Risk of Assuming Management Responsibilities when Providing a Non-
600.8 A1 When a firm or a network firm provides a non-assurance service to an audit client, there is a risk that the firm or network firm will assume a management responsibility unless the firm or network firm is satisfied that the requirements in paragraph R400.21 have been complied with.
Accepting an Engagement to Provide a Non-Assurance Service
Before a firm or a network firm accepts an engagement to provide a non- assurance service to an audit client, the firm shall apply the conceptual framework to identify, evaluate and address any threat to independence that might be created by providing that service.
Identifying and Evaluating Threats
600.10 A1 A description of the categories of threats that might arise when a firm or a network firm provides a non-assurance service to an audit client is set out in paragraph 120.6 A3. 600.10 A2 Factors that are relevant in identifying the different threats that might be created by providing a non-assurance service to an audit client, and evaluating the level of such threats include: • The nature, scope, intended use and purpose of the service. • The manner in which the service will be provided, such as the personnel to be involved and their location. • The client’s dependency on the service, including the frequency with which the service will be provided. • The legal and regulatory environment in which the service is provided. • Whether the client is a public interest entity. • The level of expertise of the client’s management and employees with respect to the type of service provided. • The extent to which the client determines significant matters of judgment. (Ref: Para. R400.20 to R400.21). • Whether the outcome of the service will affect the accounting records or matters reflected in the financial statements on which the firm will express an opinion, and, if so: o The extent to which the outcome of the service will have a material effect on the financial statements. o The degree of subjectivity involved in determining the appropriate amounts or treatment for those matters reflected in the financial statements. • The nature and extent of the impact of the service, if any, on the systems that generate information that forms a significant part of the client’s: o Accounting records or financial statements on which the firm will express an opinion. o Internal controls over financial reporting. • The degree of reliance that will be placed on the outcome of the service as part of the audit. • The fee relating to the provision of the non-assurance service. 600.10 A3 Subsections 601 to 610 include examples of additional factors that are relevant in identifying threats to independence created by providing certain non-assurance services, and evaluating the level of such threats.
Materiality in relation to financial statements
600.11 A1 Materiality is a factor that is relevant in evaluating threats created by providing a non- assurance service to an audit client. Subsections 601 to 610 refer to materiality in relation to an audit client’s financial statements. The concept of materiality in relation to an audit is addressed in SA 320, Materiality in Planning and Performing an Audit, and in relation to a review in SRE 2400 (Revised), Engagements to Review Historical Financial Statements. The determination of materiality involves the exercise of professional judgment and is impacted by both quantitative and qualitative factors. It is also affected by perceptions of the financial information needs of users. 600.11 A2 Where the Code expressly prohibits the provision of a non- assurance service to an audit client, a firm or a network firm is not permitted to provide that service, regardless of the materiality of the outcome or results of the non-assurance service on the financial statements on which the firm will express an opinion.
Providing advice and recommendations
600.12 A1 Providing advice and recommendations might create a self- review threat.
providing advice and recommendations creates a self- review threat involves making the determination set out in paragraph R600.15. Where the audit client is not a public interest entity and a self- review threat is identified, the firm is required to apply the conceptual framework to evaluate and address the threat. If the audit client is a public interest entity, paragraphs R600.17 and R600.18 apply.
Multiple non-assurance services provided to the same audit client
When a firm or a network firm provides multiple non-
assurance services to an audit client, the firm shall consider whether, in addition to the threats created by each service individually, the combined effect of such services creates or impacts threats to independence. 600.13 A1 In addition to paragraph 600.10 A2, factors that are relevant in a firm’s evaluation of the level of threats to independence created where multiple non-assurance services are provided to an audit client might include whether: • The combined effect of providing multiple services increases the level of threat created by each service assessed individually. • The combined effect of providing multiple services increases the level of any threat arising from the overall relationship with the audit client.
600.14 A1 When a firm or a network firm provides a non-assurance service to an audit client, there might be a risk of the firm auditing its own or the network firm’s work, thereby giving rise to a self- review threat. A self-review threat is the threat that a firm or a network firm will not appropriately evaluate the results of a previous judgment made or an activity performed by an individual within the firm or network firm as part of a non-assurance service on which the audit team will rely when forming a judgment as part of an audit.
Before providing a non-assurance service to an audit client, a
firm or a network firm shall determine whether the provision of that service might create a self-review threat by evaluating whether there is a risk that:
