No. S 251
Accountants Act
(Chapter 2)
Accountants (Public Accountants) (Amendment) Rules 2009
In exercise of the powers conferred by section 64 of the Accountants Act, the Accounting and Corporate Regulatory Authority, with the approval of the Minister for Finance, hereby makes the following Rules:
Citation and commencement
1.—(1)  These Rules may be cited as the Accountants (Public Accountants) (Amendment) Rules 2009 and shall, with the exception of rules 2 and 4, come into operation on 1st June 2009.
(2)  Rules 2 and 4 shall come into operation on 1st August 2009.
Amendment of rule 9
2.  Rule 9(1) of the Accountants (Public Accountants) Rules (R 1) (referred to in these Rules as the principal Rules) is amended by inserting, immediately after the words “public accountant”, the words “, and every accounting entity”.
Amendment of Second Schedule
3.  The Second Schedule to the principal Rules is amended —
(a)by inserting, immediately after the words “Bachelor of Accountancy” in paragraph 2(a)(iv), the words “or Bachelor of Business Administration (Accountancy)”;
(b)by deleting the words “United Kingdom Joint Scheme;” in paragraph 2(a)(vi) and substituting the following words:
United Kingdom Joint Scheme including passing one of the following examination modules:
(A)Paper 10: Accounting and Audit Practice;
(B)Paper 3.1: Audit and Assurance Service; or
(C)P7 Advanced Audit and Assurance;”;
(c)by deleting the words “(formerly known as the Chartered Association of Certified Accountants);” in paragraph 2(b)(iv) and substituting the following words:
(formerly known as the Chartered Association of Certified Accountants including passing one of the following examination modules:
(A)Paper 10: Accounting and Audit Practice;
(B)Paper 3.1: Audit and Assurance Service; or
(C)P7 Advanced Audit and Assurance;”;
(d)by deleting the word “or” at the end of paragraph 3(1);
(e)by deleting the full-stop at the end of sub-paragraph (b) of paragraph 3(1) and substituting the word “; or”, and by inserting immediately thereafter the following sub-paragraph:
(c)at least 6 years (in aggregate) of practical experience (whether structured or unstructured) gained in a public accountant’s office, whether gained before or after passing the final examination referred to in paragraph 2, if the Oversight Committee is satisfied that the practical experience obtained —
(i)is of sufficient depth and breadth; and
(ii)includes practical experience that is sufficiently recent.”;
(f)by deleting the words “sub-paragraph (1)” in paragraph 3(2) and substituting the words “sub-paragraph (1)(a) or (b)”;
(g)by deleting the word “Nothing” in paragraph 3(10) and substituting the words “Subject to sub-paragraph (11), nothing”;
(h)by inserting, immediately after sub-paragraph (10) of paragraph 3, the following sub-paragraph:
(11)  Where any applicant referred to in sub-paragraph (10) fails to meet the requisite length of practical experience set out in paragraph 2 of the Second Schedule to the Public Accountants Board Rules in force immediately before 1st April 2004, the Oversight Committee may nevertheless register the applicant as a public accountant if —
(a)the applicant has at least 6 years (in aggregate) of practical experience (whether structured or unstructured) gained in a public accountant’s office, whether before or after passing the final examination referred to in paragraph 2; and
(b)the Oversight Committee is satisfied that the practical experience obtained —
(i)is of sufficient depth and breadth; and
(ii)includes practical experience that is sufficiently recent.”; and
(i)by renumbering paragraph 7 as sub-paragraph (1) of that paragraph, and by inserting immediately thereafter the following sub-paragraph:
(2)  For the purposes of sub-paragraph (1), a member of the Institute of Certified Public Accountants of Singapore (ICPAS) shall not include a provisional member, an honorary member or a member-in-retirement.”.
Deletion and substitution of Fourth Schedule
4.  The Fourth Schedule to the principal Rules is deleted and the following Schedule substituted therefor:
FOURTH SCHEDULE
Rule 9(1) and rule 3(6) of the Second Schedule
Code of Professional Conduct and Ethics for Public Accountants and Accounting Entities
010
SCOPE
PART A: GENERAL APPLICATION OF THE CODE
100
Introduction and Fundamental Principles
110
Integrity
120
Objectivity
130
Professional Competence and Due Care
140
Confidentiality
150
Professional Behaviour
PART B: APPLICATION GUIDANCE
200
Introduction
210
Professional Appointment
220
Conflicts of Interest
230
Second Opinions
240
Fees and Other Types of Remuneration
250
Marketing Public Accountancy Services
260
Gifts and Hospitality
270
Custody of Clients Assets
280
Objectivity — All Services
290
Independence — Assurance Engagements
295
DEFINITIONS
SCOPE
 
SG010.1
This Code of Professional Conduct and Ethics for Public Accountants and Accounting Entities (Code) establishes ethical requirements for public accountants, accounting firms, accounting corporations and accounting LLPs. Compliance with this Code is mandatory for all public accountants, accounting firms, accounting corporations and accounting LLPs and failure to observe the Code may result in disciplinary action.
SG010.2
This Code applies to the provision of public accountancy services by public accountants, accounting firms, accounting corporations and accounting LLPs. Under the Accountants Act (Chapter 2), public accountancy services means the audit and reporting on financial statements and the doing of such other acts that are required by any written law to be done by a public accountant. For non-public accountancy services, public accountants should refer to the code of ethics of their professional body.
 
PART A: GENERAL APPLICATION OF THE CODE
Section 100
Introduction and Fundamental Principles
Section 110
Integrity
Section 120
Objectivity
Section 130
Professional Competence and Due Care
Section 140
Confidentiality
Section 150
Professional Behavior
 
Section 100
Introduction and Fundamental Principles
 
 
100.1
A distinguishing mark of the accountancy profession is its acceptance of the responsibility to act in the public interest. Therefore, a public accountant’s* responsibility is not exclusively to satisfy the needs of an individual client or employer. In acting in the public interest a public accountant should observe and comply with the ethical requirements of this Code.
 
_______________
*See Definitions.
100.2
This Code is in two parts. Part A establishes the fundamental principles of professional ethics for public accountants and provides a conceptual framework for applying those principles. The conceptual framework provides guidance on fundamental ethical principles. Public accountants are required to apply this conceptual framework to identify threats to compliance with the fundamental principles, to evaluate their significance and, if such threats are other than clearly insignificant* to apply safeguards to eliminate them or reduce them to an acceptable level such that compliance with the fundamental principles is not compromised.
 
_______________
*See Definitions.
100.3
Part B illustrates how the conceptual framework is to be applied in specific situations. It provides examples of safeguards that may be appropriate to address threats to compliance with the fundamental principles and also provides examples of situations where safeguards are not available to address the threats and consequently the activity or relationship creating the threats should be avoided.
Fundamental Principles
100.4
A public accountant is required to comply with the following fundamental principles:
 
(a) Integrity
 
A public accountant should be straightforward and honest in all professional and business relationships.
 
(b) Objectivity
 
A public accountant should not allow bias, conflict of interest or undue influence of others to override professional or business judgments.
 
(c) P rofessional Competence and Due Care
 
A public accountant has a continuing duty to maintain professional knowledge and skill at the level required to ensure that a client or employer receives competent professional service based on current developments in practice, legislation and techniques. A public accountant should act diligently and in accordance with applicable technical and professional standards when providing public accountancy services.*
 
_______________
*See Definitions.
 
(d) Confidentiality
 
A public accountant should respect the confidentiality of information acquired as a result of professional and business relationships and should not disclose any such information to third parties without proper and specific authority unless there is a legal or professional right or duty to disclose. Confidential information acquired as a result of professional and business relationships should not be used for the personal advantage of the public accountant or third parties.
 
(e) Professional Behavior
 
A public accountant should comply with relevant laws and regulations and should avoid any action that discredits the profession.
 
Each of these fundamental principles is discussed in more detail in Sections 110-150.
Conceptual Framework Approach
100.5
The circumstances in which public accountants operate may give rise to specific threats to compliance with the fundamental principles. It is impossible to define every situation that creates such threats and specify the appropriate mitigating action. In addition, the nature of engagements and work assignments may differ and consequently different threats may exist, requiring the application of different safeguards. A conceptual framework that requires a public accountant to identify, evaluate and address threats to compliance with the fundamental principles, rather than merely comply with a set of specific rules which may be arbitrary, is, therefore, in the public interest. This Code provides a framework to assist a public accountant to identify, evaluate and respond to threats to compliance with the fundamental principles. If identified threats are other than clearly insignificant, a public accountant should, where appropriate, apply safeguards to eliminate the threats or reduce them to an acceptable level, such that compliance with the fundamental principles is not compromised.
100.6
A public accountant has an obligation to evaluate any threats to compliance with the fundamental principles when the public accountant knows, or could reasonably be expected to know, of circumstances or relationships that may compromise compliance with the fundamental principles.
100.7
A public accountant should take qualitative as well as quantitative factors into account when considering the significance of a threat. If a public accountant cannot implement appropriate safeguards, the public accountant should decline or discontinue the specific professional service involved, or where necessary resign from the client.
100.8
A public accountant may inadvertently violate a provision of this Code. Such an inadvertent violation, depending on the nature and significance of the matter, may not compromise compliance with the fundamental principles provided, once the violation is discovered, the violation is corrected promptly and any necessary safeguards are applied.
100.9
Part B of this Code includes examples that are intended to illustrate how the conceptual framework is to be applied. The examples are not intended to be, nor should they be interpreted as, an exhaustive list of all circumstances experienced by a public accountant that may create threats to compliance with the fundamental principles. Consequently, it is not sufficient for a public accountant merely to comply with the examples presented; rather, the framework should be applied to the particular circumstances encountered by the public accountant.
Threats and Safeguards
100.10
Compliance with the fundamental principles may potentially be threatened by a broad range of circumstances. Many threats fall into the following categories:
 
(a) Self-interest threats, which may occur as a result of the financial or other interests of a public accountant or of an immediate* or close family* member;
 
__________________
*See Definitions.
 
(b) Self-review threats, which may occur when a previous judgment needs to be re-evaluated by the public accountant responsible for that judgment;
 
(c) Advocacy threats, which may occur when a public accountant promotes a position or opinion to the point that subsequent objectivity may be compromised;
 
(d) Familiarity threats, which may occur when, because of a close relationship, a public accountant becomes too sympathetic to the interests of others; and
 
(e) Intimidation threats, which may occur when a public accountant may be deterred from acting objectively by threats, actual or perceived.
 
Part B of this Code provides examples of circumstances that may create these categories of threats for public accountants.
100.11
Safeguards that may eliminate or reduce such threats to an acceptable level fall into two broad categories:
 
(a) Safeguards created by the profession, legislation or regulation; and
 
(b) Safeguards in the work environment.
100.12
Safeguards created by the profession, legislation or regulation include, but are not restricted to:
 
(a) Educational, training and experience requirements for entry into the profession;
 
(b) Continuing professional development requirements;
 
(c) Corporate governance regulations;
 
(d) Professional standards;
 
(e) Professional or regulatory monitoring and disciplinary procedures; and
 
(f) External review by a legally empowered third party of the reports, returns, communications or information produced by a public accountant.
100.13
Part B of this Code discusses safeguards in the work environment for public accountants.
100.14
Certain safeguards may increase the likelihood of identifying or deterring unethical behavior. Such safeguards, which may be created by the accounting profession, legislation, regulation or an employing organization, include, but are not restricted to:
 
(a) Effective, well publicized complaints systems operated by the employing organization, the profession or a regulator, which enable colleagues, employers and members of the public to draw attention to unprofessional or unethical behavior; and
 
(b) An explicitly stated duty to report breaches of ethical requirements.
100.15
The nature of the safeguards to be applied will vary depending on the circumstances. In exercising professional judgment, a public accountant should consider what a reasonable and informed third party, having knowledge of all relevant information, including the significance of the threat and the safeguards applied, would conclude to be unacceptable.
Ethical Conflict Resolution
100.16
In evaluating compliance with the fundamental principles, a public accountant may be required to resolve a conflict in the application of fundamental principles.
100.17
When initiating either a formal or informal conflict resolution process, a public accountant should consider the following, either individually or together with others, as part of the resolution process:
 
(a) Relevant facts;
 
(b) Ethical issues involved;
 
(c) Fundamental principles related to the matter in question;
 
(d) Established internal procedures; and
 
(e) Alternative courses of action.
 
Having considered these issues, a public accountant should determine the appropriate course of action that is consistent with the fundamental principles identified. The public accountant should also weigh the consequences of each possible course of action. If the matter remains unresolved, the public accountant should consult with other appropriate persons within the firm* or employing organization for help in obtaining resolution.
 
__________________
*See Definitions.
100.18
Where a matter involves a conflict with, or within, an organization, a public accountant should also consider consulting with those charged with governance of the organization, such as the board of directors or the audit committee.
100.19
It may be in the best interests of the public accountant to document the substance of the issue and details of any discussions held or decisions taken, concerning that issue.
100.20
If a significant conflict cannot be resolved, a public accountant may wish to obtain professional advice from the relevant professional body or legal advisors, and thereby obtain guidance on ethical issues without breaching confidentiality. For example, a public accountant may have encountered a fraud, the reporting of which could breach the public accountant’s responsibility to respect confidentiality. The public accountant should consider obtaining legal advice to determine whether there is a requirement to report.
100.21
If, after exhausting all relevant possibilities, the ethical conflict remains unresolved, a public accountant should, where possible, refuse to remain associated with the matter creating the conflict. The public accountant may determine that, in the circumstances, it is appropriate to withdraw from the engagement team* or specific assignment, or to resign altogether from the engagement, the firm or the employing organization.
 
__________________
*See Definitions.
 
Section 110
Integrity
110.1
The principle of integrity imposes an obligation on all public accountants to be straightforward and honest in professional and business relationships. Integrity also implies fair dealing and truthfulness.
110.2
A public accountant should not be associated with reports, returns, communications or other information where they believe that the information:
 
(a) Contains a materially false or misleading statement;
 
(b) Contains statements or information furnished recklessly; or
 
(c) Omits or obscures information required to be included where such omission or obscurity would be misleading.
110.3
A public accountant will not be considered to be in breach of paragraph 110.2 if the public accountant provides a modified report in respect of a matter contained in paragraph 110.2.
 
Section 120
Objectivity
120.1
The principle of objectivity imposes an obligation on all public accountants not to compromise their professional or business judgment because of bias, conflict of interest or the undue influence of others.
120.2
A public accountant may be exposed to situations that may impair objectivity. It is impracticable to define and prescribe all such situations. Relationships that bias or unduly influence the professional judgment of the public accountant should be avoided.
 
Section 130
Professional Competence and Due Care
130.1
The principle of professional competence and due care imposes the following obligations on public accountants:
 
(a) To maintain professional knowledge and skill at the level required to ensure that clients or employers receive competent professional service; and
 
(b) To act diligently in accordance with applicable technical and professional standards when providing public accountancy services.
130.2
Competent professional service requires the exercise of sound judgment in applying professional knowledge and skill in the performance of such service. Professional competence may be divided into two separate phases:
 
(a) Attainment of professional competence; and
 
(b) Maintenance of professional competence.
130.3
The maintenance of professional competence requires a continuing awareness and an understanding of relevant technical professional and business developments. Continuing professional development develops and maintains the capabilities that enable a public accountant to perform competently within the professional environments.
130.4
Diligence encompasses the responsibility to act in accordance with the requirements of an assignment, carefully, thoroughly and on a timely basis.
130.5
A public accountant should take steps to ensure that those working under the public accountant’s authority in a professional capacity have appropriate training and supervision.
130.6
Where appropriate, a public accountant should make clients, employers or other users of the public accountancy services aware of limitations inherent in the services to avoid the misinterpretation of an expression of opinion as an assertion of fact.
 
Section 140
Confidentiality
140.1
The principle of confidentiality imposes an obligation on public accountants to refrain from:
 
(a) Disclosing outside the firm or employing organization confidential information acquired as a result of professional and business relationships without proper and specific authority or unless there is a legal or professional right or duty to disclose; and
 
(b) Using confidential information acquired as a result of professional and business relationships to their personal advantage or the advantage of third parties.
140.2
A public accountant should maintain confidentiality even in a social environment. The public accountant should be alert to the possibility of inadvertent disclosure, particularly in circumstances involving long association with a business associate or a close* or immediate family* member.
 
