Provision of Non-assurance Services to an Audit Client

The provision of non-assurance services to an audit client may pose threats to the independence
of the firm or audit team, primarily self-review, self-interest, and advocacy threats. Before
accepting such engagements, firms must assess the threats and apply safeguards. Non-assurance
services may be provided to related entities of the audit client under specific conditions, and
when the client becomes a public interest entity, previous non-assurance services must comply
with relevant provisions and appropriate safeguards applied to maintain independence.

Management Responsibilities (290.159 – 290.162)

Management responsibilities involve controlling, leading, and directing an entity, including

decisions about resources like human, financial, technological, and physical assets. Activities
considered as management responsibilities include setting policies, hiring employees,
authorizing transactions, and being accountable for financial statements and internal controls.

Firms should not assume management responsibilities for audit clients due to significant threats
that safeguards cannot adequately reduce, but providing advice to assist management is allowed.
When providing non-assurance services to audit clients, the firm must ensure that client
management retains responsibility for all judgments and decisions related to the services.

Administrative Services (290.163)

Administrative services involve assisting clients with routine or clerical tasks, lacking significant
professional judgment. Examples include word processing, preparing administrative forms,
monitoring filing dates, and providing related advice. While these services generally do not
compromise independence, any potential threats should be assessed, and safeguards applied if
needed to maintain an acceptable level of independence.

Preparing Accounting Records and Financial Statements General Provision (290.164 –

290.167)

Management is responsible for preparing and fairly presenting financial statements, including
determining accounting policies, preparing source documents, and making journal entries.
Providing accounting and bookkeeping services to an audit client creates a self-review threat for
the auditing firm.

Normal audit processes involve dialogue with the client regarding accounting standards,
financial controls, and proposed adjusting journal entries, which generally do not compromise
independence as long as the client retains decision-making authority.

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The firm can offer technical assistance to the client for tasks like resolving account reconciliation
issues and providing advice on accounting matters, as long as the firm doesn't take on a
management responsibility for the client. These services usually do not pose threats to
independence.

i. Audit clients that are not public interest entities Top of Form (290.168 )

The firm can provide certain services related to the preparation of accounting records and
financial statements to an audit client that is not a public interest entity, as long as the services
are routine or mechanical in nature and require minimal professional judgment. Examples
include preparing payroll calculations, recording recurring transactions with clear classifications,
and calculating depreciation based on client-approved policies. The firm must evaluate any self-
review threat created and apply safeguards to reduce or eliminate the threat. Safeguards may
involve using individuals outside the audit team or having a partner or senior staff member with
appropriate expertise review the work performed.

ii. Audit Clients that are public interest entities (290.169 – 290.170)

For audit clients that are public interest entities, the firm is prohibited from providing accounting
and bookkeeping services, payroll services, or preparing financial statements on which the firm
will express an opinion or that form the basis of the financial statements.

Despite the prohibition, the firm may provide accounting and bookkeeping services, including
payroll and financial statement preparation, for divisions or related entities of a public interest
entity if the personnel providing the services are not part of the audit team and either the
divisions or related entities are collectively immaterial to the financial statements or the services
relate to collectively immaterial matters for the division or related entity.

Valuation Services – General Provisions (290.171 – 290.174)

Valuation involves making assumptions, applying methodologies, and combining both to

determine the value or range of values for assets, liabilities, or businesses.

Performing valuation services for an audit client can create a self-review threat, depending on
factors like the impact on financial statements, client involvement in the process, availability of
established methodologies, and reliability of data. Safeguards should be applied to eliminate or
reduce the threat, such as having an independent professional review the work or separating
personnel providing valuation services from the audit engagement.
Some valuations are less subjective when underlying assumptions are legally prescribed or
widely accepted, and methodologies follow generally accepted standards or regulations. In such
cases, different parties' valuations are unlikely to have significant differences.
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If a firm is requested to perform a valuation for tax reporting or planning purposes, and the
results won't directly impact financial statements, specific provisions outlined in paragraph
290.186 apply.

