2. The Third Schedule to the Public Accountants Board Rules (R1, 2002 Ed.) is amended —| (a) | by inserting, immediately after sub-paragraph (7) of paragraph 1, the following sub-paragraphs:| “(8) No public accountant shall be substantially engaged in any business other than that of a public accountant. |
| (9) No public accountant shall give any assistance or his services by the use of his name or in any other manner to advance or promote any illegal activity of a client. |
(10) No public accountant shall make, prepare, attest to or certify any statement which he knows to be —| (a) | false, incorrect or misleading; or | | (b) | open to misconstruction by reason of any error, omission or suppression of a material fact or otherwise. |
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| (11) A public accountant shall inform a client of the nature of any business connection, affiliation or interest which might influence his judgment or impair the disinterested quality of his services to such client.”; and |
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| | (b) | by deleting the heading “INTEGRITY, OBJECTIVITY AND INDEPENDENCE” and paragraph 2 and substituting the following heading and paragraphs:2. In paragraphs 2A to 2R, unless the context otherwise requires —“affiliated entity”, in relation to an accounting corporation, accounting firm, or public accountant directly involved in the audit, means —| (a) | an entity, directly or indirectly, under common control, ownership or management with the accounting corporation or accounting firm; | | (b) | an entity, directly or indirectly, under the control, ownership or management of the public accountant or his immediate family members; | | (c) | an entity that is, or holds itself out to be, part of the accounting corporation or accounting firm nationally or internationally; or | | (d) | an entity that a reasonable and informed third party having knowledge of all relevant information would reasonably conclude is part of the accounting corporation or accounting firm nationally or internationally; |
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| “audit client” means an entity in respect of which an audit is conducted and, in the case of a public entity, includes its holding companies, subsidiary companies and associated companies where the audit client is the single largest shareholder; |
“covered party” means —| (a) | an accounting corporation or accounting firm involved in an audit; or | | (b) | a public accountant or staff member of the accounting corporation or accounting firm who is directly involved in the audit; |
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| “economic interest” includes shareholding interests, loans, bonds or other financial instruments held directly or indirectly, but does not include independently managed public unit trusts, mutual funds and tracker funds; |
| “immediate family member” means a spouse, child, adopted child, step-child, brother, sister or parent. |
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2A.—(1) For the purposes of paragraphs 2B to 2R —| (a) | a self-interest threat occurs when a covered party is likely to benefit from an economic interest in, or other self-interest conflict with, an audit client; | | (b) | a self-review threat occurs when —| (i) | any product or judgment of a previous audit engagement or non-audit engagement needs to be re-evaluated in reaching conclusions on the audit engagement; or | | (ii) | a member of the audit team was previously a director or officer of the audit client, or was an employee in a position to influence the subject-matter of the audit engagement; |
| | (c) | an advocacy threat occurs when a covered party promotes, or may be perceived to promote, an audit client’s position or opinion such that objectivity may or may be perceived to be compromised such as when the covered party involved in the audit subordinates its judgment to that of the audit client; | | (d) | a familiarity threat occurs when, by virtue of a close relationship with an audit client, its directors, officers or employees, a covered party becomes too sympathetic to the interests of the audit client; and | | (e) | an intimidation threat occurs when a covered party may be deterred from acting objectively and exercising professional skepticism by threats (actual or perceived) from the directors, officers or employees of an audit client. |
| (2) A covered party shall not act in a way affected by any of the threats referred to in sub-paragraph (1). |
| (3) A covered party shall avoid doing anything or acting in any manner that would give the impression to a reasonable third party that the covered party is affected by any of the threats referred to in sub-paragraph (1). |
| (4) A covered party shall take all reasonable steps to comply with this paragraph and paragraphs 2B to 2R. |
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2B.—(1) A covered party or any financially dependent immediate family member of the public accountant or staff member directly involved in the audit shall not have any economic interest in an audit client or its holding companies, subsidiaries or associates.| (2) Any public accountant or staff member of an accounting corporation or accounting firm who is not directly involved in the audit shall not have, in aggregate, economic interests in the audit client exceeding an amount equivalent to 5% of the equity share capital of the audit client and each of its holding companies, subsidiaries and associates. |
| (3) A covered party or any person referred to in sub-paragraph (1) or (2) shall dispose of any economic interest prohibited under this paragraph within 90 days of the covered party accepting the audit engagement and in any event, before signing of the auditor’s report. |
(4) The auditor’s report shall disclose on an annual basis —| (a) | any economic interest held by a covered party or any person referred to in sub-paragraph (1) or (2) in the audit client and each of its holding companies, subsidiaries and associates at the beginning and end of the relevant financial year; | | (b) | the date of the auditor’s report; and | | (c) | the gross aggregate transactions during the relevant period. |