__________________
*See Definitions
140.3
A public accountant should also maintain confidentiality of information disclosed by a prospective client or employer.
140.4
A public accountant should also consider the need to maintain confidentiality of information within the firm or employing organization.
140.5
A public accountant should take all reasonable steps to ensure that staff under the public accountant’s control and persons from whom advice and assistance is obtained respect the public accountant’s duty of confidentiality.
140.6
The need to comply with the principle of confidentiality continues even after the end of relationships between a public accountant and a client or employer. When a public accountant changes employment or acquires a new client, the public accountant is entitled to use prior experience. The public accountant should not, however, use or disclose any confidential information either acquired or received as a result of a professional or business relationship.
140.7
The following are circumstances where public accountants are or may be required to disclose confidential information or when such disclosure may be appropriate:
 
(a) Disclosure is permitted by law and is authorized by the client or the employer;
 
(b) Disclosure is required by law, for example:
 
(i) Production of documents or other provision of evidence in the course of legal proceedings; or
 
(ii) Disclosure to the appropriate public authorities of infringements of the law that come to light; and
 
(c) There is a professional duty or right to disclose, when not prohibited by law:
 
(i) To comply with the quality review of a member body, or professional body, or regulatory body;
 
(ii) To respond to an inquiry or investigation by a member body or regulatory body;
 
(iii) To protect the professional interests of a public accountant in legal proceedings; or
 
(iv) To comply with technical standards and ethics requirements.
140.8
In deciding whether to disclose confidential information, public accountants should consider the following points:
 
(a) Whether the interests of all parties, including third parties whose interests may be affected, could be harmed if the client or employer consents to the disclosure of information by the public accountant;
 
(b) Whether all the relevant information is known and substantiated, to the extent it is practicable; when the situation involves unsubstantiated facts, incomplete information or unsubstantiated conclusions, professional judgment should be used in determining the type of disclosure to be made, if any; and
 
(c) The type of communication that is expected and to whom it is addressed; in particular, public accountants should be satisfied that the parties to whom the communication is addressed are appropriate recipients.
 
Section 150
Professional Behavior
150.1
The principle of professional behavior imposes an obligation on public accountants to comply with relevant laws and regulations and avoid any action that may bring disrepute to the profession. This includes actions which a reasonable and informed third party, having knowledge of all relevant information, would conclude negatively affects the good reputation of the profession.
150.2
In marketing and promoting themselves and their work, public accountants should not bring the profession into disrepute. Public accountants should be honest and truthful and should not:
 
(a) Make exaggerated claims for the services they are able to offer, the qualifications they possess, or experience they have gained; or
 
(b) Make disparaging references or unsubstantiated comparisons to the work of others.
 
PART B: APPLICATION GUIDANCE
Section 200
Introduction
Section 210
Professional Appointment
Section 220
Conflicts of Interest
Section 230
Second Opinions
Section 240
Fees and Other Types of Remuneration
Section 250
Marketing Professional Services
Section 260
Gifts and Hospitality
Section 270
Custody of Client Assets
Section 280
Objectivity — All Services
Section 290
Independence — Assurance Engagements
 
 
 
Section 200
Introduction
200.1
This Part of the Code illustrates how the conceptual framework contained in Part A is to be applied by public accountants. The examples in the following sections are not intended to be, nor should they be interpreted as, an exhaustive list of all circumstances experienced by a public accountant that may create threats to compliance with the principles. Consequently, it is not sufficient for a public accountant merely to comply with the examples presented; rather, the framework should be applied to the particular circumstances faced.
200.2
A public accountant should not engage in any business, occupation or activity that impairs or might impair integrity, objectivity or the good reputation of the profession and as a result would be incompatible with the rendering of public accountancy services.
 
 
Threats and Safeguards
200.3
Compliance with the fundamental principles may potentially be threatened by a broad range of circumstances. Many threats fall into the following categories:
 
(a) Self-interest;
 
(b) Self-review;
 
(c) Advocacy;
 
(d) Familiarity; and
 
(e) Intimidation.
 
These threats are discussed further in Part A of this Code.
 
The nature and significance of the threats may differ depending on whether they arise in relation to the provision of services to a financial statement audit client*, a non-financial statement audit assurance client* or a non-assurance client.
 
__________________
*See Definitions
200.4
Examples of circumstances that may create self-interest threats for a public accountant include, but are not limited to:
 
(a) A financial interest* in a client or jointly holding a financial interest with a client;
 
__________________
*See Definitions
 
(b) Undue dependence on total fees from a client;
 
(c) Having a close business relationship with a client;
 
(d) Concern about the possibility of losing a client;
 
(e) Potential employment with a client;
 
(f) Contingent fees* relating to an assurance engagement*; and
 
__________________
*See Definitions
 
(g) A loan to or from an assurance client or any of its directors or officers.
200.5
Examples of circumstances that may create self-review threats include, but are not limited to:
 
(a) The discovery of a significant error during a re-evaluation of the work of the public accountant;
 
(b) Reporting on the operation of financial systems after being involved in their design or implementation;
 
(c) Having prepared the original data used to generate records that are the subject matter of the engagement;
 
(d) A member of the assurance team* being, or having recently been, a director or officer* of that client.
 
__________________
*See Definitions
 
(e) A member of the assurance team being, or having recently been, employed by the client in a position to exert direct and significant influence over the subject matter of the engagement; and
 
(f) Performing a service for a client that directly affects the subject matter of the assurance engagement.
200.6
Examples of circumstances that may create advocacy threats include, but are not limited to:
 
(a) Promoting shares in a listed entity* when that entity is a financial statement audit client; and
 
__________________
*See Definitions
 
(b) Acting as an advocate on behalf of an assurance client in litigation or disputes with third parties.
200.7
Examples of circumstances that may create familiarity threats include, but are not limited to:
 
(a) A member of the engagement team having a close or immediate family relationship with a director or officer of the client;
 
(b) A member of the engagement team having a close or immediate family relationship with an employee of the client who is in a position to exert direct and significant influence over the subject matter of the engagement;
 
(c) A former partner of the firm being a director or officer of the client or an employee in a position to exert direct and significant influence over the subject matter of the engagement;
 
(d) Accepting gifts or preferential treatment from a client, unless the value is clearly insignificant; and
 
(e) Long association of senior personnel with the assurance client.
200.8
Examples of circumstances that may create intimidation threats include, but are not limited to:
 
(a) Being threatened with dismissal or replacement in relation to a client engagement;
 
(b) Being threatened with litigation; and
 
(c) Being pressured to reduce inappropriately the extent of work performed in order to reduce fees.
200.9
A public accountant may also find that specific circumstances give rise to unique threats to compliance with one or more of the fundamental principles. Such unique threats obviously cannot be categorized. In either professional or business relationships, a public accountant should always be on the alert for such circumstances and threats.
200.10
Safeguards that may eliminate or reduce threats to an acceptable level fall into two broad categories:
 
(a) Safeguards created by the profession, legislation or regulation; and
 
(b) Safeguards in the work environment.
 
Examples of safeguards created by the profession, legislation or regulation are described in paragraph 100.12 of Part A of this Code.
200.11
In the work environment, the relevant safeguards will vary depending on the circumstances. Work environment safeguards comprise firm-wide safeguards and engagement specific safeguards. A public accountant should exercise judgment to determine how to best deal with an identified threat. In exercising this judgment a public accountant should consider what a reasonable and informed third party, having knowledge of all relevant information, including the significance of the threat and the safeguards applied, would reasonably conclude to be acceptable. This consideration will be affected by matters such as the significance of the threat, the nature of the engagement and the structure of the firm.
200.12
Firm-wide safeguards in the work environment may include:
 
(a) Leadership of the firm that stresses the importance of compliance with the fundamental principles;
 
(b) Leadership of the firm that establishes the expectation that members of an assurance team will act in the public interest;
 
(c) Policies and procedures to implement and monitor quality control of engagements;
 
(d) Documented policies regarding the identification of threats to compliance with the fundamental principles, the evaluation of the significance of these threats and the identification and the application of safeguards to eliminate or reduce the threats, other than those that are clearly insignificant, to an acceptable level;
 
(e) For firms that perform assurance engagements, documented independence* policies regarding the identification of threats to independence, the evaluation of the significance of these threats and the evaluation and application of safeguards to eliminate or reduce the threats, other than those that are clearly insignificant, to an acceptable level;
 
__________________
*See Definitions
 
(f) Documented internal policies and procedures requiring compliance with the fundamental principles;
 
(g) Policies and procedures that will enable the identification of interests or relationships between the firm or members of engagement teams and clients;
 
(h) Policies and procedures to monitor and, if necessary, manage the reliance on revenue received from a single client;
 
(i) Using different partners and engagement teams with separate reporting lines for the provision of non-assurance services to an assurance client;
 
(j) Policies and procedures to prohibit individuals who are not members of an engagement team from inappropriately influencing the outcome of the engagement;
 
(k) Timely communication of a firm’s policies and procedures, including any changes to them, to all partners and professional staff, and appropriate training and education on such policies and procedures;
 
(l) Designating a member of senior management to be responsible for overseeing the adequate functioning of the firm’s quality control system;
 
(m) Advising partners and professional staff of those assurance clients and related entities from which they must be independent;
 
(n) A disciplinary mechanism to promote compliance with policies and procedures; and
 
(o) Published policies and procedures to encourage and empower staff to communicate to senior levels within the firm any issue relating to compliance with the fundamental principles that concerns them.
200.13
Engagement-specific safeguards in the work environment may include:
 
(a) Involving an additional professional accountant to review the work done or otherwise advise as necessary;
 
(b) Consulting an independent third party, such as a committee of independent directors, a professional regulatory body or another professional accountant;
 
(c) Discussing ethical issues with those charged with governance of the client;
 
(d) Disclosing to those charged with governance of the client the nature of services provided and extent of fees charged;
 
(e) Involving another firm to perform or re-perform part of the engagement; and
 
(f) Rotating senior assurance team personnel.
200.14
Depending on the nature of the engagement, a public accountant may also be able to rely on safeguards that the client has implemented. However it is not possible to rely solely on such safeguards to reduce threats to an acceptable level.
200.15
Safeguards within the client’s systems and procedures may include:
 
(a) When a client appoints a firm to perform an engagement, persons other than management ratify or approve the appointment;
 
(b) The client has competent employees with experience and seniority to make managerial decisions;
 
(c) The client has implemented internal procedures that ensure objective choices in commissioning non-assurance engagements; and
 
(d) The client has a corporate governance structure that provides appropriate oversight and communications regarding the firm’s services.
 
Section 210
Professional Appointment
Client Acceptance
210.1
Before accepting a new client relationship, a public accountant should consider whether acceptance would create any threats to compliance with the fundamental principles. Potential threats to integrity or professional behavior may be created from, for example, questionable issues associated with the client (its owners, management and activities).
210.2
Client issues that, if known, could threaten compliance with the fundamental principles include, for example, client involvement in illegal activities (such as money laundering), dishonesty or questionable financial reporting practices.
210.3
The significance of any threats should be evaluated. If identified threats are other than clearly insignificant, safeguards should be considered and applied as necessary to eliminate them or reduce them to an acceptable level.
210.4
Appropriate safeguards may include obtaining knowledge and understanding of the client, its owners, managers and those responsible for its governance and business activities, or securing the client’s commitment to improve corporate governance practices or internal controls.
210.5
Where it is not possible to reduce the threats to an acceptable level, a public accountant should decline to enter into the client relationship.
210.6
Acceptance decisions should be periodically reviewed for recurring client engagements.
Engagement Acceptance
210.7
A public accountant should agree to provide only those services that the public accountant is competent to perform. Before accepting a specific client engagement, a public accountant should consider whether acceptance would create any threats to compliance with the fundamental principles. For example, a self-interest threat to professional competence and due care is created if the engagement team does not possess, or cannot acquire, the competencies necessary to properly carry out the engagement.
210.8
A public accountant should evaluate the significance of identified threats and, if they are other than clearly insignificant, safeguards should be applied as necessary to eliminate them or reduce them to an acceptable level. Such safeguards may include:
 
(a) Acquiring an appropriate understanding of the nature of the client’s business, the complexity of its operations, the specific requirements of the engagement and the purpose, nature and scope of the work to be performed;
 
(b) Acquiring knowledge of relevant industries or subject matters;
 
(c) Possessing or obtaining experience with relevant regulatory or reporting requirements;
 
(d) Assigning sufficient staff with the necessary competencies;
 
(e) Using experts where necessary;
 
(f) Agreeing on a realistic time frame for the performance of the engagement;
 
(g) Complying with quality control policies and procedures designed to provide reasonable assurance that specific engagements are accepted only when they can be performed competently.
210.9
When a public accountant intends to rely on the advice or work of an expert, the public accountant should evaluate whether such reliance is warranted. The public accountant should consider factors such as reputation, expertise, resources available and applicable professional and ethical standards. Such information may be gained from prior association with the expert or from consulting others.
Changes in a Professional Appointment
210.10
A public accountant who is asked to replace another public accountant, or who is considering tendering for an engagement currently held by another public accountant, should determine whether there are any reasons, professional or other, for not accepting the engagement, such as circumstances that threaten compliance with the fundamental principles. For example, there may be a threat to professional competence and due care if a public accountant accepts the engagement before knowing all the pertinent facts.
210.11
The significance of the threats should be evaluated. Depending on the nature of the engagement, this may require direct communication with the existing accountant* to establish the facts and circumstances behind the proposed change so that the public accountant can decide whether it would be appropriate to accept the engagement. For example, the apparent reasons for the change in appointment may not fully reflect the facts and may indicate disagreements with the existing accountant that may influence the decision as to whether to accept the appointment.
 
__________________
*See Definitions
210.12
An existing accountant is bound by confidentiality. The extent to which the public accountant can and should discuss the affairs of a client with a proposed accountant will depend on the nature of the engagement and on:
 
(a) Whether the client’s permission to do so has been obtained; or
 
(b) The legal or ethical requirements relating to such communications and disclosure.
210.13
In the absence of specific instructions by the client, an existing accountant should not ordinarily volunteer information about the client’s affairs. Circumstances where it may be appropriate to disclose confidential information are set out in Section 140 of Part A of this Code.
210.14
If identified threats are other than clearly insignificant, safeguards should be considered and applied as necessary to eliminate them or reduce them to an acceptable level.
210.15
Such safeguards may include:
 
(a) Discussing the client’s affairs fully and freely with the existing accountant;
 
(b) Asking the existing accountant to provide known information on any facts or circumstances, that, in the existing accountant’s opinion, the proposed accountant should be aware of before deciding whether to accept the engagement;
 
(c) When replying to requests to submit tenders, stating in the tender that, before accepting the engagement, contact with the existing accountant will be requested so that inquiries may be made as to whether there are any professional or other reasons why the appointment should not be accepted.
210.16
A public accountant will ordinarily need to obtain the client’s permission, preferably in writing, to initiate discussion with an existing accountant. Once that permission is obtained, the existing accountant should comply with relevant legal and other regulations governing such requests. Where the existing accountant provides information, it should be provided honestly and unambiguously. If the proposed accountant is unable to communicate with the existing accountant, the proposed accountant should try to obtain information about any possible threats by other means such as through inquiries of third parties or background investigations on senior management or those charged with governance of the client.
210.17
Where the threats cannot be eliminated or reduced to an acceptable level through the application of safeguards, a public accountant should, unless there is satisfaction as to necessary facts by other means, decline the engagement.
SG210.17A
Before accepting a nomination as auditor in a financial statement audit engagement, in every case the public accountant should undertake the following safeguards:
 
(a) communicate with the existing accountant, if any, who is to be superseded; or
 
(b) enquire from such existing accountant as to whether there is any professional or other reason for the proposed change of which he should be aware before deciding whether or not to accept the appointment and, if there are such matters, request that existing public accountant to provide him with all the details necessary to enable him to come to a decision.
SG210.17B
The existing accountant, on receipt of communication referred to in paragraph SG210.17A, shall immediately:
 
(a) reply, in writing, advising whether there are any professional or other reasons why the proposed public accountant should not accept the appointment;
 
(b) if there are any such reasons or other matters which should be disclosed, ensure that he has the permission of the client to give details of this information to the proposed public accountant. If permission is not granted the existing accountant shall report that fact to the proposed public accountant; and
 
(c) on receipt of permission from the client, disclose all information needed by the proposed public accountant to enable him to decide whether or not to accept the appointment and discuss freely with the proposed public accountant all matters relevant to the appointment of which the latter should be aware.
SG210.17C
If the proposed public accountant does not receive, within a reasonable time, a reply to his communication to the existing accountant and he has no reason to believe that there are any exceptional circumstances surrounding the proposed change, he shall endeavour to communicate with the existing accountant by some other means.
SG210.17D
If the proposed public accountant is unable to obtain a satisfactory outcome pursuant to paragraph SG210.17C, he shall send a final letter by registered post, stating that he assumes there is no professional or other reason why he should not accept the appointment and that he intends to do so. The proposed public accountant may accept the engagement if he is satisfied that there are no professional or other reasons for the proposed change after taking into account guidance set out in 210.10 to 210.18.
210.18
A public accountant may be asked to undertake work that is complementary or additional to the work of the existing accountant. Such circumstances may give rise to potential threats to professional competence and due care resulting from, for example, a lack of or incomplete information. Safeguards against such threats include notifying the existing accountant of the proposed work, which would give the existing accountant the opportunity to provide any relevant information needed for the proper conduct of the work.
 
