Provision of Non-assurance Services to a Sustainability Assurance Client
(a)
The results of the services will affect, or there is a risk that they will affect, the sustainability information on which the firm will express an assurance opinion, the records underlying that information, or the internal controls over sustainability reporting; or
(b)
The services might create an advocacy, self-interest, familiarity or intimidation threat. 5600.6 Circumstances involving non-assurance services that might affect the sustainability information on which the firm will express an assurance opinion or the records underlying that information, include where a firm or network firm uses technology to provide a non-assurance service to a sustainability assurance client. 5600.6a Where the firm is also the entity’s auditor, the requirements and application material in Section 600Section 600 apply with respect to identifying, evaluating and addressing threats to the firm’s independence, in relation to the audit engagement, that might be created by the provision of non-assurance services to the audit client. A non-assurance service related to sustainability information that does not affect the accounting records, the internal controls over financial reporting, or the financial statements on which the firm will express an opinion does not create a self-review or advocacy threat to independence for the audit. However, such a service might create threats to independence in relation to performing a sustainability assurance engagement for the same client where the provision of that service affects the sustainability information on which the firm will express an opinion, the records underlying that information, or the internal controls over sustainability reporting.
(a)
The results of the service will form part of or affect the sustainability information on which the firm will express an opinion, the records underlying that information, or the internal controls over sustainability reporting; and
(b)
In the course of performing assurance work on the sustainability information on which the firm will express an opinion, the sustainability assurance team will evaluate or rely on any judgments made or activities performed by the firm or network firm when providing the service.
(a)
Does not assume a management responsibility (Ref:
(b)
Applies the conceptual framework to identify, evaluate and address threats, other than self-review threats, to independence that might be created by the provision of that advice. 5600.18 A1 Examples of advice and recommendations that might be provided in relation to information or matters arising in the course of a sustainability assurance engagement include: • Advising on sustainability reporting standards or policies and sustainability information disclosure requirements. • Advising on the appropriateness of controls related to sustainability information and the methods used in determining or establishing the sustainability information to be reported. • Proposing an adjustment to sustainability information arising from the sustainability assurance engagement findings. • Discussing findings on internal controls over sustainability reporting and processes and recommending improvements.
(a)
Adjust the scope of the proposed service to eliminate the circumstances that are creating the threats;
(b)
Decline or end the service that creates the threats that cannot be eliminated or reduced to an acceptable level; or
(c)
End the sustainability assurance engagement.
(A)
That public interest entity;
(B)
Any entity that controls, directly or indirectly, that public interest entity; or
(C)
Any entity that is controlled directly or indirectly by that public interest entity, the firm shall, unless already addressed when establishing a process agreed with those charged with governance:
(a)
Inform those charged with governance of the public interest entity that the firm has determined that the provision of the service:
(i)
Is not prohibited; and
(ii)
Will not create a threat to the firm’s independence as sustainability assurance provider of the public interest entity or that any identified threat is at an acceptable level or, if not, will be eliminated or reduced to an acceptable level; and
(b)
Provide those charged with governance of the public interest entity with information to enable them to make an informed assessment about the impact of the provision of the service on the firm’s independence. 5600.22 A1 Examples of information that might be provided to those charged with governance of the public interest entity in relation to a particular non-assurance service include: • The nature and scope of the service to be provided. • The basis and amount of the proposed fee. • Where the firm has identified any threats to independence that might be created by the provision of the proposed service, the basis for the firm’s assessment that the threats are at an acceptable level or, if not, the actions the firm or network firm will take to eliminate or reduce any threats to independence to an acceptable level. • Whether the combined effect of providing multiple services creates threats to independence or changes the level of previously identified threats.
(a)
The firm’s conclusion that the provision of the service will not create a threat to the firm’s independence in providing the sustainability assurance service to the public interest entity, or that any identified threat is at an acceptable level or, if not, will be eliminated, or reduced to an acceptable level; and
(b)
The provision of that service.
(a)
The firm provides such information as it is able without breaching its legal or professional obligations;
(b)
The firm informs those charged with governance of the public interest entity that the provision of the service will not create a threat to the firm’s independence from the public interest entity, or that any identified threat is at an acceptable level or, if not, will be eliminated or reduced to an acceptable level; and
(c)
Those charged with governance do not disagree with the firm’s conclusion in (b).
(a)
The firm or the network firm is not permitted to provide any information to those charged with governance of the sustainability assurance client that is a public interest entity, unless such a situation is addressed in a process agreed in advance with those charged with governance; or
(b)
Those charged with governance of a sustainability assurance client that is a public interest entity disagree with the firm’s conclusion that the provision of the service will not create a threat to the firm’s independence from the client or that any identified threat is at an acceptable level or, if not, will be eliminated or reduced to an acceptable level.
