Ethical Standard: Section 5 (Non-audit Services)

Question 1

What are the general requirements for providing Non-audit Services (NASs) according to Section 5?

Answer 1

There’s no outright prohibition on NASs, but they require:
1. Consideration of reasonable and informed 3rd party views.
2. Rejection if the service involves taking on management decision-making roles.
3. Awareness by Those Charged With Governance (TCWG) of independence issues related to NASs.
4. Alignment of the objectives of NASs with the objectives of the audit.

In NI, a ‘white-list’ exists for permitted NASs for Public Interest Entities (PIEs). Services not on this list cannot be provided.

Question 2

What are the guidelines for specific Non-audit Services under Section 5?

Answer 2

1. Internal Audit Services: Prohibited for an entity or a significant affiliate.
2. IT Services: Allowed if safeguards are in place, not critical to any significant part of the accounting system, and performed by non-audit team members.
3. Valuation Services: Permissible for non-listed entities if the valuation lacks significant subjective judgement and is immaterial to the financial statements.
4. Actuarial Valuation Services: Allowed when they have no material effect on the financial statements and lack significant subjective judgement.
5. Litigation Support: Permitted for non-listed entities when the matter is immaterial.

Question 3

How does Section 5 regulate legal services, recruitment & remuneration services, and corporate finance services?

Answer 3

Legal Services: Not allowed to act as the client’s solicitor unless immaterial.

Recruitment & Remuneration Services: The audit firm can take a limited role but cannot be responsible for appointing a director or employee of the client.

Corporate Finance/Restructuring/Transaction Services: Not permitted if it involves taking a management role or impacts future accounting treatments based on the service’s outputs.

Question 4

What are the conditions under Section 5 for providing TAX services as NASs?

Answer 4

1. Cannot promote or give tax advice that depends on an unacceptable accounting treatment.
2. The audit firm cannot undertake a management role.
3. Representation before a tax court or tribunal is not allowed, though providing information is acceptable with restrictions.

Question 5

What are the conditions under Section 5 for providing ACCOUNTING services as NASs?

Answer 5

1. Prohibited for listed entities.
2. Allowed in very limited circumstances for non-listed clients.
3. Services must not involve initiating transactions or making management decisions, be of a technical or mechanical nature requiring little professional judgement, and have appropriate safeguards, usually management approval.