Section 220
Conflicts of Interest
220.1
A public accountant should take reasonable steps to identify circumstances that could pose a conflict of interest. Such circumstances may give rise to threats to compliance with the fundamental principles. For example, a threat to objectivity may be created when a public accountant competes directly with a client or has a joint venture or similar arrangement with a major competitor of a client. A threat to objectivity or confidentiality may also be created when a public accountant performs services for clients whose interests are in conflict or the clients are in dispute with each other in relation to the matter or transaction in question.
220.2
A public accountant should evaluate the significance of any threats. Evaluation includes considering, before accepting or continuing a client relationship or specific engagement, whether the public accountant has any business interests, or relationships with the client or a third party that could give rise to threats. If threats are other than clearly insignificant, safeguards should be considered and applied as necessary to eliminate them or reduce them to an acceptable level.
220.3
Depending upon the circumstances giving rise to the conflict, safeguards should ordinarily include the public accountant:
 
(a) Notifying the client of the firm’s business interest or activities that may represent a conflict of interest, and obtaining their consent to act in such circumstances;
 
(b) Notifying all known relevant parties that the public accountant is acting for two or more parties in respect of a matter where their respective interests are in conflict, and obtaining their consent to so act; or
 
(c) Notifying the client that the public accountant does not act exclusively for any one client in the provision of proposed services (for example, in a particular market sector or with respect to a specific service) and obtaining their consent to so act.
220.4
The following additional safeguards should also be considered:
 
(a) The use of separate engagement teams;
 
(b) Procedures to prevent access to information (e.g., strict physical separation of such teams, confidential and secure data filing);
 
(c) Clear guidelines for members of the engagement team on issues of security and confidentiality;
 
(d) The use of confidentiality agreements signed by employees and partners of the firm; and
 
(e) Regular review of the application of safeguards by a senior individual not involved with relevant client engagements.
220.5
Where a conflict of interest poses a threat to one or more of the fundamental principles, including objectivity, confidentiality or professional behavior, that cannot be eliminated or reduced to an acceptable level through the application of safeguards, the public accountant should conclude that it is not appropriate to accept a specific engagement or that resignation from one or more conflicting engagements is required.
220.6
Where a public accountant has requested consent from a client to act for another party (which may or may not be an existing client) in respect of a matter where the respective interests are in conflict and that consent has been refused by the client, then they must not continue to act for one of the parties in the matter giving rise to the conflict of interest.
 
Section 230
Second Opinions
230.1
Situations where a public accountant is asked to provide a second opinion on the application of accounting, auditing, reporting or other standards or principles to specific circumstances or transactions by or on behalf of a company or an entity that is not an existing client may give rise to threats to compliance with the fundamental principles. For example, there may be a threat to professional competence and due care in circumstances where the second opinion is not based on the same set of facts that were made available to the existing accountant, or is based on inadequate evidence. The significance of the threat will depend on the circumstances of the request and all the other available facts and assumptions relevant to the expression of a professional judgment.
230.2
When asked to provide such an opinion, a public accountant should evaluate the significance of the threats and, if they are other than clearly insignificant, safeguards should be considered and applied as necessary to eliminate them or reduce them to an acceptable level. Such safeguards may include seeking client permission to contact the existing accountant, describing the limitations surrounding any opinion in communications with the client and providing the existing accountant with a copy of the opinion.
230.3
If the company or entity seeking the opinion will not permit communication with the existing accountant, a public accountant should consider whether, taking all the circumstances into account, it is appropriate to provide the opinion sought.
 
Section 240
Fees and Other Types of Remuneration
240.1
When entering into negotiations regarding public accountancy services, a public accountant may quote whatever fee deemed to be appropriate. The fact that one public accountant may quote a fee lower than another is not in itself unethical. Nevertheless, there may be threats to compliance with the fundamental principles arising from the level of fees quoted. For example, a self-interest threat to professional competence and due care is created if the fee quoted is so low that it may be difficult to perform the engagement in accordance with applicable technical and professional standards for that price.
240.2
The significance of such threats will depend on factors such as the level of fee quoted and the services to which it applies. In view of these potential threats, safeguards should be considered and applied as necessary to eliminate them or reduce them to an acceptable level. Safeguards which may be adopted include:
 
(a) Making the client aware of the terms of the engagement and, in particular, the basis on which fees are charged and which services are covered by the quoted fee; and
 
(b) Assigning appropriate time and qualified staff to the task.
240.3
Contingent fees are widely used for certain types of non-assurance engagements.1 They may, however, give rise to threats to compliance with the fundamental principles in certain circumstances. They may give rise to a self-interest threat to objectivity. The significance of such threats will depend on factors including:
 
1Contingent fees for non-assurance services provided to assurance clients are discussed in Section 290 of this part of the Code.
 
(a) The nature of the engagement;
 
(b) The range of possible fee amounts;
 
(c) The basis for determining the fee; and
 
(d) Whether the outcome or result of the transaction is to be reviewed by an independent third party.
SG240.3A
A firm shall not accept or charge a contingent fee, or receive instructions on a contingent fee basis, for any form of professional work provided to a financial statement audit client that is a listed entity or public company, except where such remuneration is provided for under the provisions of any written law. Further explanation is contained in Section 290 on Contingency Fees.
240.4
The significance of such threats should be evaluated and, if they are other than clearly insignificant, safeguards should be considered and applied as necessary to eliminate or reduce them to an acceptable level. Such safeguards may include:
 
(a) An advance written agreement with the client as to the basis of remuneration;
 
(b) Disclosure to intended users of the work performed by the public accountant and the basis of remuneration;
 
(c) Quality control policies and procedures; and
 
(d) Review by an objective third party of the work performed by the public accountant.
240.5
In certain circumstances, a public accountant may receive a referral fee or Commission relating to a client. For example, where the public accountant does not provide the specific service required, a fee may be received for referring a continuing client to another public accountant or other expert. A public accountant may receive a commission from a third party (e.g., a software vendor) in connection with the sale of goods or services to a client. Accepting such a referral fee or commission may give rise to self-interest threats to objectivity and professional competence and due care.
240.6
A public accountant may also pay a referral fee to obtain a client, for example, where the client continues as a client of another public accountant but requires specialist services not offered by the existing accountant. The payment of such a referral fee may also create a self-interest threat to objectivity and professional competence and due care.
240.7
A public accountant should not pay or receive a referral fee or commission, unless the public accountant has established safeguards to eliminate the threats or reduce them to an acceptable level. Such safeguards may include:
 
(a) Disclosing to the client any arrangements to pay a referral fee to another public accountant for the work referred;
 
(b) Disclosing to the client any arrangements to receive a referral fee for referring the client to another public accountant; and
 
(c) Obtaining advance agreement from the client for commission arrangements in connection with the sale by a third party of goods or services to the client.
240.8
A public accountant may purchase all or part of another firm on the basis that payments will be made to individuals formerly owning the firm or to their heirs or estates. Such payments are not regarded as commissions or referral fees for the purpose of paragraph 240.5 – 240.7 above.
 
Section 250
Marketing Public Accountancy Services
250.1
When a public accountant solicits new work through advertising* or other forms of marketing, there may be potential threats to compliance with the fundamental principles. For example, a self-interest threat to compliance with the principle of professional behavior is created if services, achievements or products are marketed in a way that is inconsistent with that principle.
 
__________________
*See Definitions
250.2
A public accountant should not bring the profession into disrepute when marketing public accountancy services. The public accountant should be honest and truthful and should not:
 
(a) Make exaggerated claims for services offers, qualifications possessed or experience gained; or
 
(b) Make disparaging references to unsubstantiated comparisons to the work of another.
 
If the public accountant is in doubt whether a proposed form of advertising or marketing is appropriate, the public accountant should consult with the relevant professional body.
 
Section 260
Gifts and Hospitality
260.1
A public accountant, or an immediate or close family member, may be offered gifts and hospitality from a client. Such an offer ordinarily gives rise to threats to compliance with the fundamental principles. For example, self-interest threats to objectivity may be created if a gift from a client is accepted; intimidation threats to objectivity may result from the possibility of such offers being made public.
260.2
The significance of such threats will depend on the nature, value and intent behind the offer. Where gifts or hospitality which a reasonable and informed third party, having knowledge of all relevant information, would consider clearly insignificant are made a public accountant may conclude that the offer is made in the normal course of business without the specific intent to influence decision making or to obtain information. In such cases, the public accountant may generally conclude that there is no significant threat to compliance with the fundamental principles.
260.3
If evaluated threats are other than clearly insignificant, safeguards should be considered and applied as necessary to eliminate them or reduce them to an acceptable level. When the threats cannot be eliminated or reduced to an acceptable level through the application of safeguards, a public accountant should not accept such an offer.
SG260.3A
Also refer to section 290 on Gifts and Hospitality.
 
Section 270
Custody of Client Assets
270.1
A public accountant should not assume custody of client monies or other assets unless permitted to do so by law and, if so, in compliance with any additional legal duties imposed on a public accountant holding such assets.
SG270.1A
A public accountant may hold non-assurance client monies or other assets for the purpose of providing accounting-related, corporate secretarial and regulated financial services, provided that such monies or other assets are held in accordance with this section and other relevant sections of this Code and all relevant laws and regulations relevant to the holding of and accounting for such assets.
270.2
The holding of client assets creates threats to compliance with the fundamental principles; for example, there is a self-interest threat to professional behavior and may be a self interest threat to objectivity arising from holding client assets. To safeguard against such threats, a public accountant entrusted with money (or other assets) belonging to others should:
 
(a) Keep such assets separately from personal or firm assets;
 
(b) Use such assets only for the purpose for which they are intended;
 
(c) At all times, be ready to account for those assets, and any income, dividends or gains generated, to any persons entitled to such accounting; and
 
(d) Comply with all relevant laws and regulations relevant to the holding of and accounting for such assets.
270.3
In addition, public accountants should be aware of threats to compliance with the fundamental principles through association with such assets, for example, if the assets were found to derive from illegal activities, such as money laundering. As part of client and engagement acceptance procedures for such services, public accountants should make appropriate inquiries about the source of such assets and should consider their legal and regulatory obligations. They may also consider seeking legal advice.
 
Section 280
Objectivity — All Services
280.1
A public accountant should consider when providing any public accountancy services whether there are threats to compliance with the fundamental principle of objectivity resulting from having interests in, or relationships with, a client or directors, officers or employees. For example, a familiarity threat to objectivity may be created from a family or close personal or business relationship.
280.2
A public accountant who provides an assurance service is required to be independent of the assurance client. Independence of mind and in appearance is necessary to enable the public accountant to express a conclusion, and be seen to express a conclusion, without bias, conflict of interest or undue influence of others. Section 290 provides specific guidance on independence requirements for public accountants when performing an assurance engagement.
280.3
The existence of threats to objectivity when providing any public accountancy service will depend upon the particular circumstances of the engagement and the nature of the work that the public accountant is performing.
280.4
A public accountant should evaluate the significance of identified threats and, if they are other than clearly insignificant, safeguards should be considered and applied as necessary to eliminate them or reduce them to an acceptable level. Such safeguards may include:
 
(a) Withdrawing from the engagement team;
 
(b) Supervisory procedures;
 
(c) Terminating the financial or business relationship giving rise to the threat;
 
(d) Discussing the issue with higher levels of management within the firm; and
 
(e) Discussing the issue with those charged with governance of the client.
 
Section 290
Independence — Assurance Engagements
290.1
In the case of an assurance engagement it is in the public interest and, therefore, required by this Code, that members of assurance teams,* firms and, when applicable, network firms* be independent of assurance clients.
 
__________________
*See Definitions
290.2
Assurance engagements are designed to enhance intended users’ degree of confidence about the outcome of the evaluation or measurement of a subject matter against criteria. The Framework for Assurance Engagements (the Assurance Framework) issued by the Institute of Certified Public Accountants of Singapore (ICPAS), and adopted by the Public Accountants Oversight Committee (PAOC) for the purposes of the practice monitoring programme, describes the elements and objectives of an assurance engagement, and identifies engagements to which Singapore Standards on Auditing (SSAs), Singapore Standards on Review Engagements (SSREs) and Singapore Standards on Assurance Engagements (SSAEs) apply. For a description of the elements and objectives of an assurance engagement reference should be made to the Assurance Framework.
290.3
As further explained in the Assurance Framework, in an assurance engagement the public accountant expresses a conclusion designed to enhance the degree of confidence of the intended users other than the responsible party about the outcome of the evaluation or measurement of a subject matter against criteria.
290.4
The outcome of the evaluation or measurement of a subject matter is the information that results from applying the criteria to the subject matter. The term “subject matter information” is used to mean the outcome of the evaluation or measurement of subject matter. For example:
 
(a) The recognition, measurement, presentation and disclosure represented in the financial statements* (subject matter information) result from applying a financial reporting framework for recognition, measurement, presentation and disclosure, such as Financial Reporting Standards, (criteria) to an entity’s financial position, financial performance and cash flows (subject matter); and
 
__________________
*See Definitions
 
(b) An assertion about the effectiveness of internal control (subject matter information) results from applying a framework for evaluating the effectiveness of internal control, such as COSO or CoCo, (criteria) to internal control, a process (subject matter).
290.5
Assurance engagements may be assertion-based or direct reporting. In either case they involve three separate parties: a public accountant, a responsible party and intended users.
290.6
In an assertion-based assurance engagement, which includes a financial statement audit engagement*, the evaluation or measurement of the subject matter is performed by the responsible party, and the subject matter information is in the form of an assertion by the responsible party that is made available to the intended users.
 
__________________
*See Definitions
290.7
In a direct reporting assurance engagement the public accountant in public practice either directly performs the evaluation or measurement of the subject matter, or obtains a representation from the responsible party that has performed the evaluation or measurement that is not available to the intended users. The subject matter information is provided to the intended users in the assurance report.
290.8
Independence requires:
 
Independence of Mind
 
The state of mind that permits the expression of a conclusion without being affected by influences that compromise professional judgment, allowing an individual to act with integrity, and exercise objectivity and professional skepticism.
 