Audit clients that are not public interest entities Top of Form (290.175)

If an audit client is not a public interest entity, and the valuation service has a material impact on
the financial statements, and the valuation requires significant subjectivity, no safeguards can
adequately mitigate the self-review threat. Therefore, the firm is prohibited from providing such
valuation services to the audit client.

Audit Clients that are public interest entities (290.176)

For audit clients that are public interest entities, the firm is prohibited from providing valuation
services if the valuations would have a material impact, either individually or in total, on the
financial statements on which the firm will express an opinion.

Taxation Services (290.177 – 290.178)

Taxation services provided by a firm to an audit client encompass tax return preparation, tax
calculations for accounting entries, tax planning and advisory, and assistance in resolving tax
disputes. These services can create self-review and advocacy threats, which depend on factors
such as the tax assessment and administration process, complexity of the tax regime, level of
judgment required, engagement characteristics, and the tax expertise of the client's employees.

Tax Return Preparation (2590.179)

Tax return preparation services involve assisting clients in fulfilling their tax reporting
obligations by preparing tax returns, providing advice on past transactions' tax treatment, and
responding to tax authorities' requests for additional information. These services are based on
historical information and do not generally pose a threat to independence if management takes
responsibility for the returns and any significant judgments made during the process.

Tax Calculation for the purpose of Preparing Accounting Entries

Audit Clients that are not public interest entities (290.180)

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Preparing tax calculations of current and deferred tax liabilities (or assets) for an audit client to
facilitate accounting entries audited by the firm creates a self-review threat. The significance of
the threat depends on the complexity of tax law, the level of judgment required, the client's tax
expertise, and the materiality of amounts to the financial statements. To mitigate the threat,
safeguards should be applied, such as using professionals outside the audit team, having a partner
or senior staff member with appropriate expertise review the tax calculations, or seeking advice
from an external tax professional.

Audit Clients that are public interest entities (290.181)

For audit clients that are public interest entities, the firm is prohibited from preparing tax
calculations of current and deferred tax liabilities (or assets) for the purpose of preparing
accounting entries that are material to the financial statements on which the firm will express an
opinion.

Tax Planning and Other Tax Advisory Services (290.182 – 290. 290.186)

Tax planning and other tax advisory services involve providing advice on structuring affairs tax-
efficiently or interpreting new tax laws or regulations. A self-review threat may arise if the
advice affects matters reflected in the financial statements. The significance of the threat depends
on subjectivity, material effect on the financial statements, accounting treatment, tax expertise,
and support from tax laws or precedents. Safeguards should be applied to eliminate or reduce the
threat, such as using professionals outside the audit team, obtaining external tax advice, or
obtaining pre-clearance from tax authorities.

Regarding tax-related valuations, if the valuation directly affects financial statements, the
provisions for valuation services apply. If the valuation affects financial statements only through
tax-related accounting entries, there is generally no independence threat if the effect is
immaterial or subject to external review by tax authorities. However, if the effect is material and
not subject to external review, safeguards should be applied, such as using professionals outside
the audit team, having a professional review the work, or seeking advice from tax authorities.

Assistance in the Resolution of Tax Disputes (290.187 – 290.189)

When a firm represents an audit client in the resolution of a tax dispute after tax authorities have
rejected the client's arguments and the matter is referred for formal proceedings, there may be
advocacy or self-review threats. The significance of the threat depends on factors like the firm's
involvement in providing advice, the impact on financial statements, support from tax laws or
precedents, public nature of the proceedings, and management's role. Safeguards, such as using

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professionals outside the audit team or obtaining external tax advice, should be applied to
eliminate or reduce the threat.

If taxation services involve acting as an advocate for the client before a public tribunal or court,
and the amounts involved are material to the financial statements, the advocacy threat is
significant, and no safeguards can mitigate it. Therefore, the firm is not allowed to perform this
type of service for an audit client. However, the firm can have a continuing advisory role,
providing information or factual accounts related to the matter being heard in the public tribunal
or court.