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| (5) In this paragraph, “associate” has the same meaning as in the Accounting Standards prescribed under section 200A of the Companies Act (Cap. 50). |
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| Family and Personal Relationships |
2C. A public accountant or staff member of an accounting corporation or accounting firm shall not undertake an audit engagement if his immediate family member —| (a) | is employed by the audit client in a role that involves accounting or financial reporting oversight; or | | (b) | is an officer of the audit client at any time during the relevant financial period or during the audit engagement period. |
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| Employment by Audit Client |
2D. A public accountant shall not undertake an audit engagement if his former partner or former professional employee of his accounting corporation or accounting firm is employed by the audit client in a role that involves accounting or financial reporting oversight or as an officer of the audit client except where —| (a) | the former partner or former professional employee has severed his financial ties with the accounting corporation or accounting firm; or | | (b) | the only financial ties the former partner or former professional employee has with the accounting corporation or accounting firm are pre-determined or fixed arrangements (such as pensions) that are not dependent on the revenues, profits or earnings of the accounting corporation or accounting firm. |
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| Recent Service with Audit Client |
2E.—(1) A public accountant shall not undertake an audit engagement if he was an employee, director or officer of the audit client within the last 3 years.| (2) A public accountant shall not allow a professional employee of the accounting corporation or accounting firm to be directly involved in an audit if that person was an employee, director or officer of the audit client within the last 3 years. |
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| Close Business Relationship with Audit Client |
2F.—(1) Subject to sub-paragraph (2), a covered party or affiliated entity shall not have a close business relationship with a client party. | (2) An affiliated entity may have an economic interest of not more than 5% in a business venture with a client party. |
| (3) A public accountant or staff member of an accounting corporation or accounting firm who is not directly involved in the audit shall not have any economic interest exceeding 5% in a business venture with the client party. |
(4) In this paragraph —“close business relationship” means —| (a) | any economic interest in any business venture with a client party; | | (b) | arrangements to combine one or more services or products of the covered party or affiliated entity with one or more services or products of the client party; | | (c) | distribution or marketing arrangements under which the covered party or affiliated entity acts as a distributor or marketer of the client party’s products or services; or | | (d) | distribution or marketing arrangements under which the client party acts as a distributor or marketer of the covered party or affiliated entity’s products or services; |
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“client party” means —| (a) | an audit client; | | (b) | the controlling owner or substantial shareholder of an audit client; | | (c) | a director or officer of an audit client; or | | (d) | a person who performs senior managerial functions for an audit client; |
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| “substantial shareholder” has the same meaning as in section 81 of the Companies Act (Cap. 50). |
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| Preparing Accounting Records and Financial Statements for Public Company |
2G.—(1) Subject to sub-paragraphs (2) and (3), where an audit client is a public company, a covered party or affiliated entity shall not provide the following services to the audit client:| (a) | bookkeeping or payroll services; and | | (b) | services relating to the audit client’s accounting records or financial statements that may impair auditors’ independence. |
(2) Where an emergency arises, the services referred to in sub-paragraph (1) may be provided if —| (a) | no managerial actions or decisions are taken by the covered party involved in the audit or its affiliated entity; and | | (b) | the services are not performed by a member of the audit team. |
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(3) The services referred to in sub-paragraph (1) may be provided for a foreign division or foreign subsidiary of the audit client only if —| (a) | the services are limited, routine or mechanical; | | (b) | it is impractical for the foreign division or foreign subsidiary to make other arrangements; | | (c) | the foreign division or foreign subsidiary is not material to the consolidated financial statements; | | (d) | the foreign division or foreign subsidiary does not have employees who are able to perform the services; | | (e) | the services are performed consistently with local professional ethics rules; and | | (f) | the total fees for such services for the group do not exceed $10,000 or 5% of the consolidated audit fee, whichever is higher. |
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| (4) The accounting corporation or accounting firm involved in the audit shall ensure that any services provided under sub-paragraph (2) or (3), including details of the services and the circumstances under which they were provided, are disclosed in the annual report of the audit client. |
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| Preparing Accounting Records and Financial Statements for Private Company |
