period shall be of sufficient duration to allow the familiarity and self-interest threats to be addressed. PROVISION OF NON-ASSURANCE SERVICES TO ASSURANCE CLIENTS Firms are required to comply with the fundamental principles, be independent, and apply the conceptual framework set out in Section 120 to identify, evaluate and address threats to independence. Firms might provide a range of non-assurance services to their assurance clients, consistent with their skills and expertise. Providing certain non-assurance services to assurance clients might create threats to compliance with the fundamental principles and threats to independence. This section sets out specific requirements and application material relevant to applying the conceptual framework in such circumstances. Requirements and Application Material Before a firm accepts an engagement to provide a non‑assurance service to an assurance client, the firm shall determine whether providing such a service might create a threat to independence. The requirements and application material in this section assist firms in analysing certain types of non‑assurance services and the related threats that might be created when a firm accepts or provides non-assurance services to an assurance client. New business practices, the evolution of financial markets and changes in information technology are among the developments that make it impossible to draw up an all‑inclusive list of non-assurance services that might be provided to an assurance client. As a result, the Code does not include an exhaustive listing of all non‑assurance services that might be provided to an assurance client. Factors that are relevant in evaluating the level of threats created by providing a non-assurance service to an assurance client include —
Materiality in Relation to an Assurance Client’s Information The concept of materiality in relation to an assurance client’s subject matter information is addressed in Singapore Standard on Assurance Engagements (SSAE) 3000 (Revised), Assurance Engagements Other than Audits or Reviews of Historical Financial Information. The determination of materiality involves the exercise of professional judgment and is impacted by both quantitative and qualitative factors. It is also affected by perceptions of the financial or other information needs of users. Multiple Non-assurance Services Provided to the Same Assurance Client A firm might provide multiple non-assurance services to an assurance client. In these circumstances the combined effect of threats created by providing those services is relevant to the firm’s evaluation of threats. Paragraph 120.10 A2 includes a description of safeguards. In relation to providing non-assurance services to assurance clients, safeguards are actions, individually or in combination, that the firm takes that effectively reduce threats to independence to an acceptable level. In some situations, when a threat is created by providing a service to an assurance client, safeguards might not be available. In such situations, the application of the conceptual framework set out in Section 120 requires the firm to decline or end the non-assurance service or the assurance engagement. Prohibition on Assuming Management Responsibilities A firm shall not assume a management responsibility related to the underlying subject matter and, in an attestation engagement, the subject matter information of an assurance engagement provided by the firm. If the firm assumes a management responsibility as part of any other service provided to the assurance client, the firm shall ensure that the responsibility is not related to the underlying subject matter and, in an attestation engagement, the subject matter information of the assurance engagement provided by the firm. Management responsibilities involve controlling, leading and directing an entity, including making decisions regarding the acquisition, deployment and control of human, financial, technological, physical and intangible resources. Providing a non-assurance service to an assurance client creates self-review and self-interest threats if the firm assumes a management responsibility when performing the service. In relation to providing a service related to the underlying subject matter and, in an attestation engagement, the subject matter information of an assurance engagement provided by the firm, assuming a management responsibility also creates a familiarity threat and might create an advocacy threat because the firm becomes too closely aligned with the views and interests of management. Determining whether an activity is a management responsibility depends on the circumstances and requires the exercise of professional judgment. Examples of activities that would be considered a management responsibility include —
Providing advice and recommendations to assist the management of an assurance client in discharging its responsibilities is not assuming a management responsibility. (Ref: paragraphs R950.6 to 950.6 A3). To avoid assuming a management responsibility when providing non-assurance services to an assurance client that are related to the underlying subject matter and, in an attestation engagement, the subject matter information of the assurance engagement, the firm shall be satisfied that client management makes all related judgments and decisions that are the proper responsibility of management. This includes ensuring that the client’s management —
Other Considerations Related to Providing Specific Non-Assurance Services A self-review threat might be created if, in an attestation engagement, the firm is involved in the preparation of subject matter information which subsequently becomes the subject matter information of an assurance engagement. Examples of non-assurance services that might create such self-review threats when providing services related to the subject matter information of an assurance engagement include —