Internal Audit Services – General Provisions (290.190 – 290.194)

290.190: Internal audit activities can vary based on entity size and structure and may include
monitoring internal controls, examining financial and operating information, reviewing
efficiency of operating activities, and ensuring compliance with laws and regulations.

290.191: Providing internal audit services to an audit client creates a self-review threat to
independence if the firm uses the internal audit work in subsequent external audits. The firm's
personnel should not assume management responsibility when providing internal audit services
to avoid a significant threat to independence.

290.192: Examples of assuming management responsibilities in internal audit services include

setting policies, directing internal audit employees, deciding which recommendations to
implement, and performing procedures that form part of internal control.

290.193: To avoid assuming management responsibility, the firm should ensure that the client
designates an appropriate resource within senior management for internal audit activities,
management reviews and approves the scope of internal audit services, and management
evaluates and acts on the findings and recommendations from the internal audit services.

290.194: When the firm provides internal audit services to an audit client and will use the results
in the external audit, a self-review threat arises. Safeguards should be applied, such as using
professionals outside the audit team to perform the internal audit service. The significance of the
threat depends on materiality, risk of misstatement, and reliance on internal audit work.

Audit Clients that are public interest entities (290.195)

For audit clients that are public interest entities, the firm is prohibited from providing internal
audit services related to:
a) A significant part of the internal controls over financial reporting.

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 b) Financial accounting systems generating information that is significant to the client's
accounting records or financial statements on which the firm will express an opinion.
c) Amounts or disclosures that are material to the financial statements on which the firm
will express an opinion.

This restriction is in place to avoid self-review threats to independence and ensure the integrity
of the external audit process.

IT Systems Services – General Provisions (290.196 – 290.197)

Services related to information technology (IT) systems may involve designing or implementing
hardware or software systems that can affect the client's accounting records, financial statements,
or internal control over financial reporting. Providing such services may create a self-review
threat, depending on the nature of the services and the IT systems.

However, certain IT systems services are deemed not to create a threat to independence if the
firm's personnel do not assume a management responsibility. These include:
a) Design or implementation of IT systems unrelated to internal control over financial
reporting.
b) Design or implementation of IT systems that do not generate significant information for
accounting records or financial statements.
c) Implementation of "off-the-shelf" accounting or financial information reporting software
not developed by the firm, provided the customization required is not significant.
d) Evaluating and making recommendations regarding systems designed, implemented, or
operated by another service provider or the client.

Audit Clients that are public interest entities (290.198 – 290.200)

Providing services related to the design or implementation of IT systems to an audit client that is
not a public interest entity and these systems form a significant part of internal control over
financial reporting or generate significant information for the client's accounting records or
financial statements creates a self-review threat.
To mitigate this threat, appropriate safeguards must be put in place, including:
a) The client acknowledges responsibility for establishing and monitoring internal controls.
b) The client assigns decision-making responsibility for the system design and
implementation to a competent employee, preferably within senior management.
c) The client makes all management decisions regarding the design and implementation
process.
d) The client evaluates the adequacy and results of the system design and implementation.
e) The client is responsible for operating the system and the data it uses or generates.

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Depending on the degree of reliance placed on the IT systems in the audit, the firm may provide
non-assurance services only with personnel who are not members of the audit team and have
different reporting lines within the firm. Additional safeguards, such as having a professional
accountant review the work, may also be applied to eliminate or reduce any remaining threat to
an acceptable level.

Audit Clients that are public interest entities (290.201)

For audit clients that are public interest entities, the firm is prohibited from providing services
related to the design or implementation of IT systems that (a) form a significant part of the
internal control over financial reporting or (b) generate information that is significant to the
client's accounting records or financial statements on which the firm will express an opinion.
This restriction is in place to avoid self-review threats to independence and ensure the integrity
of the external audit process.

Litigation Support Services (290.202 – 290.203)

Summary: Litigation support services may involve activities such as acting as an expert witness,
calculating estimated damages, or providing assistance with document management and retrieval
in legal disputes. Providing such services to an audit client may create self-review or advocacy
threats to independence.