Independence in Appearance
 
The avoidance of facts and circumstances that are so significant that a reasonable and informed third party, having knowledge of all relevant information, including safeguards applied, would reasonably conclude a firm’s, or a member of the assurance team’s, integrity, objectivity or professional skepticism had been compromised.
290.9
The use of the word “independence” on its own may create misunderstandings. Standing alone, the word may lead observers to suppose that a person exercising professional judgment ought to be free from all economic, financial and other relationships. This is impossible, as every member of society has relationships with others. Therefore, the significance of economic, financial and other relationships should also be evaluated in the light of what a reasonable and informed third party having knowledge of all relevant information would reasonably conclude to be unacceptable.
290.10
Many different circumstances, or combination of circumstances, may be relevant and accordingly it is impossible to define every situation that creates threats to independence and specify the appropriate mitigating action that should be taken. In addition, the nature of assurance engagements may differ and consequently different threats may exist, requiring the application of different safeguards. A conceptual framework that requires firms and members of assurance teams to identify, evaluate and address threats to independence, rather than merely comply with a set of specific rules which may be arbitrary, is, therefore, in the public interest.
A Conceptual Approach to Independence
290.11
Members of assurance teams, firms and network firms are required to apply the conceptual framework contained in Section 100 to the particular circumstances under consideration. In addition to identifying relationships between the firm, network firms, members of the assurance team and the assurance client, consideration should be given to whether relationships between individuals outside of the team and the assurance client create threats to independence.
290.12
The examples presented in this section are intended to illustrate the application of the conceptual framework and are not intended to be, nor should they be interpreted as, an exhaustive list of all circumstances that may create threats to independence. Consequently, it is not sufficient for a member of an assurance team, a firm or a network firm merely to comply with the examples presented, rather they should apply the framework to the particular circumstances they face.
290.13
The nature of the threats to independence and the applicable safeguards necessary to eliminate the threats or reduce them to an acceptable level differ depending on the characteristics of the individual assurance engagement: whether it is a financial statement audit engagement or another type of assurance engagement; and in the latter case, the purpose, subject matter information and intended users of the report. A firm should, therefore, evaluate the relevant circumstances, the nature of the assurance engagement and the threats to independence in deciding whether it is appropriate to accept or continue an engagement, as well as the nature of the safeguards required and whether a particular individual should be a member of the assurance team.
Networks and Network Firms
290.14
An entity that belongs to a network might be a firm, which is defined in this Code as a an accounting entity, and an entity that controls or is controlled by an accounting entity, or the entity might be another type of entity, such as a consulting practice or a professional law practice. The independence requirements in this section that apply to a network firm apply to any entity that meets the definition of a network firm irrespective of whether the entity itself meets the definition of a firm.
290.15
If a firm is considered to be a network firm, the firm is required to be independent of the financial statement audit clients of the other firms within the network. In addition, for assurance clients that are not financial statement audit clients, consideration should be given to any threats the firm has reason to believe may be created by financial interests in the client held by other entities in the network or by relationships between the client and other entities in the network.
290.16
To enhance their ability to provide professional services, firms frequently form larger structures with other firms and entities. Whether these larger structures create a network depends upon the particular facts and circumstances and does not depend on whether the firms and entities are legally separate and distinct. For example, a larger structure may be aimed only at facilitating the referral of work, which in itself does not meet the criteria necessary to constitute a network. Alternatively, a larger structure might be such that it is aimed at cooperation and the firms share a common brand name, a common system of quality control, or significant professional resources and consequently is considered to be a network.
290.17
The judgment as to whether the larger structure is a network should be made in light of whether a reasonable and informed third party would be likely to conclude, weighing all the specific facts and circumstances, that the entities are associated in such a way that a network exists. This judgment should be applied consistently throughout the network.
290.18
Where the larger structure is aimed at co-operation and it is clearly aimed at profit or cost sharing among the entities within the structure, it is considered to be a network. However, the sharing of immaterial costs would not in itself create a network. In addition, if the sharing of costs is limited only to those costs related to the development of audit methodologies, manuals, or training courses, this would not in itself create a network. Further, an association between a firm and an otherwise unrelated entity to jointly provide a service or develop a product would not in itself create a network.
290.19
Where the larger structure is aimed at cooperation and the entities within the structure share common ownership, control or management, it is considered to be a network. This could be achieved by contract or other means.
290.20
Where the larger structure is aimed at co-operation and the entities within the structure share common quality control policies and procedures, it is considered to be a network. For this purpose common quality control policies and procedures would be those designed, implemented and monitored across the larger structure.
290.21
Where the larger structure is aimed at co-operation and the entities within the structure share a common business strategy, it is considered to be a network. Sharing a common business strategy involves an agreement by the entities to achieve common strategic objectives. An entity is not considered to be a network firm merely because it co-operates with another entity solely to respond jointly to a request for a proposal for the provision of a professional service.
290.22
Where the larger structure is aimed at co-operation and the entities within the structure share the use of a common brand name, it is considered to be a network. A common brand name includes common initials or a common name. A firm is considered to be using a common brand name if it includes, for example, the common brand name as part of, or along with, its firm name, when a partner of the firm signs an assurance report.
290.23
Even though a firm does not belong to a network and does not use a common brand name as part of its firm name, it may give the appearance that it belongs to a network if it makes reference in its stationery or promotional materials to being a member of an association of firms. Accordingly, a firm should carefully consider how it describes any such memberships in order to avoid the perception that it belongs to a network.
290.24
If a firm sells a component of its practice, the sales agreement sometimes provides that, for a limited period of time, the component may continue to use the name of the firm, or an element of the name, even though it is no longer connected to the firm. In such circumstances, while the two entities may be practicing under a common name, the facts are such that they do not belong to a larger structure aimed at co-operation and are, therefore, not network firms. Those entities should carefully consider how to disclose that they are not network firms when presenting themselves to outside parties.
290.25
Where the larger structure is aimed at co-operation and the entities within the structure share a significant part of professional resources, it is considered to be a network. Professional resources include:
 
(a) Common systems that enable firms to exchange information such as client data, billing and time records;
 
(b) Partners and staff;
 
(c) Technical departments to consult on technical or industry specific issues, transactions or events for assurance engagements;
 
(d) Audit methodology or audit manuals; and
 
(e) Training courses and facilities.
290.26
The determination of whether the professional resources shared are significant, and therefore the firms are network firms, should be made based on the relevant facts and circumstances. Where the shared resources are limited to common audit methodology or audit manuals, with no exchange of personnel or client or market information, it is unlikely that the shared resources would be considered to be significant. The same applies to a common training endeavour. Where, however, the shared resources involve the exchange of people or information, such as where staff are drawn from a shared pool, or a common technical department is created within the larger structure to provide participating firms with technical advice that the firms are required to follow, a reasonable and informed third party is more likely to conclude that the shared resources are significant.
Assertion-based Assurance Engagements
Financial Statement Audit Engagements
290.27
Financial statement audit engagements are relevant to a wide range of potential users; consequently, in addition to independence of mind, independence in appearance is of particular significance. Accordingly, for financial statement audit clients, the members of the assurance team, the firm and network firms are required to be independent of the financial statement audit client. Such independence requirements include prohibitions regarding certain relationships between members of the assurance team and directors, officers and employees of the client in a position to exert direct and significant influence over the subject matter information (the financial statements). Also, consideration should be given to whether threats to independence are created by relationships with employees of the client in a position to exert direct and significant influence over the subject matter (the financial position, financial performance and cash flows).
Other Assertion-based Assurance Engagements
290.28
In an assertion-based assurance engagement where the client is not a financial statement audit client, the members of the assurance team and the firm are required to be independent of the assurance client (the responsible party, which is responsible for the subject matter information and may be responsible for the subject matter). Such independence requirements include prohibitions regarding certain relationships between members of the assurance team and directors, officers and employees of the client in a position to exert direct and significant influence over the subject matter information. Also, consideration should be given to whether threats to independence are created by relationships with employees of the client in a position to exert direct and significant influence over the subject matter of the engagement. Consideration should also be given to any threats that the firm has reason to believe may be created by network firm interests and relationships.
290.29
In the majority of assertion-based assurance engagements, that are not financial statement audit engagements, the responsible party is responsible for the subject matter information and the subject matter. However, in some engagements the responsible party may not be responsible for the subject matter. For example, when a public accountant is engaged to perform an assurance engagement regarding a report that an environmental consultant has prepared about a company’s sustainability practices, for distribution to intended users, the environmental consultant is the responsible party for the subject matter information but the company is responsible for the subject matter (the sustainability practices).
290.30
In those assertion-based assurance engagements that are not financial statement audit engagements, where the responsible party is responsible for the subject matter information but not the subject matter the members of the assurance team and the firm are required to be independent of the party responsible for the subject matter information (the assurance client). In addition, consideration should be given to any threats the firm has reason to believe may be created by interests and relationships between a member of the assurance team, the firm, a network firm and the party responsible for the subject matter.
Direct Reporting Assurance Engagements
290.31
In a direct reporting assurance engagement the members of the assurance team and the firm are required to be independent of the assurance client (the party responsible for the subject matter).
Restricted Use Reports
290.32
In the case of an assurance report in respect of a non-financial statement audit client expressly restricted for use by identified users, the users of the report are considered to be knowledgeable as to the purpose, subject matter information and limitations of the report through their participation in establishing the nature and scope of the firm’s instructions to deliver the services, including the criteria against which the subject matter are to be evaluated or measured. This knowledge and the enhanced ability of the firm to communicate about safeguards with all users of the report increase the effectiveness of safeguards to independence in appearance. These circumstances may be taken into account by the firm in evaluating the threats to independence and considering the applicable safeguards necessary to eliminate the threats or reduce them to an acceptable level. At a minimum, it will be necessary to apply the provisions of this section in evaluating the independence of members of the assurance team and their immediate and close family. Further, if the firm had a material financial interest, whether direct or indirect, in the assurance client, the self-interest threat created would be so significant no safeguard could reduce the threat to an acceptable level. Limited consideration of any threats created by network firm interests and relationships may be sufficient.
Multiple Responsible Parties
290.33
In some assurance engagements, whether assertion-based or direct reporting, that are not financial statement audit engagements, there might be several responsible parties. In such engagements, in determining whether it is necessary to apply the provisions in this section to each responsible party, the firm may take into account whether an interest or relationship between the firm, or a member of the assurance team, and a particular responsible party would create a threat to independence that is other than clearly insignificant in the context of the subject matter information. This will take into account factors such as:
 
(a) The materiality of the subject matter information (or the subject matter) for which the particular responsible party is responsible; and
 
(b) The degree of public interest associated with the engagement. If the firm determines that the threat to independence created by any such interest or relationship with a particular responsible party would be clearly insignificant it may not be necessary to apply all of the provisions of this section to that responsible party.
Other Considerations
290.34
The threats and safeguards identified in this section are generally discussed in the context of interests or relationships between the firm, network firms, members of the assurance team and the assurance client. In the case of a financial statement audit client that is a listed entity or public company*, the firm and any network firms are required to consider the interests and relationships that involve that client’s related entities. Ideally those entities and the interests and relationships should be identified in advance. For all other assurance clients, when the assurance team has reason to believe that a related entity* of such an assurance client is relevant to the evaluation of the firm’s independence of the client, the assurance team should consider that related entity when evaluating independence and applying appropriate safeguards.
 
__________________
*See Definitions
290.35
The evaluation of threats to independence and subsequent action should be supported by evidence obtained before accepting the engagement and while it is being performed. The obligation to make such an evaluation and take action arises when a firm, a network firm or a member of the assurance team knows, or could reasonably be expected to know, of circumstances or relationships that might compromise independence. There may be occasions when the firm, a network firm or an individual inadvertently violates this section. If such an inadvertent violation occurs, it would generally not compromise independence with respect to an assurance client provided the firm has appropriate quality control policies and procedures in place to promote independence and, once discovered, the violation is corrected promptly and any necessary safeguards are applied.
290.36
Throughout this section, reference is made to significant and clearly insignificant threats in the evaluation of independence. In considering the significance of any particular matter, qualitative as well as quantitative factors should be taken into account. A matter should be considered clearly insignificant only if it is deemed to be both trivial and inconsequential.
Objective and Structure of This Section
290.37
The objective of this section is to assist firms and members of assurance teams in:
 
(a) Identifying threats to independence;
 
(b) Evaluating whether these threats are clearly insignificant; and
 
(c) In cases when the threats are not clearly insignificant, identifying and applying appropriate safeguards to eliminate or reduce the threats to an acceptable level.
 
Consideration should always be given to what a reasonable and informed third party having knowledge of all relevant information, including safeguards applied, would reasonably conclude to be unacceptable. In situations when no safeguards are available to reduce the threat to an acceptable level, the only possible actions are to eliminate the activities or interest creating the threat, or to refuse to accept or continue the assurance engagement.
290.38
This section concludes with some examples of how this conceptual approach to independence is to be applied to specific circumstances and relationships. The examples discuss threats to independence that may be created by specific circumstances and relationships (paragraphs 290.100 onwards). Professional judgment is used to determine the appropriate safeguards to eliminate threats to independence or to reduce them to an acceptable level. In certain examples, the threats to independence are so significant the only possible actions are to eliminate the activities or interest creating the threat, or to refuse to accept or continue the assurance engagement. In other examples, the threat can be eliminated or reduced to an acceptable level by the application of safeguards. The examples are not intended to be all-inclusive.
290.39
Not used.
290.40
When threats to independence that are not clearly insignificant are identified, and the firm decides to accept or continue the assurance engagement, the decision should be documented. The documentation should include a description of the threats identified and the safeguards applied to eliminate or reduce the threats to an acceptable level.
290.41
The evaluation of the significance of any threats to independence and the safeguards necessary to reduce any threats to an acceptable level, takes into account the public interest. Certain entities may be of significant public interest because, as a result of their business, their size or their corporate status they have a wide range of stakeholders. Examples of such entities may include listed companies, credit institutions, insurance companies, and pension funds. Because of the strong public interest in the financial statements of listed entities and public companies, certain paragraphs in this section deal with additional matters that are relevant to the financial statement audit of listed entities and public companies. Consideration should be given to the application of the framework in relation to the financial statement audit of listed entities and public companies to other financial statement audit clients that may be of significant public interest.
290.42
Audit committees can have an important corporate governance role when they are independent of client management and can assist the Board of Directors in satisfying themselves that a firm is independent in carrying out its audit role. There should be regular communications between the firm and the audit committee (or other governance body if there is no audit committee) of listed entities or public companies regarding relationships and other matters that might, in the firm’s opinion, reasonably be thought to bear on independence.
290.43
Firms should establish policies and procedures relating to independence communications with audit committees, or others charged with governance of the client. In the case of a financial statement audit of a listed entity or public company, the firm should communicate orally and in writing at least annually, all relationships and other matters between the firm, network firms and the financial statement audit client that in the firm’s professional judgment may reasonably be thought to bear on independence. Matters to be communicated will vary in each circumstance and should be decided by the firm, but should generally address the relevant matters set out in this section.
Engagement Period
290.44
The members of the assurance team and the firm should be independent of the assurance client during the period of the assurance engagement. The period of the engagement starts when the assurance team begins to perform assurance services and ends when the assurance report is issued, except when the assurance engagement is of a recurring nature. If the assurance engagement is expected to recur, the period of the assurance engagement ends with the notification by either party that the professional relationship has terminated or the issuance of the final assurance report, whichever is later.
290.45
In the case of a financial statement audit engagement, the engagement period includes the period covered by the financial statements reported on by the firm. When an entity becomes a financial statement audit client during or after the period covered by the financial statements that the firm will report on, the firm should consider whether any threats to independence may be created by:
 
(a) Financial or business relationships with the audit client during or after the period covered by the financial statements, but prior to the acceptance of the financial statement audit engagement; or
 
(b) Previous services provided to the audit client.
 
Similarly, in the case of an assurance engagement that is not a financial statement audit engagement, the firm should consider whether any financial or business relationships or previous services may create threats to independence.
290.46
If a non-assurance service was provided to the financial statement audit client during or after the period covered by the financial statements but before the commencement of professional services in connection with the financial statement audit and the service would be prohibited during the period of the audit engagement, consideration should be given to the threats to independence, if any, arising from the service. If the threat is other than clearly insignificant, safeguards should be considered and applied as necessary to reduce the threat to an acceptable level. Such safeguards may include:
 
(a) Discussing independence issues related to the provision of the non-assurance service with those charged with governance of the client, such as the audit committee;
 
(b) Obtaining the client’s acknowledgement of responsibility for the results of the non-assurance service;
 
(c) Precluding personnel who provided the non-assurance service from participating in the financial statement audit engagement; and
 
(d) Engaging another firm to review the results of the non-assurance service or having another firm re-perform the non-assurance service to the extent necessary to enable it to take responsibility for the service.
290.47
A non-assurance service provided to a financial statement audit client that is not a listed entity or public company will not impair the firm’s independence when the client becomes a listed entity or public company provided:
 
(a) The previous non-assurance service was permissible under this section for a financial statement audit client that is not a listed entity or public company;
 
(b) The service will be terminated within a reasonable period of time of the client becoming a listed entity or public company, if they are impermissible under this section for financial statement audit clients that are listed entities or public companies; and
 
(c) The firm has implemented appropriate safeguards to eliminate any threats to independence arising from the previous service or reduce them to an acceptable level.
 
