Ethical Standard: Section 3 (Long Association w/ Engagements & Entities relevant to Engagements)

Question 1

What are the general guidelines under Section 3 for managing long associations with engagements to ensure audit independence?

Answer 1

Audit firms must have policies to monitor the length of time partners and senior staff serve on an audit. Possible safeguards against long association include:
1. Rotation of audit team members.
2. Involvement of an additional partner.
3. Conducting independent internal quality reviews.

For unlisted clients, a familiarity threat is assumed after 10 years. If a partner is not rotated after 10 years, other safeguards must be applied, or the firm must document why no safeguards are necessary and inform the client.

Question 2

What specific rules does Section 3 set for managing long associations with listed audit clients?

Answer 2

1. Partner Rotation: Audit partners must be rotated after 5 years of service on an audit, with a cooling-off period of 3 years before they can participate again in the audit (5 years for NI).
2. Quality Control Reviewer Rotation: Quality control reviewers and other key partners must be rotated after 7 years, with a 5-year cooling-off period applicable in both jurisdictions.
3. Senior Staff Considerations: The potential for familiarity threats must also be evaluated for senior staff other than partners, indicating a broader scope of concern for maintaining independence in audits of listed clients.