(a)
The previous non-assurance service complies with the provisions of this section that relate to sustainability assurance clients that are not public interest entities;
(b)
Non-assurance services currently in progress that are not permitted under this section for sustainability assurance clients that are public interest entities are ended before or, if that is not possible, as soon as practicable after, the client becomes a public interest entity; and
(c)
The firm and those charged with governance of the client that becomes a public interest entity agree and take further actions to address any threats to independence that are not at an acceptable level. 5600.26 A1 Examples of actions that the firm might recommend to the sustainability assurance client include engaging another firm to: • Review or re-perform the affected sustainability assurance work to the extent necessary. • Evaluate the results of the non-assurance service or re-perform the non-assurance service to the extent necessary to enable the other firm to take responsibility for the service.
(a)
An entity that has direct or indirect control over the client;
(b)
An entity with a direct financial interest in the client if that entity has significant influence over the client and the interest in the client is material to such entity; or
(c)
An entity which is under common control with the client, provided that all of the following conditions are met:
(i)
The firm or a network firm does not express an opinion on the sustainability information of the related entity;
(ii)
The firm or a network firm does not assume a management responsibility, directly or indirectly, for the entity on whose sustainability information the firm will express an opinion;
(iii)
The services do not create a self-review threat; and
(iv)
The firm addresses other threats created by providing such services that are not at an acceptable level.
(a)
The services are of a routine or mechanical nature; and
(b)
The firm addresses any threats that are not at an acceptable level. 5601.5 A1 Sustainability data and information services that are routine or mechanical:
(a)
Involve information, data or material in relation to which the client has made any judgments or decisions that might be necessary; and
(b)
Require little or no professional judgment. 5601.5 A2 Sustainability data and information services can either be manual or automated. In determining whether an automated service is routine or mechanical, factors to be considered include the activities performed by, and the output of, the technology, and whether the technology provides an automated service that is based on or requires the expertise or judgment of the firm or network firm. 5601.5 A3 Examples of services, whether manual or automated, that might be regarded as routine or mechanical include: • Preparing calculations or reports based on client or third party-originated data for approval by the client. • Recording recurring data which are easily determinable from source documents, where the client has determined or approved the appropriate classification. • Posting data coded by the client or received from third parties to the sustainability information records. • Preparing sustainability information to be reported based on information in the client-approved records and preparing related notes based on client-approved records. • Compiling and presenting factual sustainability data from client or third-party identified sources for comparative purposes. The firm or a network firm may provide such services to sustainability assurance clients that are not public interest entities provided that the firm or network firm complies with the requirements of paragraph R5400.21 to ensure that it does not assume a management responsibility in connection with the service and with the requirement in paragraph R5601.5(b). 5601.5 A4 Examples of actions that might be safeguards to address a self-review threat created when providing sustainability data and information services of a routine or mechanical nature to a sustainability assurance client that is not a public interest entity include: • Using professionals who are not sustainability assurance team members to perform the service. • Having an appropriate reviewer who was not involved in providing the service review the sustainability assurance work or service performed.
(a)
The service involves a significant degree of subjectivity; and
(b)
The service will have a material effect on the sustainability information on which the firm will express an opinion. 5603.4 A1 Certain valuations and advisory services on forward-looking information do not involve a significant degree of subjectivity. This is likely to be the case when the underlying assumptions are established by law or regulation or 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 or an advisory service on forward-looking information performed by two or more parties are not likely to be materially different.
(a)
Tax return preparation services are based on historical information and principally involve analysis and presentation of such historical information under existing tax law, including precedents and established practice; and
(b)
Tax returns are subject to whatever review or approval process the tax authority considers appropriate.
(a)
Are supported by a tax authority or other precedent;
(b)
Are based on an established practice (being a practice that has been commonly used and has not been challenged by the relevant tax authority); or
(c)
Have a basis in tax law that the firm is confident is likely to prevail. 5604.12 A3 In addition to paragraph 5604.3 A2, factors that are relevant in identifying self-review or advocacy threats created by providing tax advisory and tax planning services to sustainability assurance clients, and evaluating the level of such threats include: • The degree of subjectivity involved in determining the appropriate treatment for the tax advice in the sustainability information on which the firm will express an opinion. • Whether the tax treatment is supported by a ruling or has otherwise been cleared by the tax authority before the preparation of the sustainability information on which the firm will express an opinion. • The extent to which the outcome of the tax advice might have a material effect on the sustainability information on which the firm will express an opinion.
(a)
The effectiveness of the tax advice depends on a particular treatment or presentation in the sustainability information on which the firm will express an opinion; and
(b)
The sustainability assurance team has doubt as to the appropriateness of the related treatment or presentation under the relevant sustainability reporting framework.
(a)
Have no effect on the sustainability information on which the firm will express an opinion, or the records underlying that information, other than through accounting entries related to tax. In such situations, the requirements and application material set out in this subsection apply.
(b)
Affect the sustainability information on which the firm will express an opinion, or the records underlying that information, in ways not limited to accounting entries related to tax, for example, if the valuation leads to a revaluation of assets. In such situations, the requirements and application material set out in subsection 5603 relating to valuation services apply. 5604.17 A3 Performing a valuation for tax purposes for a sustainability assurance client will not create a self-review threat if:
(a)
The underlying assumptions are either established by law or regulation, or are widely accepted; or
(b)
The techniques and methodologies to be used are based on generally accepted standards or prescribed by law or regulation, and the valuation is subject to external review by a tax authority or similar regulatory authority.