 
 
 
APPLICATION OF FRAMEWORK TO SPECIFIC SITUATIONS
CONTENTS
__________________________________________________________________________
 
 
Paragraph
Introduction
 
290.100
Financial Interests
 
290.104
 
Provisions Applicable to All Assurance Clients
 
290.106
 
Provisions Applicable to Financial Statement Audit Clients
 
290.113
 
Provisions Applicable to Non-Financial Statement Audit Assurance Clients
 
290.122
Loans and Guarantees
 
290.126
Close Business Relationships with Assurance Clients
 
290.132
Family and Personal Relationships
 
290.135
Employment with Assurance Clients
 
290.143
Recent Service with Assurance Clients
 
290.146
Serving as an Officer or Director on the Board of Assurance Clients
 
290.149
Long Association of Senior Personnel with Assurance Clients
 
 
 
General Provisions
 
290.153
 
Financial Statement Audit Clients that are listed entities or public companies
 
290.154
Provision of Non-assurance Services to Assurance Clients
 
290.158
 
Preparing Accounting Records and Financial Statements
 
290.166
 
General Provisions
 
290.169
 
Financial Statement Audit Clients that are not listed entities or public companies
 
290.170
 
Financial Statement Audit Clients that are listed entities or public companies
 
290.171
 
Emergency Situations
 
290.173
Valuation Services
 
290.174
Provision of Taxation Services to Financial Statement Audit Clients
 
290.180
 
Provision of Internal Audit Services to Financial Statement Audit Clients
 
290.181
 
Provision of IT Systems Services to Financial Statement Audit Clients
 
290.187
 
Temporary Staff Assignments to Financial Statement Audit Clients
 
290.192
 
Provision of Litigation Support Services to Financial Statement Audit Clients
 
290.193
 
Recruiting Senior Management
 
290.203
 
Corporate Finance and Similar Activities
 
290.204
Fees and Pricing
 
 
 
Fees — Relative Size
 
290.206
 
Fees — Overdue
 
290.208
 
Pricing
 
290.209
 
Contingent Fees
 
290.210
Gifts and Hospitality
 
290.213
Actual or Threatened Litigation
 
290.214
Introduction
290.100
The following examples describe specific circumstances and relationships that may create threats to independence. The examples describe the potential threats created and the safeguards that may be appropriate to eliminate the threats or reduce them to an acceptable level in each circumstance. The examples are not all inclusive. In practice, the firm, network firms and the members of the assurance team will be required to assess the implications of similar, but different, circumstances and relationships and to determine whether safeguards, including the safeguards in paragraphs 200.12 through 200.15 can be applied to satisfactorily address the threats to independence.
290.101
Some of the examples deal with financial statement audit clients while others deal with assurance engagements for clients that are not financial statement audit clients. The examples illustrate how safeguards should be applied to fulfill the requirement for the members of the assurance team, the firm and network firms to be independent of a financial statement audit client, and for the members of the assurance team and the firm to be independent of an assurance client that is not a financial statement audit client. The examples do not include assurance reports to a non-financial statement audit client expressly restricted for use by identified users. As stated in paragraph 290.32 for such engagements, members of the assurance team and their immediate and close family are required to be independent of the assurance client. Further, the firm should not have a material financial interest, direct or indirect, in the assurance client.
290.102
The examples illustrate how the framework applies to financial statement audit clients and other assurance clients. The examples should be read in conjunction with paragraph 290.33 which explains that, in the majority of assurance engagements, there is one responsible party and that responsible party comprises the assurance client. However, in some assurance engagements there are two responsible parties. In such circumstances, consideration should be given to any threats the firm has reason to believe may be created by interests and relationships between a member of the assurance team, the firm, a network firm and the party responsible for the subject matter.
290.103
Not used.
Financial Interests
290.104
A financial interest in an assurance client may create a self-interest threat. In evaluating the significance of the threat, and the appropriate safeguards to be applied to eliminate the threat or reduce it to an acceptable level, it is necessary to examine the nature of the financial interest. This includes an evaluation of the role of the person holding the financial interest, the materiality of the financial interest and the type of financial interest (direct or indirect).
290.105
When evaluating the type of financial interest, consideration should be given to the fact that financial interests range from those where the individual has no control over the investment vehicle or the financial interest held (e.g., a mutual fund, unit trust or similar intermediary vehicle) to those where the individual has control over the financial interest (e.g., as a trustee) or is able to influence investment decisions. In evaluating the significance of any threat to independence, it is important to consider the degree of control or influence that can be exercised over the intermediary, the financial interest held, or its investment strategy. When control exists, the financial interest should be considered direct. Conversely, when the holder of the financial interest has no ability to exercise such control the financial interest should be considered indirect.
Provisions Applicable to All Assurance Clients
290.106
If a member of the assurance team, or their immediate family member, has a direct financial interest*, or a material indirect financial interest*, in the assurance client, the self-interest threat created would be so significant the only safeguards available to eliminate the threat or reduce it to an acceptable level would be to:
 
__________________
*See Definitions
 
(a) Dispose of the direct financial interest prior to the individual becoming a member of the assurance team;
 
(b) Dispose of the indirect financial interest in total or dispose of a sufficient amount of it so that the remaining interest is no longer material prior to the individual becoming a member of the assurance team; or
 
(c) Remove the member of the assurance team from the assurance engagement.
290.107
If a member of the assurance team, or their immediate family member receives, by way of, for example, an inheritance, gift or, as a result of a merger, a direct financial interest or a material indirect financial interest in the assurance client, a self-interest threat would be created. The following safeguards should be applied to eliminate the threat or reduce it to an acceptable level:
 
(a) Disposing of the financial interest at the earliest practical date; or
 
(b) Removing the member of the assurance team from the assurance engagement.
 
During the period prior to disposal of the financial interest or the removal of the individual from the assurance team, consideration should be given to whether additional safeguards are necessary to reduce the threat to an acceptable level. Such safeguards might include:
 
(i) Discussing the matter with those charged with governance, such as the audit committee; or
 
(ii) Involving an additional professional accountant to review the work done, or otherwise advise as necessary.
290.108
When a member of the assurance team knows that his or her close family member has a direct financial interest or a material indirect financial interest in the assurance client, a self-interest threat may be created. In evaluating the significance of any threat, consideration should be given to the nature of the relationship between the member of the assurance team and the close family member and the materiality of the financial interest.
 
Once the significance of the threat has been evaluated, safeguards should be considered and applied as necessary. Such safeguards might include:
 
(a) The close family member disposing of all or a sufficient portion of the financial interest at the earliest practical date;
 
(b) Discussing the matter with those charged with governance, such as the audit committee;
 
(c) Involving an additional professional accountant who did not take part in the assurance engagement to review the work done by the member of the assurance team with the close family relationship or otherwise advise as necessary; or
 
(d) Removing the individual from the assurance engagement.
290.109
When a firm or a member of the assurance team holds a direct financial interest or a material indirect financial interest in the assurance client as a trustee, a self-interest threat may be created by the possible influence of the trust over the assurance client. Accordingly, such an interest should only be held when:
 
(a) The member of the assurance team, an immediate family member of the member of the assurance team, and the firm are not beneficiaries of the trust;
 
(b) The interest held by the trust in the assurance client is not material to the trust;
 
(c) The trust is not able to exercise significant influence over the assurance client; and
 
(d) The member of the assurance team or the firm does not have significant influence over any investment decision involving a financial interest in the assurance client.
290.110
Consideration should be given to whether a self-interest threat may be created by the financial interests of individuals outside of the assurance team and their immediate and close family members. Such individuals would include:
 
(a) Partners, and their immediate family members, who are not members of the assurance team;
 
(b) Partners and managerial employees who provide non-assurance services to the assurance client; and
 
(c) Individuals who have a close personal relationship with a member of the assurance team.
 
Whether the interests held by such individuals may create a self-interest threat will depend upon factors such as:
 
(i) The firm’s organizational, operating and reporting structure; and
 
(ii) The nature of the relationship between the individual and the member of the assurance team.
 
The significance of the threat should be evaluated and, if the threat is other than clearly insignificant, safeguards should be considered and applied as necessary to reduce the threat to an acceptable level. Such safeguards might include:
 
(A) Where appropriate, policies to restrict people from holding such interests;
 
(B) Discussing the matter with those charged with governance, such as the audit committee; or
 
(C) Involving an additional professional accountant who did not take part in the assurance engagement to review the work done or otherwise advise as necessary.
290.111
An inadvertent violation of this section as it relates to a financial interest in an assurance client would not impair the independence of the firm, the network firm or a member of the assurance team when:
 
(a) The firm, and the network firm, have established policies and procedures that require all professionals to report promptly to the fir m any breaches resulting from the purchase, inheritance or other acquisition of a financial interest in the assurance client;
 
(b) The firm, and the network firm, promptly notify the professional that the financial interest should be disposed of; and
 
(c) The disposal occurs at the earliest practical date after identification of the issue, or the professional is removed from the assurance team.
290.112
When an inadvertent violation of this section relating to a financial interest in an assurance client has occurred, the firm should consider whether any safeguards should be applied. Such safeguards might include:
 
(a) Involving an additional professional accountant who did not take part in the assurance engagement to review the work done by the member of the assurance team; or
 
(b) Excluding the individual from any substantive decision-making concerning the assurance engagement.
Provisions Applicable to Financial Statement Audit Clients
290.113
If a firm, or a network firm, has a direct financial interest in a financial statement audit client of the firm the self-interest threat created would be so significant no safeguard could reduce the threat to an acceptable level. Consequently, disposal of the financial interest would be the only action appropriate to permit the firm to perform the engagement.
290.114
If a firm, or a network firm, has a material indirect financial interest in a financial statement audit client of the firm a self-interest threat is also created. The only actions appropriate to permit the firm to perform the engagement would be for the firm, or the network firm, either to dispose of the indirect interest in total or to dispose of a sufficient amount of it so that the remaining interest is no longer material.
290.115
If a firm, or a network firm, has a material financial interest in an entity that has a controlling interest in a financial statement audit client, the self-interest threat created would be so significant no safeguard could reduce the threat to an acceptable level. The only actions appropriate to permit the firm to perform the engagement would be for the firm, or the network firm, either to dispose of the financial interest in total or to dispose of a sufficient amount of it so that the remaining interest is no longer material.
290.116
If the retirement benefit plan of a firm, or network firm, has a financial interest in a financial statement audit client a self-interest threat may be created. Accordingly, the significance of any such threat created should be evaluated and, if the threat is other than clearly insignificant, safeguards should be considered and applied as necessary to eliminate the threat or reduce it to an acceptable level.
290.117
If other partners, including partners who do not perform assurance engagements, or their immediate family, in the office* in which the engagement partner* practices in connection with the financial statement audit hold a direct financial interest or a material indirect financial interest in that audit client, the self-interest threat created would be so significant no safeguard could reduce the threat to an acceptable level. Accordingly, such partners or their immediate family should not hold any such financial interests in such an audit client.
 
__________________
*See Definitions
290.118
The office in which the engagement partner practices in connection with the financial statement audit is not necessarily the office to which that partner is assigned. Accordingly, when the engagement partner is located in a different office from that of the other members of the assurance team, judgment should be used to determine in which office the partner practices in connection with that audit.
290.119
If other partners and managerial employees who provide non-assurance services to the financial statement audit client, except those whose involvement is clearly insignificant, or their immediate family, hold a direct financial interest or a material indirect financial interest in the audit client, the self-interest threat created would be so significant no safeguard could reduce the threat to an acceptable level. Accordingly, such personnel or their immediate family should not hold any such financial interests in such an audit client.
290.120
A financial interest in a financial statement audit client that is held by an immediate family member of (a) a partner located in the office in which the engagement partner practices in connection with the audit, or (b) a partner or managerial employee who provides non-assurance services to the audit client is not considered to create an unacceptable threat provided it is received as a result of their employment rights (e.g., pension rights or share options) and, where necessary, appropriate safeguards are applied to reduce any threat to independence to an acceptable level.
290.121
A self-interest threat may be created if the firm, or the network firm, or a member of the assurance team has an interest in an entity, and a financial statement audit client, or a director, officer or controlling owner thereof also has an investment in that entity. Independence is not compromised with respect to the audit client if the respective interests of the firm, the network firm, or member of the assurance team, and the audit client, or director, officer or controlling owner thereof are both immaterial and the audit client cannot exercise significant influence over the entity. If an interest is material, to either the firm, the network firm or the audit client, and the audit client can exercise significant influence over the entity, no safeguards are available to reduce the threat to an acceptable level and the firm, or the network firm, should either dispose of the interest or decline the audit engagement. Any member of the assurance team with such a material interest should either:
 
(a) Dispose of the interest;
 
(b) Dispose of a sufficient amount of the interest so that the remaining interest is no longer material; or
 
(c) Withdraw from the audit.
Provisions Applicable to Non-Financial Statement Audit Assurance Clients
290.122
If a firm has a direct financial interest in an assurance client that is not a financial statement audit client the self-interest threat created would be so significant no safeguard could reduce the threat to an acceptable level. Consequently, disposal of the financial interest would be the only action appropriate to permit the firm to perform the engagement.
290.123
If a firm has a material indirect financial interest in an assurance client that is not a financial statement audit client a self-interest threat is also created. The only action appropriate to permit the firm to perform the engagement would be for the firm to either dispose of the indirect interest in total or to dispose of a sufficient amount of it so that the remaining interest is no longer material.
290.124
If a firm has a material financial interest in an entity that has a controlling interest in an assurance client that is not a financial statement audit client, the self-interest threat created would be so significant no safeguard could reduce the threat to an acceptable level. The only action appropriate to permit the firm to perform the engagement would be for the firm either to dispose of the financial interest in total or to dispose of a sufficient amount of it so that the remaining interest is no longer material.
290.125
When a restricted use report for an assurance engagement that is not a financial statement audit engagement is issued, exceptions to the Provisions in paragraphs 290.106 through 290.110 and 290.122 through 290.124 are set out in 290.32.
 
Loans and Guarantees
SG290.125A
Public accountants should read the provisions on loans and guarantees in conjunction with section 10 of the Companies Act (Chapter 50).
290.126
A loan, or a guarantee of a loan, to the firm from an assurance client that is a bank or a similar institution, would not create a threat to independence Provided the loan, or guarantee, is made under normal lending procedures, terms and requirements and the loan is immaterial to both the firm and the assurance client. If the loan is material to the assurance client or the firm it may be possible, through the application of safeguards, to reduce the self-interest threat created to an acceptable level. Such safeguards might include involving an additional professional accountant from outside the firm, or network firm, to review the work performed.
290.127
A loan, or a guarantee of a loan, from an assurance client that is a bank or a similar institution, to a member of the assurance team or their immediate family would not create a threat to independence provided the loan, or guarantee, is made under normal lending procedures, terms and requirements. Examples of such loans include home mortgages, bank overdrafts, car loans and credit card balances.
290.128
Similarly, deposits made by, or brokerage accounts of, a firm or a member of the assurance team with an assurance client that is a bank, broker or similar institution would not create a threat to independence provided the deposit or account is held under normal commercial terms.
290.129
If the firm, or a member of the assurance team, makes a loan to an assurance client, that is not a bank or similar institution, or guarantees such an assurance client’s borrowing, the self-interest threat created would be so significant no safeguard could reduce the threat to an acceptable level, unless the loan or guarantee is immaterial to both the firm or the member of the assurance team and the assurance client.
290.130
Similarly, if the firm or a member of the assurance team accepts a loan from, or has borrowing guaranteed by, an assurance client that is not a bank or similar institution, the self-interest threat created would be so significant no safeguard could reduce the threat to an acceptable level, unless the loan or guarantee is immaterial to both the firm or the member of the assurance team and the assurance client.
290.131
The examples in paragraphs 290.126 through 290.130 relate to loans and guarantees between the firm and an assurance client. In the case of a financial statement audit engagement, the provisions should be applied to the firm, all network firms and the audit client.
 
Close Business Relationships With Assurance Clients
290.132
A close business relationship between a firm or a member of the assurance team and the assurance client or its management, or between the firm, a network firm and a financial statement audit client, will involve a commercial or common financial interest and may create self-interest and intimidation threats. The following are examples of such relationships:
 
(a) Having a material financial interest in a joint venture with the assurance client or a controlling owner, director, officer or other individual who performs senior managerial functions for that client;
 
(b) Arrangements to combine one or more services or products of the firm with one or more services or products of the assurance client and to market the package with reference to both parties; and
 
(c) Distribution or marketing arrangements under which the firm acts as a distributor or marketer of the assurance client’s products or services, or the assurance client acts as the distributor or marketer of the products or services of the firm.
 
In the case of a financial statement audit client, unless the financial interest is immaterial and the relationship is clearly insignificant to the firm, the network firm and the audit client, no safeguards could reduce the threat to an acceptable level. In the case of an assurance client that is not a financial statement audit client, unless the financial interest is immaterial and the relationship is clearly insignificant to the firm and the assurance client, no safeguards could reduce the threat to an acceptable level. Consequently, in both these circumstances the only possible courses of action are to:
 
(i) Terminate the business relationship;
 
(ii) Reduce the magnitude of the relationship so that the financial interest is immaterial and the relationship is clearly insignificant; or
 
(iii) Refuse to perform the assurance engagement.
 
Unless any such financial interest is immaterial and the relationship is clearly insignificant to the member of the assurance team, the only appropriate safeguard would be to remove the individual from the assurance team.
290.133
In the case of a financial statement audit client, business relationships involving an interest held by the firm, a network firm or a member of the assurance team or their immediate family in a closely held entity when the audit client or a director or officer of the audit client, or any group thereof, also has an interest in that entity, do not create threats to independence provided:
 
(a) The relationship is clearly insignificant to the firm, the network firm and the audit client;
 
(b) The interest held is immaterial to the investor, or group of investors; and
 
(c) The interest does not give the investor, or group of investors, the ability to control the closely held entity.
290.134
The purchase of goods and services from an assurance client by the firm (or from a financial statement audit client by a network firm) or a member of the assurance team would not generally create a threat to independence providing the transaction is in the normal course of business and on an arm’s length basis. However, such transactions may be of a nature or magnitude so as to create a self-interest threat. If the threat created is other than clearly insignificant, safeguards should be considered and applied as necessary to reduce the threat to an acceptable level. Such safeguards might include:
 
(a) Eliminating or reducing the magnitude of the transaction;
 
(b) Removing the individual from the assurance team; or
 
(c) Discussing the issue with those charged with governance, such as the audit committee.
 