REPORTS THAT INCLUDE A RESTRICTION ON USE AND DISTRIBUTION (ASSURANCE ENGAGEMENTS OTHER THAN AUDIT AND REVIEW ENGAGEMENTS) Firms are required to comply with the fundamental principles, be independent and apply the conceptual framework set out in Section 120 to identify, evaluate and address threats to independence. This section sets out certain modifications to Part 4B which are permitted in certain circumstances involving assurance engagements where the report includes a restriction on use and distribution. In this section, an engagement to issue a restricted use and distribution assurance report in the circumstances set out in paragraph R990.3 is referred to as an “eligible assurance engagement.” Requirements and Application Material When a firm intends to issue a report on an assurance engagement which includes a restriction on use and distribution, the independence requirements set out in Part 4B shall be eligible for the modifications that are permitted by this section, but only if —
The intended users of the report might obtain an understanding of the purpose, subject matter information, and limitations of the report by participating, either directly, or indirectly through a representative who has authority to act for the intended users, in establishing the nature and scope of the engagement. In either case, this participation helps the firm to communicate with intended users about independence matters, including the circumstances that are relevant to applying the conceptual framework. It also allows the firm to obtain the agreement of the intended users to the modified independence requirements. Where the intended users are a class of users who are not specifically identifiable by name at the time the engagement terms are established, the firm shall subsequently make such users aware of the modified independence requirements agreed to by their representative. For example, where the intended users are a class of users such as lenders in a syndicated loan arrangement, the firm might describe the modified independence requirements in an engagement letter to the representative of the lenders. The representative might then make the firm’s engagement letter available to the members of the group of lenders to meet the requirement for the firm to make such users aware of the modified independence requirements agreed to by the representative. When the firm performs an eligible assurance engagement, any modifications to Part 4B shall be limited to those modifications set out in paragraphs R990.7 and R990.8. If the firm also issues an assurance report that does not include a restriction on use and distribution for the same client, the firm shall apply Part 4B to that assurance engagement. Financial Interests, Loans and Guarantees, Close Business, Family and Personal Relationships When the firm performs an eligible assurance engagement —
Others within the firm who can directly influence the outcome of the assurance engagement include those who recommend the compensation, or who provide direct supervisory, management or other oversight, of the assurance engagement partner in connection with the performance of the assurance engagement. When the firm performs an eligible assurance engagement, the firm shall not hold a material direct or a material indirect financial interest in the assurance client. In the Code of Professional Conduct and Ethics for Public Accountants and Accounting Entities, the singular shall be construed as including the plural as well as the reverse, and the terms below have the following meanings assigned to them. In this Glossary, explanations of defined terms are shown in regular font; italics are used for explanations of described terms which have a specific meaning in certain parts of the Code or for additional explanations of defined terms. References are also provided to terms described in the Code. A level at which a public accountant using the reasonable and informed third party test would likely conclude that the public accountant complies with the fundamental principles. An accounting corporation, accounting firm, or accounting limited liability partnership, approved or deemed to be approved under the Accountants Act (Cap. 2). The communication to the public of information as to the services or skills provided by public accountants with a view to procuring professional business. An appropriate reviewer is a professional with the necessary knowledge, skills, experience and authority to review, in an objective manner, the relevant work performed or service provided. Such an individual might be a professional accountant. This term is described in paragraph 300.8 A4. The responsible party and also, in an attestation engagement, the party taking responsibility for the subject matter information (who might be the same as the responsible party). An engagement in which a public accountant aims to obtain sufficient appropriate evidence in order to express a conclusion designed to enhance the degree of confidence of the intended users other than the responsible party about the subject matter information (that is, the outcome of the measurement or evaluation of an underlying subject matter against criteria). (SSAE 3000 (Revised) describes the elements and objectives of an assurance engagement conducted under that Standard and the Assurance Framework provides a general description of assurance engagements to which Singapore Standards on Auditing (SSAs), Singapore Standards on Review Engagements (SSREs) and Singapore Standards on Assurance Engagements (SSAEs) apply.) In Part 4B, the term “assurance engagement” refers to assurance engagements that are not audit or review engagements.
