FRC Ethics, Non-audit/additional services Flashcards
What must be done when someone in the audit firm is considering providing a non-audit service to an audit client?
The details must be communicated to the audit engagement partner, who will consider the implications before accepting the service.
What should be considered before accepting non-audit work?
Whether a reasonable and informed third party would regard the non-audit work as impairing the firm’s objectivity and independence.
Are audit firms allowed to provide management decision-making services?
No, management decision-making services are prohibited for audit firms.
What should be done if safeguards are insufficient to mitigate threats to independence in non-audit work?
The non-audit work should not be accepted, and management decision-making can never be safeguarded.
What are general safeguards for non-audit services?
- Separate teams for the audit and non-audit work.
- Engagement quality review of the work and conclusions of the audit team in relation to the non-audit service.
What must be considered when evaluating the effectiveness of safeguards against the management threat?
Whether there is informed management, as without it, safeguards are unlikely to be effective.
What must be communicated to those charged with governance regarding non-audit services?
Matters that have a bearing on the auditor’s objectivity and independence related to the provision of non-audit services.
When should all reasoning and safeguards related to non-audit services be documented?
Before the engagement letter is issued.
What is the approach to non-audit services for public interest entity (PIE) clients?
The Ethical Standard provides a list of permitted services, and if a service is not on the list, it cannot be provided to the client.
Q: What must be done if threats to independence exist for non-PIE clients when providing non-audit services?
Evaluate the threats and apply safeguards. If safeguards cannot eliminate the threats, the firm must withdraw from the engagement.
Prohibited services include:
> Tax services (e.g., preparation of tax forms, payroll tax)
> Playing any part in management or decision making
> Bookkeeping, preparing accounting records/financial statements
> Payroll services
> Internal controls or risk management procedures design/implementation
> Valuation services, legal services
> Internal audit-related services
>Services linked to financing, capital structure, and allocation
>Promoting, dealing in, or underwriting shares
>Human resources services.