Family and Personal Relationships
290.135
Family and personal relationships between a member of the assurance Team and a director, an officer or certain employees, depending on their Role, of the assurance client, may create self-interest, familiarity or Intimidation threats. It is impracticable to attempt to describe in detail the Significance of the threats that such relationships may create. The Significance will depend upon a number of factors including the Individual’s responsibilities on the assurance engagement, the closeness of The relationship and the role of the family member or other individual Within the assurance client. Consequently, there is a wide spectrum of Circumstances that will need to be evaluated and safeguards to be applied to reduce the threat to an acceptable level.
290.136
When an immediate family member of a member of the assurance team is a director, an officer or an employee of the assurance client in a position to exert direct and significant influence over the subject matter information of the assurance engagement, or was in such a position during any period covered by the engagement, the threats to independence can only be reduced to an acceptable level by removing the individual from the assurance team. The closeness of the relationship is such that no other safeguard could reduce the threat to independence to an acceptable level.
 
If application of this safeguard is not used, the only course of action is to withdraw from the assurance engagement. For example, in the case of an audit of financial statements, if the spouse of a member of the assurance team is an employee in a position to exert direct and significant influence over the preparation of the audit client’s accounting records or financial statements, the threat to independence could only be reduced to an acceptable level by removing the individual from the assurance team.
290.137
When an immediate family member of a member of the assurance team is an employee in a position to exert direct and significant influence over the subject matter of the engagement, threats to independence may be created. The significance of the threats will depend on factors such as:
 
(a) The position the immediate family member holds with the client; and
 
(b) The role of the professional on the assurance team.
 
The significance of the threat should be evaluated and, if the threat is other than clearly insignificant, safeguards should be considered and applied as necessary to reduce the threat to an acceptable level. Such safeguards might include:
 
(i) Removing the individual from the assurance team;
 
(ii) Where possible, structuring the responsibilities of the assurance team so that the professional does not deal with matters that are within the responsibility of the immediate family member; or
 
(iii) Policies and procedures to empower staff to communicate to senior levels within the firm any issue of independence and objectivity that concerns them.
290.138
When a close family member of a member of the assurance team is a director, an officer, or an employee of the assurance client in a position to exert direct and significant influence over the subject matter information of the assurance engagement, threats to independence may be created. The significance of the threats will depend on factors such as:
 
(a) The position the close family member holds with the client; and
 
(b) The role of the professional on the assurance team.
 
The significance of the threat should be evaluated and, if the threat is other than clearly insignificant, safeguards should be considered and applied as necessary to reduce the threat to an acceptable level. Such safeguards might include:
 
(i) Removing the individual from the assurance team;
 
(ii) Where possible, structuring the responsibilities of the assurance team so that the professional does not deal with matters that are within the responsibility of the close family member; or
 
(iii) Policies and procedures to empower staff to communicate to senior levels within the firm any issue of independence and objectivity that concerns them.
290.139
In addition, self-interest, familiarity or intimidation threats may be created when a person who is other than an immediate or close family member of a member of the assurance team has a close relationship with the member of the assurance team and is a director, an officer or an employee of the assurance client in a position to exert direct and significant influence over the subject matter information of the assurance engagement. Therefore, members of the assurance team are responsible for identifying any such persons and for consulting in accordance with firm procedures. The evaluation of the significance of any threat created and the safeguards appropriate to eliminate the threat or reduce it to an acceptable level will include considering matters such as the closeness of the relationship and the role of the individual within the assurance client.
290.140
Consideration should be given to whether self-interest, familiarity or intimidation threats may be created by a personal or family relationship between a partner or employee of the firm who is not a member of the assurance team and a director, an officer or an employee of the assurance client in a position to exert direct and significant influence over the subject matter information of the assurance engagement. Therefore partners and employees of the firm are responsible for identifying any such relationships and for consulting in accordance with firm procedures. The evaluation of the significance of any threat created and the safeguards appropriate to eliminate the threat or reduce it to an acceptable level will include considering matters such as the closeness of the relationship, the interaction of the firm professional with the assurance team, the position held within the firm, and the role of the individual within the assurance client.
290.141
An inadvertent violation of this section as it relates to family and personal relationships would not impair the independence of a firm or a member of the assurance team when:
 
(a) The firm has established policies and procedures that require all professionals to report promptly to the firm any breaches resulting from changes in the employment status of their immediate or close family members or other personal relationships that create threats to independence;
 
(b) Either the responsibilities of the assurance team are re-structured so that the professional does not deal with matters that are within the responsibility of the person with whom he or she is related or has a personal relationship, or, if this is not possible, the firm promptly removes the professional from the assurance engagement; and
 
(c) Additional care is given to reviewing the work of the professional.
290.142
When an inadvertent violation of this section relating to family and personal relationships has occurred, the firm should consider whether any safeguards should be applied. Such safeguards might include:
 
(a) Involving an additional professional accountant who did not take part in the assurance engagement to review the work done by the member of the assurance team; or
 
(b) Excluding the individual from any substantive decision-making concerning the assurance engagement.
 
Employment with Assurance Clients
290.143
A firm or a member of the assurance team’s independence may be threatened if a director, an officer or an employee of the assurance client in a position to exert direct and significant influence over the subject matter information of the assurance engagement has been a member of the assurance team or partner of the firm. Such circumstances may create self-interest, familiarity and intimidation threats particularly when significant connections remain between the individual and his or her former firm. Similarly, a member of the assurance team’s independence may be threatened when an individual participates in the assurance engagement knowing, or having reason to believe, that he or she is to, or may, join the assurance client some time in the future.
290.144
If a member of the assurance team, partner or former partner of the firm has joined the assurance client, the significance of the self-interest, familiarity or intimidation threats created will depend upon the following factors:
 
(a) The position the individual has taken at the assurance client;
 
(b) The amount of any involvement the individual will have with the assurance team;
 
(c) The length of time that has passed since the individual was a member of the assurance team or firm; and
 
(d) The former position of the individual within the assurance team or firm.
 
The significance of the threat should be evaluated and, if the threat is other than clearly insignificant, safeguards should be considered and applied as necessary to reduce the threat to an acceptable level. Such safeguards might include:
 
(i) Considering the appropriateness or necessity of modifying the assurance plan for the assurance engagement;
 
(ii) Assigning an assurance team to the subsequent assurance engagement that is of sufficient experience in relation to the individual who has joined the assurance client;
 
(iii) Involving an additional professional accountant who was not a member of the assurance team to review the work done or otherwise advise as necessary; or
 
(iv) Quality control review of the assurance engagement.
 
In all cases, all of the following safeguards are necessary to reduce the threat to an acceptable level:
 
(A) The individual concerned is not entitled to any benefits or payments from the firm unless these are made in accordance with fixed pre-determined arrangements. In addition, any amount owed to the individual should not be of such significance to threaten the firm’s independence; and
 
(B) The individual does not continue to participate or appear to participate in the firm’s business or professional activities.
290.145
A self-interest threat is created when a member of the assurance team participates in the assurance engagement while knowing, or having reason to believe, that he or she is to, or may, join the assurance client some time in the future. This threat can be reduced to an acceptable level by the application of all of the following safeguards:
 
(a) Policies and procedures to require the individual to notify the firm when entering serious employment negotiations with the assurance client; and
 
(b) Removal of the individual from the assurance engagement. In addition, consideration should be given to performing an independent review of any significant judgments made by that individual while on the engagement.
 
Recent Service with Assurance Clients
290.146
To have a former officer, director or employee of the assurance client serve as a member of the assurance team may create self-interest, self-review and familiarity threats. This would be particularly true when a member of the assurance team has to report on, for example, subject matter information he or she had prepared or elements of the financial statements he or she had valued while with the assurance client.
290.147
If, during the period covered by the assurance report, a member of the assurance team had served as an officer or director of the assurance client, or had been an employee in a position to exert direct and significant influence over the subject matter information of the assurance engagement, the threat created would be so significant no safeguard could reduce the threat to an acceptable level. Consequently, such individuals should not be assigned to the assurance team.
290.148
If, prior to the period covered by the assurance report, a member of the assurance team had served as an officer or director of the assurance client, or had been an employee in a position to exert direct and significant influence over the subject matter information of the assurance engagement, this may create self-interest, self-review and familiarity threats. For example, such threats would be created if a decision made or work performed by the individual in the prior period, while employed by the assurance client, is to be evaluated in the current period as part of the current assurance engagement. The significance of the threats will depend upon factors such as:
 
(a) The position the individual held with the assurance client;
 
(b) The length of time that has passed since the individual left the assurance client; and
 
(c) The role the individual plays on the assurance team. The significance of the threat should be evaluated and, if the threat is other than clearly insignificant, safeguards should be considered and applied as necessary to reduce the threat to an acceptable level. Such safeguards might include:
 
(i) Involving an additional professional accountant to review the work done by the individual as part of the assurance team or otherwise advise as necessary; or
 
(ii) Discussing the issue with those charged with governance, such as the audit committee.
 
Serving as an Officer or Director on the Board of Assurance Clients
290.149
If a public accountant, partner or employee of the firm serves as an officer or as a director on the board of an assurance client the self-review and self-interest threats created would be so significant no safeguard could reduce the threats to an acceptable level. In the case of a financial statement audit engagement, if a public accountant, partner or employee of a network firm were to serve as an officer or as a director on the board of the audit client the threats created would be so significant no safeguard could reduce the threats to an acceptable level. Consequently, if such an individual were to accept such a position the only course of action is to refuse to perform, or to withdraw from the assurance engagement.
290.150
Not used.
290.151
If a public accountant, partner or employee of the firm or a network firm serves as company secretary for a financial statement audit client the self-review and advocacy threats created would generally be so significant, no safeguard could reduce the threat to an acceptable level.
290.152
Routine administrative services to support a company secretarial function or advisory work in relation to company secretarial administration matters is generally not perceived to impair independence, provided client management makes all relevant decisions.
 
Long Association of Senior Personnel With Assurance Clients
General Provisions
SG290.152A
Public accountants should read the following provisions in conjunction with other regulatory requirements that apply to the assurance client.
290.153
Using the same senior personnel on an assurance engagement over a long period of time may create a familiarity threat. The significance of the threat will depend upon factors such as:
 
(a) The length of time that the individual has been a member of the assurance team;
 
(b) The role of the individual on the assurance team;
 
(c) The structure of the firm; and
 
(d) The nature of the assurance engagement.
 
The significance of the threat should be evaluated and, if the threat is other than clearly insignificant, safeguards should be considered and applied to reduce the threat to an acceptable level. Such safeguards might include:
 
(i) Rotating the senior personnel off the assurance team;
 
(ii) Involving an additional professional accountant who was not a member of the assurance team to review the work done by the senior personnel or otherwise advise as necessary; or
 
(iii) Independent internal quality reviews.
Financial Statement Audit Clients that are listed entities
290.154
Using the same engagement partner or the same individual responsible for the engagement quality control review* on a financial statement audit over a prolonged period may create a familiarity threat. This threat is particularly relevant in the context of the financial statement audit of a listed entity, and safeguards should be applied in such situations to reduce such threat to an acceptable level. Accordingly in respect of the financial statement audit of listed entities:
 
__________________
*See Definitions
 
(a) The engagement partner and the individual responsible for the engagement quality control review should be rotated after serving in either capacity, or a combination thereof, for a pre-defined period, normally no more than seven years; and
 
(b) Such an individual rotating after a pre-defined period should not participate in the audit engagement until a further period of time, normally two years, has elapsed.
290.155
When a financial statement audit client becomes a listed entity the length of time the engagement partner or the individual responsible for the engagement quality control review has served the audit client in that capacity should be considered in determining when the individual should be rotated. However, the person may continue to serve as the engagement partner or as the individual responsible for the engagement quality control review for two additional years before rotating off the engagement.
290.156
While the engagement partner and the individual responsible for the engagement quality control review should be rotated after such a pre-defined period, some degree of flexibility over timing of rotation may be necessary in certain circumstances. Examples of such circumstances include:
 
(a) Situations when the person’s continuity is especially important to the financial statement audit client, for example, when there will be major changes to the audit client’s structure that would otherwise coincide with the rotation of the person’s; and
 
(b) Situations when, due to the size of the firm, rotation is not possible or does not constitute an appropriate safeguard. In all such circumstances when the person is not rotated after such a pre-defined period equivalent safeguards should be applied to reduce any threats to an acceptable level.
290.157
When a firm has only a few people with the necessary knowledge and experience to serve as engagement partner or individual responsible for the engagement quality control review on a financial statement audit client that is a listed entity, rotation may not be an appropriate safeguard. In these circumstances the firm should apply other safeguards to reduce the threat to an acceptable level. Such safeguards would include involving an additional professional accountant who was not otherwise associated with the assurance team to review the work done or otherwise advise as necessary. This individual could be someone from outside the firm or someone within the firm who was not otherwise associated with the assurance team.
 
Provision of Non-assurance Services to Assurance Clients
290.158
Firms have traditionally provided to their assurance clients a range of non-assurance services that are consistent with their skills and expertise. Assurance clients value the benefits that derive from having these firms, which have a good understanding of the business, bring their knowledge and skill to bear in other areas. Furthermore, the provision of such non-assurance services will often result in the assurance team obtaining information regarding the assurance client’s business and operations that is helpful in relation to the assurance engagement. The greater the knowledge of the assurance client’s business, the better the assurance team will understand the assurance client’s procedures and controls, and the business and financial risks that it faces. The provision of non-assurance services may, however, create threats to the independence of the firm, a network firm or the members of the assurance team, particularly with respect to perceived threats to independence. Consequently, it is necessary to evaluate the significance of any threat created by the provision of such services. In some cases it may be possible to eliminate or reduce the threat created by application of safeguards. In other cases no safeguards are available to reduce the threat to an acceptable level.
290.159
The following activities would generally create self-interest or self-review threats that are so significant that only avoidance of the activity or refusal to perform the assurance engagement would reduce the threats to an acceptable level:
 
(a) Authorizing, executing or consummating a transaction, or otherwise exercising authority on behalf of the assurance client, or having the authority to do so.
 
(b) Determining which recommendation of the firm should be implemented.
 
(c) Reporting, in a management role, to those charged with governance.
290.160
The examples set out in paragraphs 290.166 through 290.205 are addressed in the context of the provision of non-assurance services to an assurance client. The potential threats to independence will most frequently arise when a non-assurance service is provided to a financial statement audit client. The financial statements of an entity provide financial information about a broad range of transactions and events that have affected the entity. The subject matter information of other assurance services, however, may be limited in nature. Threats to independence, however, may also arise when a firm provides a non-assurance service related to the subject matter information, of a non-financial statement audit assurance engagement. In such cases, consideration should be given to the significance of the firm’s involvement with the subject matter information, of the engagement, whether any self-review threats are created and whether any threats to independence could be reduced to an acceptable level by application of safeguards, or whether the engagement should be declined. When the non-assurance service is not related to the subject matter information, of the non-financial statement audit assurance engagement, the threats to independence will generally be clearly insignificant.
290.161
The following activities may also create self-review or self-interest threats:
 
(a) Having custody of an assurance client’s assets;
 
(b) Supervising assurance client employees in the performance of their normal recurring activities; and
 
(c) Preparing source documents or originating data, in electronic or other form, evidencing the occurrence of a transaction (for example, purchase orders, payroll time records, and customer orders).
 