2H.—(1) Where an audit client is a private company, an accounting corporation, accounting firm or affiliated entity may provide to the audit client or any of its subsidiaries bookkeeping or payroll services or services relating to the audit client’s accounting records or financial statements and of a routine or mechanical nature, provided that any threat of self-review is clearly insignificant.(2) In assessing whether any threat of self-review is clearly insignificant, the accounting corporation or accounting firm shall have regard to all of the following safeguards:| (a) | making arrangements so that the services are not performed by a member of the audit team; | | (b) | implementing policies and procedures to prohibit the individual providing the services from making any managerial decision on behalf of the audit client; | | (c) | requiring the source data for the accounting entries to be originated by the audit client; | | (d) | requiring the underlying assumptions to be originated and approved by the audit client; and | | (e) | obtaining the audit client’s approval for any proposed accounting journal entry. |
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| Specialist Valuation Services |
2I.—(1) An accounting corporation or accounting firm shall not audit a client’s financial statements if the financial statements include the product of a specialist valuation carried out by the accounting corporation, accounting firm or affiliated entity except where —| (a) | the valuation relates to a foreign subsidiary of the audit client; | | (b) | the valuation was carried out by an affiliated entity in a foreign jurisdiction that does not have a similar prohibition as in this paragraph; | | (c) | the product of the specialist valuation is less than 10% of the last audited consolidated non-current assets; and | | (d) | the auditor ensures that the circumstances referred to in sub-paragraphs (a), (b) and (c) are disclosed in the annual report of the audit client. |
| (2) In this paragraph, “specialist valuation” includes actuarial valuation and valuation of intellectual property and brands, other intangible assets, property and unquoted investments. |
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| Management Recruiting Services |
2J. An accounting corporation, accounting firm or affiliated entity shall not provide recruitment services for an audit client except where —| (a) | the engagement is limited to one or both of the following:| (i) | reviewing applications and providing advice on the suitability of applicants for the post; | | (ii) | producing a shortlist of candidates for interview using criteria specified by the audit client; |
| | (b) | the accounting corporation, accounting firm or affiliated entity does not make management decisions; | | (c) | the decision as to who to hire is left to the audit client; and | | (d) | the relevant position is not that of chief executive officer, chief financial officer or other senior management post with responsibility for financial functions. |
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| Corporate Finance Services |
2K.—(1) An accounting corporation, accounting firm or affiliated entity shall not provide corporate finance services, advice or assistance to an audit client that involves —| (a) | promoting, dealing in or underwriting of the audit client’s shares; | | (b) | committing the audit client to the terms of a transaction; or | | (c) | consummating a transaction on behalf of the audit client. |
| (2) Subject to sub-paragraph (1), an accounting corporation, accounting firm or affiliated entity may provide corporate finance services, advice or assistance to an audit client provided that threats referred to in paragraph 2A are clearly insignificant. |
(3) Where the threats referred to in paragraph 2A are not clearly insignificant, the accounting corporation, accounting firm or affiliated entity shall adopt safeguards to reduce the threat to a clearly insignificant level, which may include —| (a) | implementing policies and procedures to prohibit individuals assisting the audit client from making managerial decisions on behalf of the client; and | | (b) | ensuring that the covered party involved in the audit or its affiliated entity does not commit the audit client to the terms of any transaction or consummate a transaction on behalf of the client. |
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| IT and Other Systems Services |
2L.—(1) Where an audit client is a public company, an accounting corporation, accounting firm or affiliated entity shall not provide to the client services involving the design or implementation of technology or other systems if the system is used to generate financial information forming part of the client’s financial statements.(2) Where an audit client is a private company, an accounting corporation, accounting firm or affiliated entity may provide to the client or any of its subsidiaries services involving the design or implementation of technology or other systems, whether or not used to generate financial information forming part of the client’s financial statements, if —| (a) | the audit client —| (i) | is not a subsidiary of a public company audited by the accounting corporation, accounting firm or affiliated entity; | | (ii) | acknowledges its responsibility for establishing and monitoring a system of internal controls; | | (iii) | makes a competent senior employee responsible for making all management decisions with respect to the design and implementation of the hardware or software system; | | (iv) | evaluates the adequacy and results of the design and implementation of the system itself; and | | (v) | is responsible for the operation of the system (hardware or software) and the data used or generated by the system; and |
| | (b) | the services are provided by personnel who —| (i) | are not involved in the audit engagement; and | | (ii) | have different reporting lines in the accounting corporation or accounting firm. |