(a)
The services involve acting as an advocate for the sustainability assurance client before a court in the resolution of a tax matter; and
(b)
The amounts involved are material to the sustainability information on which the firm will express an opinion. 5604.27 A1 Paragraphs R5604.25a does not preclude a firm or a network firm from having a continuing advisory role in relation to the matter that is being heard before a court, for example: • Responding to specific requests for information. • Providing factual accounts or testimony about the work performed. • Assisting the client in analyzing the tax issues related to the matter. 5604.27 A2 For the purpose of this subsection “court” does not include a Tribunal.
(a)
The client designates an appropriate and competent resource, who reports to those charged with governance to:
(i)
Be responsible at all times for internal audit activities; and
(ii)
Acknowledge responsibility for designing, implementing, monitoring and maintaining internal control;
(b)
The client reviews, assesses and approves the scope, risk and frequency of the internal audit services;
(c)
The client evaluates the adequacy of the internal audit services and the findings resulting from their performance;
(d)
The client evaluates and determines which recommendations resulting from internal audit services to implement and manages the implementation process; and
(e)
The client reports to those charged with governance the significant findings and recommendations resulting from the internal audit services.
(a)
Aggregate source data;
(b)
Form part of the internal control over sustainability reporting; or
(c)
Generate information that affects the sustainability information records or sustainability information reported, including related disclosures.
(a)
The client acknowledges its responsibility for establishing and monitoring a system of internal controls;
(b)
The client, through a competent individual (or individuals), preferably within senior management, makes all management decisions that are the proper responsibility of management with respect to the design, development, implementation, operation, maintenance, monitoring, updating or upgrading of the IT systems;
(c)
The client evaluates the adequacy and results of the design, development, implementation, operation, maintenance, monitoring, updating or upgrading of the IT system; and
(d)
The client is responsible for operating the IT system and for the data it generates and uses. 5606.3 A1 Examples of IT systems services that result in the assumption of a management responsibility include where a firm or a network firm: • Stores data or manages (directly or indirectly) the hosting of data on behalf of the sustainability assurance client. Such services include: o Acting as the only access to a financial or non-financial information system of the sustainability assurance client. o Taking custody of or storing the sustainability assurance client’s data or records such that the sustainability assurance client’s data or records are otherwise incomplete. o Providing electronic security or back-up services, such as business continuity or a disaster recovery function, for the sustainability assurance client’s data or records. • Operates, maintains, or monitors the sustainability assurance client’s IT systems, network or website. 5606.3 A2 The collection, receipt, transmission and retention of data provided by a sustainability assurance client in the course of a sustainability assurance engagement or to enable the provision of a permissible service to that client does not result in an assumption of management responsibility.
(a)
A witness of fact is an individual who gives evidence to a tribunal or court based on his or her direct knowledge of facts or events.
(b)
An expert witness is an individual who gives evidence, including opinions on matters, to a tribunal or court based on that individual’s expertise. 5607.7 A2 A threat to independence is not created when an individual, in relation to a matter that involves a sustainability assurance client, acts as a witness of fact and in the course of doing so provides an opinion within the individual’s area of expertise in response to a question asked in the course of giving factual evidence. 5607.7 A3 The advocacy threat created when acting as an expert witness on behalf of a sustainability assurance client is at an acceptable level if a firm or a network firm is:
(a)
Appointed by a tribunal or court to act as an expert witness in a matter involving a client; or
(b)
Engaged to advise or act as an expert witness in relation to a class action (or an equivalent group representative action) provided that:
(i)
The firm’s sustainability assurance clients constitute less than 20% of the members of the class or group (in number and in value);
(ii)
No sustainability assurance client is designated to lead the class or group; and
(iii)
No sustainability assurance client is authorized by the class or group to determine the nature and scope of the services to be provided by the firm or the terms on which such services are to be provided.
(a)
The client assigns the responsibility to make all management decisions with respect to hiring the candidate for the position to a competent employee, preferably within senior management; and
(b)
The client makes all management decisions with respect to the hiring process, including: • Determining the suitability of prospective candidates and selecting suitable candidates for the position. • Determining employment terms and negotiating details, such as salary, hours and other compensation.
(a)
Searching for or seeking out candidates;
(b)
Undertaking reference checks of prospective candidates;
(c)
Recommending the person to be appointed; or
(d)
Advising on the terms of employment, remuneration or related benefits of a particular candidate, with respect to the following positions:
(i)
director or officer of the entity; or
(ii)
A member of senior management in a position to exert significant influence over the preparation of the client’s sustainability information on which the firm will express an opinion or the records underlying that information.
(a)
The effectiveness of such advice depends on a particular method of measurement or presentation in the sustainability information on which the firm will express an opinion; and
(b)
The sustainability assurance team has doubt as to the appropriateness of the related method of measurement or presentation under the relevant financial or sustainability reporting framework.