Section 5510Part 5

Financial Interests

Introduction

5510.1 Firms are required to comply with the fundamental principles, be independent and apply the conceptual framework set out in Section 5120Section 5120 to identify, evaluate and address threats to independence. 5510.2 Holding a financial interest in a sustainability 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

General

5510.3 A1 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. 5510.3 A2 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. 5510.3 A3 Factors that are relevant in evaluating the level of a self-interest threat created by holding a financial interest in a sustainability assurance client include: • The role of the individual holding the financial interest. • Whether the financial interest is direct or indirect. • The materiality of the financial interest.

Financial Interests in a Sustainability Assurance Client Held by the

Firm, a Network Firm, Sustainability Assurance Team Members and

Others

R5510.4

Subject to paragraph R5510.5, a direct financial interest or a material indirect financial interest in the sustainability assurance client shall not be held by:

(a)

The firm or a network firm;

(b)

A sustainability assurance team member, or any of that individual’s immediate family;

(c)

Any other leader in the office in which an engagement leader practices in connection with the sustainability assurance engagement, or any of that other leader’s immediate family; or

(d)

Any other leader or managerial employee who provides services other than sustainability assurance to the sustainability assurance client, except for any whose involvement is minimal, or any of that individual’s immediate family. 5510.4 A1 The office in which the engagement leader practices in connection with a sustainability assurance engagement is not necessarily the office to which that engagement leader is assigned. When the engagement leader is located in a different office from that of the other sustainability assurance team members, professional judgment is needed to determine the office in which the engagement leader practices in connection with the engagement.

R5510.5

As an exception to paragraph R5510.4, an immediate family member identified in subparagraphs R5510.4(c) or (d) may hold a direct or material indirect financial interest in a sustainability assurance client, provided that:

(a)

The family member received the financial interest because of employment rights, for example through pension or share option plans, and, when necessary, the firm addresses the threat created by the financial interest; and

(b)

The family member disposes of or forfeits the financial interest as soon as practicable when the family member has or obtains the right to do so, or in the case of a stock option, when the family member obtains the right to exercise the option. Financial Interests in an Entity Controlling a Sustainability Assurance Client R5510.6 When an entity has a controlling interest in a sustainability assurance client and the client is material to the entity, neither the firm, nor a network firm, nor a sustainability 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 in a Sustainability Assurance Client Held as Trustee R5510.7 Paragraph R5510.4 shall also apply to a financial interest in a sustainability assurance client held in a trust for which the firm, network firm or individual acts as trustee, unless:

(a)

None of the following is a beneficiary of the trust: the trustee, the sustainability assurance team member or any of that individual’s immediate family, the firm or a network firm;

(b)

The interest in the sustainability assurance client held by the trust is not material to the trust;

(c)

The trust is not able to exercise significant influence over the sustainability assurance client; and

(d)

None of the following can significantly influence any investment decision involving a financial interest in the sustainability assurance client: the trustee, the sustainability assurance team member or any of that individual’s immediate family, the firm or a network firm.

Financial Interests in Common with the Sustainability Assurance Client

R5510.8

(a)

A firm, or a network firm, or a sustainability assurance team member, or any of that individual’s immediate family shall not hold a financial interest in an entity when a sustainability assurance client also has a financial interest in that entity, unless:

(i)

The financial interests are immaterial to the firm, the network firm, the sustainability assurance team member and that individual’s immediate family member and the sustainability assurance client, as applicable; or

(ii)

The sustainability assurance client cannot exercise significant influence over the entity.

(b)

Before an individual who has a financial interest described in paragraph R5510.8(a) can become a sustainability assurance team member, the individual or that individual’s immediate family member shall either:

(i)

Dispose of the interest; or

(ii)

Dispose of enough of the interest so that the remaining interest is no longer material.

Financial Interests in a Sustainability Assurance Client Received

Unintentionally

R5510.9

If a firm, a network firm or a leader 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 a sustainability 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:

(a)

If the interest is received by the firm or a network firm, or a sustainability assurance team member or any of that individual’s immediate family, the financial interest shall be disposed of immediately, or enough of an indirect financial interest shall be disposed of so that the remaining interest is no longer material; or

(b)

(i)

If the interest is received by an individual who is not a sustainability assurance team member, or by any of that individual’s immediate family, the financial interest shall be disposed of as soon as possible, or enough of an indirect financial interest shall be disposed of so that the remaining interest is no longer material; and

(ii)

Pending the disposal of the financial interest, when necessary the firm shall address the threat created.

Financial Interests – Other Circumstances

Immediate Family

5510.10 A1 A self-interest, familiarity, or intimidation threat might be created if a sustainability assurance 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 sustainability assurance client is also known to have a financial interest in that entity. 5510.10 A2 Factors that are relevant in evaluating the level of such threats include: • The role of the individual on the sustainability assurance team. • Whether ownership of the entity is closely or widely held. • Whether the interest allows the investor to control or significantly influence the entity. • The materiality of the financial interest. 5510.10 A3 An example of an action that might eliminate such a self-interest, familiarity, or intimidation threat is removing the sustainability assurance team member with the financial interest from the sustainability assurance team. 5510.10 A4 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 sustainability assurance team member.

Close Family

5510.10 A5 A self-interest threat might be created if a sustainability assurance team member knows that a close family member has a direct financial interest or a material indirect financial interest in the sustainability assurance client. 5510.10 A6 Factors that are relevant in evaluating the level of such a threat include: • The nature of the relationship between the sustainability assurance team member and the close family member. • Whether the financial interest is direct or indirect. • The materiality of the financial interest to the close family member. 5510.10 A7 Examples of actions that might eliminate such a self-interest threat include: • Having the close family member dispose, as soon as practicable, of all of the financial interest or dispose of enough of an indirect financial interest so that the remaining interest is no longer material. • Removing the individual from the sustainability assurance team. 5510.10 A8 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 sustainability assurance team member.

Other Individuals

5510.10 A9 A self-interest threat might be created if a sustainability assurance team member knows that a financial interest in the sustainability assurance client is held by individuals such as: • Leaders and professional employees of the firm or network firm, apart from those who are specifically not permitted to hold such financial interests by paragraph R5510.4, or their immediate family members. • Individuals with a close personal relationship with a sustainability assurance team member. 5510.10 A10 Factors that are relevant in evaluating the level of such a threat include: • The firm’s organizational, operating and reporting structure. • The nature of the relationship between the individual and the sustainability assurance team member. 5510.10 A11 An example of an action that might eliminate such a self-interest threat is removing the sustainability assurance team member with the personal relationship from the sustainability assurance team. 5510.10 A12 Examples of actions that might be safeguards to address such a self-interest threat include: • Excluding the sustainability assurance team member from any significant decision-making concerning the sustainability assurance engagement. • Having an appropriate reviewer review the work of the sustainability assurance team member.

Retirement Benefit Plan of a Firm or Network Firm

5510.10 A13 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 a sustainability assurance client.