The significance of any threat created should be evaluated and, if the threat is other than clearly insignificant, safeguards should be considered and applied as necessary to eliminate the threat or reduce it to an acceptable level. Such safeguards might include:
 
(i) Making arrangements so that personnel providing such services do not participate in the assurance engagement;
 
(ii) Involving an additional professional accountant to advise on the potential impact of the activities on the independence of the firm and the assurance team; or
 
(iii) Other relevant safeguards set out in national regulations.
290.162
New developments in business, the evolution of financial markets, rapid changes in information technology, and the consequences for management and control, make it impossible to draw up an all-inclusive list of all situations when providing non-assurance services to an assurance client might create threats to independence and of the different safeguards that might eliminate these threats or reduce them to an acceptable level. In general, however, a firm may provide services beyond the assurance engagement provided any threats to independence have been reduced to an acceptable level.
290.163
The following safeguards may be particularly relevant in reducing to an acceptable level threats created by the provision of non-assurance services to assurance clients:
 
(a) Policies and procedures to prohibit professional staff from making management decisions for the assurance client, or assuming responsibility for such decisions;
 
(b) Discussing independence issues related to the provision of nonassurance services with those charged with governance, such as the audit committee;
 
(c) Policies within the assurance client regarding the oversight responsibility for provision of non-assurance services by the firm
 
(d) Involving an additional professional accountant to advise on the potential impact of the non-assurance engagement on the independence of the member of the assurance team and the firm;
 
(e) Involving an additional professional accountant outside of the firm to provide assurance on a discrete aspect of the assurance engagement;
 
(f) Obtaining the assurance client’s acknowledgement of responsibility for the results of the work performed by the firm;
 
(g) Disclosing to those charged with governance, such as the audit committee, the nature and extent of fees charged; and
 
(h) Making arrangements so that personnel providing non-assurance services do not participate in the assurance engagement.
290.164
Before the firm accepts an engagement to provide a non-assurance service to an assurance client, consideration should be given to whether the provision of such a service would create a threat to independence. In situations when a threat created is other than clearly insignificant, the non-assurance engagement should be declined unless appropriate safeguards can be applied to eliminate the threat or reduce it to an acceptable level.
290.165
The provision of certain non-assurance services to financial statement audit clients may create threats to independence so significant that no safeguard could eliminate the threat or reduce it to an acceptable level. However, the provision of such services to a related entity, division or discrete financial statement item of such clients may be permissible when any threats to the firm’s independence have been reduced to an acceptable level by arrangements for that related entity, division or discrete financial statement item to be audited by another firm or when another firm re-performs the non-assurance service to the extent necessary to enable it to take responsibility for that service.
Preparing Accounting Records and Financial Statements
290.166
Assisting a financial statement audit client in matters such as preparing accounting records or financial statements may create a self-review threat when the financial statements are subsequently audited by the firm.
290.167
It is the responsibility of the financial statement audit client to ensure that accounting records are kept and financial statements are prepared, although they may request the firm to provide assistance. If firm, or network firm, personnel providing such assistance make management decisions, the self-review threat created could not be reduced to an acceptable level by any safeguards. Consequently, personnel should not make such decisions. Examples of such managerial decisions include:
 
(a) Determining or changing journal entries, or the classifications for accounts or transaction or other accounting records without obtaining the approval of the financial statement audit client;
 
(b) Authorizing or approving transactions; and
 
(c) Preparing source documents or originating data (including decisions on valuation assumptions), or making changes to such documents or data.
290.168
The audit process involves extensive dialogue between the firm and management of the financial statement audit client. During this process, Management requests and receives significant input regarding such matters as accounting principles and financial statement disclosure, the appropriateness of controls and the methods used in determining the stated amounts of assets and liabilities. Technical assistance of this nature and advice on accounting principles for financial statement audit clients are an appropriate means to promote the fair presentation of the financial statements. The provision of such advice does not generally threaten the firm’s independence. Similarly, the financial statement audit process may involve assisting an audit client in resolving account reconciliation problems, analyzing and accumulating information for regulatory reporting, assisting in the preparation of consolidated financial statements (including the translation of local statutory accounts to comply with group accounting policies and the transition to a different reporting framework such as International Financial Reporting Standards), drafting disclosure items, proposing adjusting journal entries and providing assistance and advice in the preparation of local statutory accounts of subsidiary entities. These services are considered to be a normal part of the audit process and do not, under normal circumstances, threaten independence.
General Provisions
290.169
The examples in paragraphs 290.170 through 290.173 indicate that self-review threats may be created if the firm is involved in the preparation of accounting records or financial statements and those financial statements are subsequently the subject matter information of an audit engagement of the firm. This notion may be equally applicable in situations when the subject matter information of the assurance engagement is not financial statements. For example, a self-review threat would be created if the firm developed and prepared prospective financial information and subsequently provided assurance on this prospective financial information. Consequently, the firm should evaluate the significance of any self-review threat created by the provision of such services. If the self-review threat is other than clearly insignificant safeguards should be considered and applied as necessary to reduce the threat to an acceptable level.
Financial Statement Audit Clients that are not listed entities or public companies
290.170
The firm, or a network firm, may provide a financial statement audit client that is not a listed entity or public company with accounting and bookkeeping services, including payroll services, of a routine or mechanical nature, provided any self-review threat created is reduced to an acceptable level. Examples of such services include:
 
(a) Recording transactions for which the audit client has determined or approved the appropriate account classification;
 
(b) Posting coded transactions to the audit client’s general ledger;
 
(c) Preparing financial statements based on information in the trial balance; and
 
(d) Posting the audit client approved entries to the trial balance. The significance of any threat created should be evaluated and, if the threat is other than clearly insignificant, safeguards should be considered and applied as necessary to reduce the threat to an acceptable level. Such safeguards might include:
 
(i) Making arrangements so such services are not performed by a member of the assurance team;
 
(ii) Implementing policies and procedures to prohibit the individual providing such services from making any managerial decisions on behalf of the audit client;
 
(iii) Requiring the source data for the accounting entries to be originated by the audit client;
 
(iv) Requiring the underlying assumptions to be originated and approved by the audit client; or
 
(v) Obtaining audit client approval for any proposed journal entries or other changes affecting the financial statements.
Financial Statement Audit Clients that are listed entities or public companies
290.171
The provision of accounting and bookkeeping services, including payroll services and the preparation of financial statements or financial information which forms the basis of the financial statements on which the audit report is provided, on behalf of a financial statement audit client that is a listed entity or public company may impair the independence of the firm or network firm, or at least give the appearance of impairing independence. Accordingly, no safeguard other than the prohibition of such services, except in emergency situations and when the services fall within the statutory audit mandate, could reduce the threat created to an acceptable level. Therefore, a firm or a network firm should not, with the limited exceptions below, provide such services to a listed entity or public company that is a financial statement audit client.
290.172
The provision of accounting and bookkeeping services of a routine or mechanical nature to divisions or subsidiaries of a financial statement audit client that is a listed entity or public company would not be seen as impairing independence with respect to the audit client provided that the following conditions are met:
 
(a) The services do not involve the exercise of judgment;
 
(b) The divisions or subsidiaries for which the service is provided are collectively immaterial to the audit client, or the services provided are collectively immaterial to the division or subsidiary; and
 
(c) The fees to the firm, or network firm, from such services are collectively clearly insignificant.
 
If such services are provided, all of the following safeguards should be applied:
 
(i) The firm, or network firm, should not assume any managerial role nor make any managerial decisions;
 
(ii) The audit client should accept responsibility for the results of the work; and
 
(iii) Personnel providing the services should not participate in the audit.
SG290.172A
For the purposes of paragraph 290.172, fees to the firm, or network firm, for the provision of accounting and bookkeeping services to a financial statement audit client that is a listed entity or public company would be collectively significant when the total fees for such services for the group exceed $10,000 or 5% of the consolidated audit fees, whichever is the higher.
Emergency Situations
290.173
The provision of accounting and bookkeeping services to financial statement audit clients in emergency or other unusual situations, when it is impractical for the audit client to make other arrangements, would not be considered to pose an unacceptable threat to independence provided:
 
(a) The firm, or network firm, does not assume any managerial role or make any managerial decisions;
 
(b) The audit client accepts responsibility for the results of the work; and
 
(c) Personnel providing the services are not members of the assurance team.
Valuation Services
290.174
A valuation comprises the making of assumptions with regard to future developments, the application of certain methodologies and techniques, and the combination of both in order to compute a certain value, or range of values, for an asset, a liability or for a business as a whole.
290.175
A self-review threat may be created when a firm or network firm performs a valuation for a financial statement audit client that is to be incorporated into the client’s financial statements.
290.176
If the valuation service involves the valuation of matters material to the financial statements and the valuation involves a significant degree of subjectivity, the self-review threat created could not be reduced to an acceptable level by the application of any safeguard. Accordingly, such valuation services should not be provided or, alternatively, the only course of action would be to withdraw from the financial statement audit engagement.
290.177
Performing valuation services for a financial statement audit client that are neither separately, nor in the aggregate, material to the financial statements, or that do not involve a significant degree of subjectivity, may create a self-review threat that could be reduced to an acceptable level by the application of safeguards. Such safeguards might include:
 
(a) Involving an additional professional accountant who was not a member of the assurance team to review the work done or otherwise advise as necessary;
 
(b) Confirming with the audit client their understanding of the underlying assumptions of the valuation and the methodology to be used and obtaining approval for their use;
 
(c) Obtaining the audit client’s acknowledgement of responsibility for the results of the work performed by the firm; and
 
(d) Making arrangements so that personnel providing such services do not participate in the audit engagement.
 
In determining whether the above safeguards would be effective, consideration should be given to the following matters:
 
(i) The extent of the audit client’s knowledge, experience and ability to evaluate the issues concerned, and the extent of their involvement in determining and approving significant matters of judgment;
 
(ii) The degree to which established methodologies and professional guidelines are applied when performing a particular valuation service;
 
(iii) For valuations involving standard or established methodologies, the degree of subjectivity inherent in the item concerned;
 
(iv) The reliability and extent of the underlying data;
 
(v) The degree of dependence on future events of a nature which could create significant volatility inherent in the amounts involved; and
 
(vi) The extent and clarity of the disclosures in the financial statements.
290.178
When a firm, or a network firm, performs a valuation service for a financial statement audit client for the purposes of making a filing or return to a tax authority, computing an amount of tax due by the client, or for the purpose of tax planning, this would not create a significant threat to independence because such valuations are generally subject to external review, for example by a tax authority.
290.179
When the firm performs a valuation that forms part of the subject matter information of an assurance engagement that is not a financial statement audit engagement, the firm should consider any self-review threats. If the threat is other than clearly insignificant, safeguards should be considered and applied as necessary to eliminate the threat or reduce it to an acceptable level.
Provision of Taxation Services to Financial Statement Audit Clients
290.180
In many jurisdictions, the firm may be asked to provide taxation services to a financial statement audit client. Taxation services comprise a broad range of services, including compliance, planning, provision of formal taxation opinions and assistance in the resolution of tax disputes. Such assignments are generally not seen to create threats to independence.
Provision of Internal Audit Services to Financial Statement Audit Clients
SG290.180A
A public accountant, firm or network firm must not provide internal audit services to a financial statement audit client that is a listed entity or public company. Paragraphs 290.181 to 290.186 apply to other clients.
290.181
A self-review threat may be created when a firm, or network firm, provides internal audit services to a financial statement audit client. Internal audit services may comprise an extension of the firm’s audit service beyond requirements of generally accepted auditing standards, assistance in the performance of a client’s internal audit activities or outsourcing of the activities. In evaluating any threats to independence, the nature of the service will need to be considered. For this purpose, internal audit services do not include operational internal audit services unrelated to the internal accounting controls, financial systems or financial statements.
290.182
Services involving an extension of the procedures required to conduct a financial statement audit in accordance with Singapore Standards on Auditing would not be considered to impair independence with respect to the audit client provided that the firm’s or network firm’s personnel do not act or appear to act in a capacity equivalent to a member of audit client management.
290.183
When the firm, or a network firm, provides assistance in the performance of a financial statement audit client’s internal audit activities or undertakes the outsourcing of some of the activities, any self-review threat created may be reduced to an acceptable level by ensuring that there is a clear separation between the management and control of the internal audit by client management and the internal audit activities themselves.
290.184
Performing a significant portion of the financial statement audit client’s internal audit activities may create a self-review threat and a firm, or network firm, should consider the threats and proceed with caution before taking on such activities. Appropriate safeguards should be put in place and the firm, or network firm, should, in particular, ensure that the audit client acknowledges its responsibilities for establishing, maintaining and monitoring the system of internal controls.
290.185
Safeguards that should be applied in all circumstances to reduce any threats created to an acceptable level include ensuring that:
 
(a) The audit client is responsible for internal audit activities and acknowledges its responsibility for establishing, maintaining and monitoring the system of internal controls;
 
(b) The audit client designates a competent employee, preferably within senior management, to be responsible for internal audit activities;
 
(c) The audit client, the audit committee or supervisory body approves the scope, risk and frequency of internal audit work;
 
(d) The audit client is responsible for evaluating and determining which recommendations of the firm should be implemented;
 
(e) The audit client evaluates the adequacy of the internal audit procedures performed and the findings resulting from the performance of those procedures by, among other things, obtaining and acting on reports from the firm; and
 
(f) The findings and recommendations resulting from the internal audit activities are reported appropriately to the audit committee or supervisory body.
290.186
Consideration should also be given to whether such non-assurance services should be provided only by personnel not involved in the financial statement audit engagement and with different reporting lines within the firm.
Provision of IT Systems Services to Financial Statement Audit Clients
SG290.186A
A public accountant, firm or network firm must not provide to a financial statement audit client that is a listed entity or public company services that involve:
 
(a) the design and implementation of financial information technology systems that are used to generate information forming part of a client’s financial statements; or
 
(b) either the design or the implementation of financial information technology systems that are used to generate information forming part of a client’s financial statements.
 
Paragraphs 290.187 to 290.191 apply to other clients.
290.187
The provision of services by a firm or network firm to a financial statement audit client that involve the design and implementation of financial information technology systems that are used to generate information forming part of a client’s financial statements may create a self-review threat.
290.188
The self-review threat is likely to be too significant to allow the provision of such services to a financial statement audit client unless appropriate safeguards are put in place ensuring that:
 
(a) The audit client acknowledges its responsibility for establishing and monitoring a system of internal controls;
 
(b) The audit client designates a competent employee, preferably within senior management, with the responsibility to make all management decisions with respect to the design and implementation of the hardware or software system;
 
(c) The audit client makes all management decisions with respect to the design and implementation process;
 
(d) The audit client evaluates the adequacy and results of the design and implementation of the system; and
 
(e) The audit client is responsible for the operation of the system (hardware or software) and the data used or generated by the system.
290.189
Consideration should also be given to whether such non-assurance services should be provided only by personnel not involved in the financial statement audit engagement and with different reporting lines within the firm.
290.190
The provision of services by a firm, or network firm, to a financial statement audit client which involve either the design or the implementation of financial information technology systems that are used to generate information forming part of a client’s financial statements may also create a self-review threat. The significance of the threat, if any, should be evaluated and, if the threat is other than clearly insignificant, safeguards should be considered and applied as necessary to eliminate the threat or reduce it to an acceptable level.
290.191
The provision of services in connection with the assessment, design and implementation of internal accounting controls and risk management controls are not considered to create a threat to independence provided that firm or network firm personnel do not perform management functions.
Temporary Staff Assignments to Financial Statement Audit Clients
290.192
The lending of staff by a firm, or network firm, to a financial statement audit client may create a self-review threat when the individual is in a position to influence the preparation of a client’s accounts or financial statements. In practice, such assistance may be given (particularly in emergency situations) but only on the understanding that the firm’s or network firm’s personnel will not be involved in:
 
(a) Making management decisions;
 
(b) Approving or signing agreements or other similar documents; or
 
(c) Exercising discretionary authority to commit the client.
 
Each situation should be carefully analyzed to identify whether any threats are created and whether appropriate safeguards should be implemented. Safeguards that should be applied in all circumstances to reduce any threats to an acceptable level include:
 
(i) The staff providing the assistance should not be given audit responsibility for any function or activity that they performed or supervised during their temporary staff assignment; and
 
(ii) The audit client should acknowledge its responsibility for directing and supervising the activities of firm, or network firm, personnel.
Provision of Litigation Support Services to Financial Statement Audit Clients
290.193
Litigation support services may include activities such as acting as an expert witness, calculating estimated damages or other amounts that might become receivable or payable as the result of litigation or other legal dispute, and assistance with document management and retrieval in relation to a dispute or litigation.
290.194
A self-review threat may be created when the litigation support services provided to a financial statement audit client include the estimation of the possible outcome and thereby affects the amounts or disclosures to be reflected in the financial statements. The significance of any threat created will depend upon factors such as:
 
(a) The materiality of the amounts involved;
 
(b) The degree of subjectivity inherent in the matter concerned; and
 
(c) The nature of the engagement.
 
The firm, or network firm, should evaluate the significance of any threat created and, if the threat is other than clearly insignificant, safeguards should be considered and applied as necessary to eliminate the threat or reduce it to an acceptable level. Such safeguards might include:
 
(i) Policies and procedures to prohibit individuals assisting the audit client from making managerial decisions on behalf of the client;
 
(ii) Using professionals who are not members of the assurance team to perform the service; or
 
(iii) The involvement of others, such as independent experts.
290.195
If the role undertaken by the firm or network firm involved making Managerial decisions on behalf of the financial statement audit client, the threats created could not be reduced to an acceptable level by the application of any safeguard. Therefore, the firm or network firm should not perform this type of service for an audit client.
290.196
Not used.
290.197
Not used.
290.198
Not used.
290.199
Not used.
290.200
Not used.
290.201
Not used.
290.202
Not used.
Recruiting Senior Management
290.203
The recruitment of senior management for an assurance client, such as those in a position to affect the subject matter information of the assurance engagement, may create current or future self-interest, familiarity and intimidation threats. The significance of the threat will depend upon factors such as:
 
(a) The role of the person to be recruited; and
 
(b) The nature of the assistance sought.
 