An assurance engagement in which a party other than the public accountant measures or evaluates the underlying subject matter against the criteria. A party other than the public accountant also often presents the resulting subject matter information in a report or statement. In some cases, however, the subject matter information may be presented by the public accountant in the assurance report. In an attestation engagement, the public accountant’s conclusion addresses whether the subject matter information is free from material misstatement. The public accountant’s conclusion may be phrased in terms of —
In Part 4A, the term “audit” applies equally to “review”. An entity in respect of which a firm conducts an audit engagement. When the client is a listed entity, audit client will always include its related entities. When the audit client is not a listed entity, audit client includes those related entities over which the client has direct or indirect control. (See also paragraph R400.20.) In Part 4A, the term “audit client” applies equally to “review client”. A reasonable assurance engagement in which a public accountant expresses an opinion whether financial statements are prepared, in all material respects (or give a true and fair view or are presented fairly, in all material respects), in accordance with an applicable financial reporting framework, such as an engagement conducted in accordance with SSAs. This includes a Statutory Audit, which is an audit required by legislation or other regulation. In Part 4A, the term “audit engagement” applies equally to “review engagement.” Paragraphs R320.8, SG320.8A to SG320.8C and SG410.4A are not applicable for engagements pertaining to a component of a complete set of general purpose or special purpose financial statements, such as a single financial statement, specified accounts, elements of accounts, or items in a financial statement. In Part 4A, the term “audit report” applies equally to “review report”.
All those within a network firm who can directly influence the outcome of the audit engagement. In Part 4A, the term “audit team” applies equally to “review team”. A parent, child or sibling who is not an immediate family member. This term is described in Section 120. A fee calculated on a predetermined basis relating to the outcome of a transaction or the result of the services performed by the firm. A fee that is established by a court or other public authority is not a contingent fee. This term is described in paragraph R540.5 for the purposes of paragraphs R540.11 to R540.19. In an assurance engagement, the benchmarks used to measure or evaluate the underlying subject matter. The “applicable criteria” are the criteria used for the particular engagement. An assurance engagement in which the public accountant measures or evaluates the underlying subject matter against the applicable criteria and the public accountant presents the resulting subject matter information as part of, or accompanying, the assurance report. In a direct engagement, the public accountant’s conclusion addresses the reported outcome of the measurement or evaluation of the underlying subject matter against the criteria. Direct financial interest
Those charged with the governance of an entity, or acting in an equivalent capacity, regardless of their title, which might vary from jurisdiction to jurisdiction. Eligible audit engagement This term is described in paragraph 800.2 for the purposes of Section 800. Eligible assurance engagement This term is described in paragraph 990.2 for the purposes of Section 990. The partner or other person in the firm who is responsible for the engagement and its performance, and for the report that is issued on behalf of the firm, and who, where required, has the appropriate authority from a professional, legal or regulatory body. Engagement period The engagement period starts when the audit team begins to perform the audit. 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 ended or the issuance of the final audit report. Engagement period The engagement period starts when the assurance team begins to perform assurance services with respect to the particular engagement. The engagement period ends when the assurance 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 ended or the issuance of the final assurance report. Engagement quality control review A process designed to provide an objective evaluation, on or before the report is issued, of the significant judgments the engagement team made and the conclusions it reached in formulating the report. All partners and staff performing the engagement, and any individuals engaged by the firm or a network firm who perform assurance procedures on the engagement. This excludes external experts engaged by the firm or by a network firm. The term “engagement team” also excludes individuals within the client’s internal audit function who provide direct assistance on an audit engagement when the external auditor complies with the requirements of SSA 610 (Revised 2013), Using the Work of Internal Auditors. (SSA 610 (Revised 2013) establishes limits on the use of direct assistance. It also acknowledges that the external auditor may be prohibited by law or regulation from obtaining direct assistance from internal auditors. Therefore, the use of direct assistance is restricted to situations where it is permitted.) A public accountant currently holding an audit appointment or carrying out accounting, tax, consulting or similar professional services for a client. An individual (who is not a partner or a member of the professional staff, including temporary staff, of the firm or a network firm) or organisation possessing skills, knowledge and experience in a field other than accounting or auditing, whose work in that field is used to assist the public accountant in obtaining sufficient appropriate evidence. An interest in an equity or other security, debenture, loan or other debt instrument of an entity, including rights and obligations to acquire such an interest and derivatives directly related to such interest. A financial institution is any of the following:
A structured representation of historical financial information, including related notes, intended to communicate an entity’s economic resources or obligations at a point in time or the changes therein for a period of time in accordance with a financial reporting framework. The related notes ordinarily comprise a summary of significant accounting policies and other explanatory information. The term can relate to a complete set of financial statements, but it can also refer to a single financial statement, for example, a balance sheet, or a statement of revenues and expenses, and related explanatory notes. The term does not refer to specific elements, accounts or items of a financial statement. Financial statements on which the firm will express an opinion In the case of a single entity, the financial statements of that entity. In the case of consolidated financial statements, also referred to as group financial statements, the consolidated financial statements.