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2M.—(1) Where an audit client is a public company, an accounting corporation, accounting firm or affiliated entity shall not provide internal audit services to the client.(2) Where the audit client is a private company, an accounting corporation, accounting firm or affiliated entity may provide internal audit services to the client or any of its subsidiaries if —| (a) | the audit client is not a subsidiary of a public company audited by the accounting corporation, accounting firm or affiliated entity; | | (b) | the audit client is responsible for —| (i) | establishing, maintaining and monitoring internal controls; | | (ii) | evaluating and determining which recommendations should be implemented; and | | (iii) | evaluating its own internal audit procedures; |
| | (c) | a competent senior employee of the audit client is responsible for internal audit activities; | | (d) | the board of directors of the audit client approves the scope, risk and frequency of internal audit work; | | (e) | the findings and recommendations resulting from the internal audit activities are reported to the board of directors of the audit client; and | | (f) | the services are provided by personnel who —| (i) | are not involved in the audit engagement; and | | (ii) | have different reporting lines in the accounting corporation or accounting firm. |
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| (3) In this paragraph, “internal audit services” does not include operational internal audit services unrelated to the internal accounting controls, financial systems or financial statements of the audit client. |
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2N.—(1) Where an audit client is a public company, the accounting corporation or accounting firm shall conduct a review with the audit client to ensure that auditors’ independence is not compromised if —| (a) | the amount of fees received for the non-audit services compared to the total audit fees is 50% or more; or | | (b) | the total size of the non-audit fees paid for the services is significant. |
| (2) For purposes of sub-paragraph (1), the fees earned by an affiliated entity shall be taken into account. |
(3) An accounting corporation or accounting firm shall undertake a review to ensure that any threat of self-interest is clearly insignificant if total fees generated by an audit client are of the following amounts:| (a) | where the audit client is a private company, 15% or more of the accounting corporation or accounting firm’s total fees; | | (b) | where the audit client is a public company, 5% or more of the accounting corporation or accounting firm’s total fees; or | | (c) | 50% or more of the public accountant’s total fees. |
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(4) Where the threat of self-interest is not clearly insignificant, the accounting corporation or accounting firm shall adopt safeguards to reduce the threat to a clearly insignificant level, which may include —| (a) | discussing the extent and nature of fees charged with the audit committee or others charged with governance; | | (b) | reducing dependency on the client; | | (c) | undertaking external quality control reviews; | | (d) | implementing policies and procedures to monitor quality control of the audit engagements; and | | (e) | involving an additional professional accountant (who was not a member of the audit team) to review the work done or advise as necessary. |
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2O.—(1) An accounting corporation or accounting firm shall ensure that any overdue fees for previous engagements are paid before an audit report is issued.(2) If overdue fees are not paid, the accounting corporation or accounting firm may implement safeguards, which may include —| (a) | discussing the level of outstanding fees with the audit committee or others charged with governance; and | | (b) | involving an additional professional accountant (who was not a member of the audit team) to review work performed or advise as necessary. |
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(3) If overdue fees are not paid, the accounting corporation or accounting firm shall consider whether it is appropriate for it to be re-appointed, taking into account —| (a) | whether the overdue fees might be regarded as equivalent to a loan to the client; and | | (b) | the significance of the overdue fees. |
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2P.—(1) No accounting corporation or accounting firm shall accept or charge a fee for any form of professional work on a percentage basis except where such remuneration is provided for under the provisions of any written law.| (2) No accounting corporation or accounting firm shall accept instructions on a contingency fee basis. |
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2Q.—(1) A covered party shall not accept gifts from an audit client except where —| (a) | the gifts are token in nature; and | | (b) | the total value of the gifts does not exceed $200 annually. |
| (2) For the purposes of sub-paragraph (1)(b), where the covered party is an accounting corporation or accounting firm, the limit of the value of gifts applies to the aggregate value of gifts received by the individual public accountants or staff members of the accounting corporation or accounting firm from the same audit client. |
| (3) A covered party shall not accept hospitality from an audit client unless the value is clearly insignificant having regard to the limit of the value of gifts referred to in sub-paragraph (1). |
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| Actual or Threatened Litigation |
| 2R. An accounting corporation or accounting firm shall take necessary steps to withdraw from, or refuse to accept, an audit engagement if litigation occurs or is threatened between an audit client and the accounting corporation, accounting firm or a member of the audit team except where the litigation relates to prior years’ audit fees which are overdue.”. |
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