The firm could generally provide such services as reviewing the professional qualifications of a number of applicants and provide advice on their suitability for the post. In addition, the firm could generally produce a short-list of candidates for interview, provided it has been drawn up using criteria specified by the assurance client.
 
The significance of the threat created should be evaluated and, if the threat is other than clearly insignificant, safeguards should be considered and applied as necessary to reduce the threat to an acceptable level. In all cases, the firm should not make management decisions and the decision as to whom to hire should be left to the client.
SG290.203A
The provision of recruitment services to a financial statement audit client where the relevant position is that of a Chief Executive Officer, Chief Financial Officer, or other senior management post in a position to exert direct and significant influence over the financial statement, would create a threat to independence so great that it is unlikely to be overcome by the application of safeguards. Consequently, firms should not provide such services to financial statement audit clients.
Corporate Finance and Similar Activities
290.204
The provision of corporate finance services, advice or assistance to an assurance client may create advocacy and self-review threats. In the case of certain corporate finance services, the independence threats created would be so significant no safeguards could be applied to reduce the threats to an acceptable level. For example, promoting, dealing in, or underwriting of an assurance client’s shares is not compatible with providing assurance services. Moreover, committing the assurance client to the terms of a transaction or consummating a transaction on behalf of the client would create a threat to independence so significant no safeguard could reduce the threat to an acceptable level. In the case of a financial statement audit client the provision of those corporate finance services referred to above by a firm or a network firm would create a threat to independence so significant no safeguard could reduce the threat to an acceptable level.
290.205
Other corporate finance services may create advocacy or self-review threats; however, safeguards may be available to reduce these threats to an acceptable level. Examples of such services include assisting a client in developing corporate strategies, assisting in identifying or introducing a client to possible sources of capital that meet the client specifications or criteria, and providing structuring advice and assisting a client in analyzing the accounting effects of proposed transactions. Safeguards that should be considered include:
 
(a) Policies and procedures to prohibit individuals assisting the assurance client from making managerial decisions on behalf of the client;
 
(b) Using professionals who are not members of the assurance team to provide the services; and
 
(c) Ensuring the firm does not commit the assurance client to the terms of any transaction or consummate a transaction on behalf of the client.
 
Fees and Pricing
Fees — Relative Size
290.206
When the total fees generated by an assurance client represent a large Proportion of a firm’s total fees, the dependence on that client or client group and concern about the possibility of losing the client may create a self-interest threat. The significance of the threat will depend upon factors such as:
 
(a) The structure of the firm; and
 
(b) Whether the firm is well established or newly created.
 
The significance of the threat should be evaluated and, if the threat is other than clearly insignificant, safeguards should be considered and applied as necessary to reduce the threat to an acceptable level. Such safeguards might include:
 
(i) Discussing the extent and nature of fees charged with the audit committee, or others charged with governance;
 
(ii) Taking steps to reduce dependency on the client;
 
(iii) External quality control reviews; and
 
(iv) Consulting a third party, such as a professional regulatory body or another professional accountant.
SG290.206A
The significance of the threat should be evaluated and, if the threat is other than clearly insignificant, safeguards such as those described in paragraph 290.206 should be considered and applied as necessary to reduce the threat to an acceptable level in all cases where:
 
(a) the financial statement audit client is a listed entity or a public company and the total fees generated by the audit client are 5% or more of the firm’s annual total fees; or
 
(b) the financial statement audit client is a not a listed company or a public company, and the total fees generated by the audit client are 15% or more of the firm’s annual total fees.
SG290.206B
Where a financial statement audit client is a listed entity or a public company, the significance of the threat should be evaluated and, if the threat is other than clearly insignificant, safeguards such as those described in paragraph 290.206 should be considered and applied as necessary to reduce the threat to an acceptable level in all cases where:
 
(a) the amount of annual fees received for non-audit services compared to the total annual audit fees from the financial statement audit client is 50% or more; or
 
(b) the total size of annual non-audit fees from the financial statement audit client is significant.
290.207
A self-interest threat may also be created when the fees generated by the assurance client represent a large proportion of the revenue of an individual partner. The significance of the threat should be evaluated and, if the threat is other than clearly insignificant, safeguards should be considered and applied as necessary to reduce the threat to an acceptable level. Such safeguards might include:
 
(a) Policies and procedures to monitor and implement quality control of assurance engagements; and
 
(b) Involving an additional professional accountant who was not a member of the assurance team to review the work done or otherwise advise as necessary.
SG290.207A
The significance of the threat should be evaluated and, if the threat is other than clearly insignificant, safeguards such as those described in 290.207 should be considered and applied as necessary to reduce the threat to an acceptable level in all cases where the total fees generated by the financial statement audit client are 50% or more of the individual public accountant’s annual total fees.
Fees — Overdue
290.208
A self-interest threat may be created if fees due from an assurance client for professional services remain unpaid for a long time, especially if a significant part is not paid before the issue of the assurance report for the following year. Generally the payment of such fees should be required before the report is issued. The following safeguards may be applicable:
 
(a) Discussing the level of outstanding fees with the audit committee, or others charged with governance; and
 
(b) Involving an additional professional accountant who did not take part in the assurance engagement to provide advice or review the work performed.
 
The firm should also consider whether the overdue fees might be regarded as being equivalent to a loan to the client and whether, because of the significance of the overdue fees, it is appropriate for the firm to be re-appointed.
Pricing
 
290.209
When a firm obtains an assurance engagement at a significantly lower fee level than that charged by the predecessor firm, or quoted by other firms, the self-interest threat created will not be reduced to an acceptable level unless:
 
(a) The firm is able to demonstrate that appropriate time and qualified staff are assigned to the task; and
 
(b) All applicable assurance standards, guidelines and quality control procedures are being complied with.
Contingent Fees
290.210
Contingent fees are fees calculated on a predetermined basis relating to the outcome or result of a transaction or the result of the work performed. For the purposes of this section, fees are not regarded as being contingent if a court or other public authority has established them.
SG290.210A
In addition to the restrictions set out in paragraphs 290.211 and 290.212, a firm shall not accept or charge a contingent fee, or receive instructions on a contingent fee basis, for any form of professional work to a financial statement audit client that is a listed entity or public company, except where such remuneration is provided for under the provisions of any written law.
290.211
A contingent fee charged by a firm in respect of an assurance engagement creates self-interest and advocacy threats that cannot be reduced to an acceptable level by the application of any safeguard. Accordingly, a firm should not enter into any fee arrangement for an assurance engagement under which the amount of the fee is contingent on the result of the assurance work or on items that are the subject matter information of the assurance engagement.
290.212
A contingent fee charged by a firm in respect of a non-assurance service provided to an assurance client may also create self-interest and advocacy threats. If the amount of the fee for a non-assurance engagement was agreed to, or contemplated, during an assurance engagement and was contingent on the result of that assurance engagement, the threats could not be reduced to an acceptable level by the application of any safeguard. Accordingly, the only acceptable action is not to accept such arrangements. For other types of contingent fee arrangements, the significance of the threats created will depend on factors such as:
 
(a) The range of possible fee amounts;
 
(b) The degree of variability;
 
(c) The basis on which the fee is to be determined;
 
(d) Whether the outcome or result of the transaction is to be reviewed by an independent third party; and
 
(e) The effect of the event or transaction on the assurance engagement.
 
The significance of the threats should be evaluated and, if the threats are other than clearly insignificant, safeguards should be considered and applied as necessary to reduce the threats to an acceptable level. Such safeguards might include:
 
(i) Disclosing to the audit committee, or others charged with governance, the extent and nature of fees charged;
 
(ii) Review or determination of the final fee by an unrelated third party; or
 
(iii) Quality and control policies and procedures.
 
 
 
Gifts and Hospitality
290.213
Accepting gifts or hospitality from an assurance client may create selfinterest and familiarity threats. When a firm or a member of the assurance team accepts gifts or hospitality, unless the value is clearly insignificant, the threats to independence cannot be reduced to an acceptable level by the application of any safeguard. Consequently, a firm or a member of the assurance team should not accept such gifts or hospitality.
 
 
 
Actual or Threatened Litigation
290.214
When litigation takes place, or appears likely, between the firm or a member of the assurance team and the assurance client, a self-interest or intimidation threat may be created. The relationship between client management and the members of the assurance team must be characterized by complete candor and full disclosure regarding all aspects of a client’s business operations. The firm and the client’s management may be placed in adversarial positions by litigation, affecting management’s willingness to make complete disclosures and the firm may face a self-interest threat. The significance of the threat created will depend upon such factors as:
 
(a) The materiality of the litigation;
 
(b) The nature of the assurance engagement; and
 
(c) Whether the litigation relates to a prior assurance engagement. Once the significance of the threat has been evaluated the following safeguards should be applied, if necessary, to reduce the threats to an acceptable level:
 
(i) Disclosing to the audit committee, or others charged with governance, the extent and nature of the litigation;
 
(ii) If the litigation involves a member of the assurance team, removing that individual from the assurance team; or
 
(iii) Involving an additional professional accountant in the firm who was not a member of the assurance team to review the work done or otherwise advise as necessary.
 
If such safeguards do not reduce the threat to an appropriate level, the only appropriate action is to withdraw from, or refuse to accept, the assurance engagement.
 
 
SECTION 295
 
DEFINITIONS
 
295.10
In this Code of Professional Conduct and Ethics for Public Accountants and Accounting Entities the following expressions have the following meanings assigned to them:
 
Accounting Entity
An Accounting Corporation, Accounting Firm, or Accounting Limited Liability Partnership, approved under the Accountants Act (Chapter 2).
 
Advertising
The communication to the public of information as to the services or skills provided by public accountants with a view to procuring professional business.
 
Assurance client
The responsible party that is the person (or persons) who:
 
 
(a) In a direct reporting engagement, is responsible for the subject matter; or
 
 
(b) In an assertion-based engagement, is responsible for the subject matter information and may be responsible for the subject matter.
 
 
(For an assurance client that is a financial statement audit client see the definition of financial statement audit client.)
 
Assurance engagement
An engagement in which a public accountant expresses a conclusion designed to enhance the degree of confidence of the intended users other than the responsible party about the outcome of the evaluation or measurement of a subject matter against criteria.
 
 
(For guidance on assurance engagements see the Framework for Assurance Engagements, issued by the Institute of Certified Public Accountants of Singapore and adopted by the Public Accountants Oversight Committee, which describes the elements and objectives of an assurance engagement and identifies engagements to which Singapore Standards on Auditing (SSAs), Singapore Standards on Review Engagements (SSREs) and Singapore Standards on Assurance Engagements (SSAEs) apply.)
 
Assurance team
(a) All members of the engagement team for the assurance engagement;
 
 
(b) All others within a firm who can directly influence the outcome of the assurance engagement, including:
 
 
(i) those who recommend the compensation of, or who provide direct supervisory, management or other oversight of the assurance engagement partner in connection with the performance of the assurance engagement. For the purposes of a financial statement audit engagement this includes those at all successively senior levels above the engagement partner through the firm’s chief executive;
 
 
(ii) those who provide consultation regarding technical or industry specific issues, transactions or events for the assurance engagement; and
 
 
(iii) those who provide quality control for the assurance engagement, including those who perform the engagement quality control review for the assurance engagement; and
 
 
(c) For the purposes of a financial statement audit client, all those within a network firm who can directly influence the outcome of the financial statement audit engagement.
 
Clearly insignificant
A matter that is deemed to be both trivial and inconsequential.
 
Close family
A parent, child or sibling, who is not an immediate family member.
 
Contingent fee
A fee calculated on a predetermined basis relating to the outcome or result of a transaction or the result of the work performed. A fee that is established by a court or other public authority is not a contingent fee.
 
Direct financial interest
A financial interest:
 
 
(a) Owned directly by and under the control of an individual or entity (including those managed on a discretionary basis by others); or
 
 
(b) Beneficially owned through a collective investment vehicle, estate, trust or other intermediary over which the individual or entity has control.
 
Director or officer
Those charged with the governance of an entity, regardless of their title, which may vary from country to country.
 
Engagement partner
The public accountant in the firm who is responsible for the particular engagement and its performance, and for the report that is issued on behalf of the firm in respect of that engagement.
 
Engagement quality control review
A process designed to provide an objective evaluation, before the report is issued, of the significant judgments the engagement team made and the conclusions they reached in formulating the report.
 
Engagement team
All personnel performing an engagement, including any experts contracted by the firm in connection with that engagement.
 
Existing accountant
A public accountant currently holding an audit appointment or carrying out other public accountancy services for a client.
 
Financial interest
An interest in an equity or other security, debenture, loan or other debt instrument of, an entity, including rights and obligations to acquire such an interest and derivatives directly related to such interest.
 
Financial statements
The balance sheets, income statements or profit and loss accounts, statements of changes in financial position (which may be presented in a variety of ways, for example, as a statement of cash flows or a statement of fund flows), notes and other statements and explanatory material which are identified as being part of the financial statements.
 
Financial statement audit client
An entity in respect of which a firm conducts a financial statement audit engagement. When the client is a listed entity or a public company, financial statement audit client will always include its related entities.
 
Financial statement audit engagement
A reasonable assurance engagement in which a public accountant expresses an opinion whether financial statements are prepared in all material respects in accordance with an identified financial reporting framework, such as an engagement conducted in accordance with Singapore Standards on Auditing. This includes a statutory audit, which is a financial statement audit required by legislation or other regulation.
 
 
For the purposes of paragraphs SG210.17A to D, SG240.3A, SG290.172A, SG290.180A, SG290.186A, SG290.203A, SG290.206A, SG290.206B, SG290.207A and SG290.210A, this does not include engagements pertaining to a component of a complete set of general purpose or special purpose financial statements, such as a single financial statement, specified accounts, elements of accounts, or items in a financial statement.
 
Firm
(a) An Accounting Entity
 
 
(b) An entity that controls an Accounting Entity through ownership, management or other means; and
 
 
(c) An entity controlled by an Accounting Entity through ownership, management or other means.
 
Immediate family
A spouse (or equivalent) or dependant.
 
Independence
Independence is:
 
 
(a) Independence of mind — the states of mind that permits the provision of an opinion without being affected by influences that compromise professional judgment, allowing an individual to act with integrity, and exercise objectivity and professional judgment; and
 
 
(b) Independence in appearance — the avoidance of facts and circumstances that are so significant a reasonable and informed third party, having knowledge of all relevant information, including any safeguards applied, would reasonably conclude a firm’s, or a member of the assurance team’s, integrity, objectivity or professional scepticism had been compromised.
 
Indirect financial interest
A financial interest beneficially owned through a collective investment vehicle, estate, trust or other intermediary over which the individual or entity has no control.
 
Listed entity
An entity whose shares, stock or debt are quoted or listed on a recognized stock exchange, or are marketed under the regulations of a recognized stock exchange or other equivalent body.
 
Network2
A larger structure:
 
2This definition is to be read in the context of the guidance provided in paragraphs 290.14 to 26.
 
 
(a) That is aimed at co-operation, and
 
 
(b) That is clearly aimed at profit or cost sharing or shares common ownership, control or management, common quality control policies and procedures, common business strategy, the use of a common brand-name, or a significant part of professional resources.
 
Network firm
A firm or entity that belongs to a network. Office A distinct sub-group, whether organized on geographical or practice lines.
 
Professional accountant
A suitably qualified individual.
 
Professional services
Refer to public accountancy services
 
Public accountant
A public accountant means a person who is registered or deemed to be registered in accordance with the Accountants Act (Chapter 2) as a public accountant.
 
Public accountancy services
The audit and reporting on financial statements and the doing of such other acts that are required by any written law to be done by a public accountant.
 
Public company
A public company as defined under the Companies Act (Chapter 50)
 
Related entity
An entity that has any of the following relationships with the client:
 
 
(a) An entity that has direct or indirect control over the client provided the client is material to such entity;
 
 
(b) An entity with a direct financial interest in the client provided that such entity has significant influence over the client and the interest in the client is material to such entity;
 
 
(c) An entity over which the client has direct or indirect control;
 
 
(d) An entity in which the client, or an entity related to the client under (c) above, has a direct financial interest that gives it significant influence over such entity and the interest is material to the client and its related entity in (c); and
 
 
(e) An entity which is under common control with the client (hereinafter a “sister entity”) provided the sister entity and the client are both material to the entity that controls both the client and sister entity.”.

Made this 27th day of May 2009.

TEO MING KIAN
Chairman,
Accounting and Corporate Regulatory Authority,
Singapore.
[F200900506C; AG/LEG/SL/2/2002/1 Vol. 3]