Paragraphs 400.4 and 900.3 explain how the word “firm” is used to address the responsibility of public accountants and firms for compliance with Parts 4A and 4B, respectively. This term is described in paragraph 110.1 A1. Each of the fundamental principles is, in turn, described in the following paragraphs: Professional competence and due care Historical financial information Information expressed in financial terms in relation to a particular entity, derived primarily from that entity’s accounting system, about economic events occurring in past time periods or about economic conditions or circumstances at points in time in the past. A spouse (or equivalent) or dependent.
As set out in paragraphs 400.5 and 900.4, references to an individual or firm being “independent” mean that the individual or firm has complied with Parts 4A and 4B, as applicable. Indirect financial interest A financial interest beneficially owned through a collective investment vehicle, estate, trust or other intermediary over which the individual or entity has no control or ability to influence investment decisions. An object, situation, or action that is used as a means to influence another individual’s behaviour, but not necessarily with the intent to improperly influence that individual’s behaviour. Inducements can range from minor acts of hospitality between public accountants and existing or prospective clients, to acts that result in non-compliance with laws and regulations. An inducement can take many different forms, for example —
The engagement partner, the individual responsible for the engagement quality control review, and other audit partners, if any, on the engagement team who make key decisions or judgments on significant matters with respect to the audit of the financial statements on which the firm will express an opinion. Depending upon the circumstances and the role of the individuals on the audit, “other audit partners” might include, for example, audit partners responsible for significant subsidiaries or divisions. An entity that is defined as a large charity in the Charities (Large Charities) Regulations (Cap. 37, Rg 9). Large institution of a public character An entity that is defined as a large institution of a public character in the Charities (Institutions of a Public Character) Regulations (Cap. 37, Rg 5). An entity whose shares, stock or debt are quoted or listed on a recognised stock exchange, or are marketed under the regulations of a recognised stock exchange or other equivalent body. This term is used in the Code to denote permission to take a particular action in certain circumstances, including as an exception to a requirement. It is not used to denote possibility. This term is used in the Code to denote the possibility of a matter arising, an event occurring or a course of action being taken. The term does not ascribe any particular level of possibility or likelihood when used in conjunction with a threat, as the evaluation of the level of a threat depends on the facts and circumstances of any particular matter, event or course of action.
A firm or entity that belongs to a network. For further information, see paragraphs 400.50 A1 to 400.54 A1. Non-compliance with laws and regulations Non-compliance with laws and regulations (“non‑compliance”) comprises acts of omission or commission, intentional or unintentional, which are contrary to the prevailing laws or regulations committed by the following parties:
This term is described in paragraph 360.5 A1. A distinct sub-group, whether organised on geographical or practice lines. A public accountant who most recently held an audit appointment or carried out accounting, tax, consulting or similar professional services for a client, where there is no existing accountant. A suitably qualified individual. An activity requiring accountancy or related skills undertaken by a public accountant, including accounting, auditing, tax, management consulting, and financial management. Professional judgment involves the application of relevant training, professional knowledge, skill and experience commensurate with the facts and circumstances, taking into account the nature and scope of the particular professional activities, and the interests and relationships involved. This term is described in paragraph 120.5 A4. Professional activities performed for clients. Proposed public accountant A public accountant who is considering accepting an audit appointment or an engagement to perform accounting, tax, consulting or similar professional services for a prospective client (or in some cases, an existing client). A public accountant as defined in the Accountants Act (Cap. 2). Public accountancy services Public accountancy services as defined in the Accountants Act (Cap. 2). A public company as defined under the Companies Act (Cap. 50).
Other entities might also be considered to be public interest entities, as set out in paragraph 400.8. Note: Additional SG definition of “Public interest entity” For the purposes of sub‑paragraph (b)(i), a public interest entity means —
For the purposes of sub‑paragraph (b)(ii), the audit of large charities and large institutions of a public character shall be conducted in compliance with the same independence requirements that apply to the audit of listed entities. Reasonable and informed third party Reasonable and informed third party test The reasonable and informed third party test is a consideration by the public accountant about whether the same conclusions would likely be reached by another party. Such consideration is made from the perspective of a reasonable and informed third party, who weighs all the relevant facts and circumstances that the public accountant knows, or could reasonably be expected to know, at the time that the conclusions are made. The reasonable and informed third party does not need to be a public accountant, but would possess the relevant knowledge and experience to understand and evaluate the appropriateness of the public accountant’s conclusions in an impartial manner. These terms are described in paragraph 120.5 A6. An entity that has any of the following relationships with the client:
In an assurance engagement, the party responsible for the underlying subject matter. An entity in respect of which a firm conducts a review engagement. An assurance engagement, conducted in accordance with Singapore Standards on Review Engagements or equivalent, in which a public accountant expresses a conclusion on whether, on the basis of the procedures which do not provide all the evidence that would be required in an audit, anything has come to the public accountant’s attention that causes the public accountant to believe that the financial statements are not prepared, in all material respects, in accordance with an applicable financial reporting framework.
All those within a network firm who can directly influence the outcome of the review engagement. Safeguards are actions, individually or in combination, that the public accountant takes that effectively reduce threats to compliance with the fundamental principles to an acceptable level. This term is described in paragraph 120.10 A2. This term is described in paragraphs 360.5 A3. Special purpose financial statements Financial statements prepared in accordance with a financial reporting framework designed to meet the financial information needs of specified users. Subject matter information The outcome of the measurement or evaluation of the underlying subject matter against the criteria, i.e., the information that results from applying the criteria to the underlying subject matter. Those charged with governance The person(s) or organisation(s) (for example, a corporate trustee) with responsibility for overseeing the strategic direction of the entity and obligations related to the accountability of the entity. This includes overseeing the financial reporting process. For some entities in some jurisdictions, those charged with governance might include management personnel, for example, executive members of a governance board of a private or public sector entity, or an owner-manager. This term is described in paragraph 120.6 A3 and includes the following categories: This term is described in paragraph R540.5. Underlying subject matter The phenomenon that is measured or evaluated by applying criteria. What happens in a review engagement?A review engagement is a type of engagement that provides a limited level of assurance that a company's financial statements comply with the applicable financial reporting framework. It gives users limited assurance on the accuracy or correctness of financial statements.
Do you determine materiality in a review engagement?407.1 SSARS do not require practitioners to document materiality. Consequently, the authors recommend materiality NOT BE DOCUMENTED in a review or compilation since it is not required by SSARS. From a practical standpoint, most practitioners use professional judgment when considering materiality in a review engagement.
Do you need to be independent for a review engagement?If management does not possess the skill, knowledge, and experience to oversee the preparation of the financial statements and accept responsibility, the accountant may not be independent. So, must the accountant be independent? Yes, independence is required in review engagements.
What is the objective of a review engagement?The objective of a review engagement is to review the financial statements and provide an opinion as to whether the financial statements as a whole are free from material errors or fraud. Limited assurance is less than reasonable assurance.
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