If the firm provides a litigation support service that involves estimating damages or other
amounts that will affect the financial statements on which the firm will express an opinion, the
valuation service provisions (paragraphs 290.171 to 290.176) shall be followed.

For other litigation support services that do not directly impact the financial statements, the
significance of any threat to independence shall be evaluated, and appropriate safeguards applied
when necessary to eliminate the threat or reduce it to an acceptable level.

Legal Services (290.204 – 290.208)

Legal services are defined as services for which the provider must be qualified to practice law in
the relevant jurisdiction. Providing legal services to an audit client may create self-review and
advocacy threats to independence.
Legal services that support an audit client in executing a transaction, such as contract support,
legal advice, legal due diligence, and restructuring, may create self-review threats. The
significance of any threat created shall be evaluated, and safeguards applied when necessary to
eliminate the threat or reduce it to an acceptable level. Safeguards may include using
professionals who are not members of the audit team to perform the service or having a

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professional not involved in providing the legal services review any financial statement
treatment.

Acting in an advocacy role for an audit client in resolving a dispute or litigation with material
amounts involved would create advocacy and self-review threats too significant to permit the
service. Such services shall not be provided for an audit client.

If the dispute or litigation involves amounts that are not material to the financial statements on
which the firm will express an opinion, the significance of any threats created shall be evaluated,
and appropriate safeguards applied to eliminate or reduce the threats. Safeguards may include
using professionals who are not members of the audit team to perform the service or having an
independent professional review the service and its impact on the financial statements.

Finally, the appointment of a partner or employee of the firm as General Counsel for legal affairs
of an audit client is not permitted, as it would create significant self-review and advocacy threats
that cannot be adequately reduced through safeguards.

Recruiting Services – General Provisions (290.209)

Providing recruiting services to an audit client may create self-interest, familiarity, or

intimidation threats to independence. The significance of any threat will depend on the nature of
the requested assistance and the role of the person to be recruited.

To ensure independence is maintained, the significance of any threat created shall be evaluated,
and appropriate safeguards applied when necessary to eliminate the threat or reduce it to an
acceptable level. The firm shall not assume management responsibilities, including acting as a
negotiator on the client's behalf, and the final hiring decision shall be left to the client.

The firm may provide certain recruiting services, such as reviewing the professional
qualifications of applicants and providing advice on their suitability for the position.
Additionally, the firm may interview candidates and advise on their competence for financial
accounting, administrative, or control positions. These services are generally acceptable as long
as they do not compromise the firm's independence and objectivity in conducting the audit.

Audit clients that are public interest entities (290.210)

Audit Clients that are public interest entities Audit Clients that are public interest entities Audit
Clients that are public interest entities Audit Clients that are public interest entities Audit Clients

8
that are public interest entities Audit Clients that are public interest entities Audit Clients that are
public interest entities

for a public interest entity, a firm is restricted from providing specific recruiting services related
to directors, officers, or senior management who have significant influence over the preparation
of the client's accounting records or financial statements on which the firm will express an
opinion. The prohibited recruiting services include:
1. Searching for or seeking out candidates for such positions.
2. Undertaking reference checks of prospective candidates for such positions.

These restrictions are in place to avoid potential threats to independence and to ensure the firm
maintains objectivity and impartiality in its audit of the public interest entity.

Corporate Finance Services (290.211 – 290.214)

providing corporate finance services to an audit client may create advocacy and self-review
threats. The firm should evaluate the significance of these threats and apply safeguards when
necessary to eliminate or reduce them to an acceptable level.

Examples of corporate finance services that may create self-review and advocacy threats include:
1. Assisting an audit client in developing corporate strategies.
2. Identifying potential acquisition targets for the audit client.
3. Advising on disposal transactions.
4. Assisting with finance-raising transactions.
5. Providing structuring advice.

For certain corporate finance services that directly affect amounts reported in the financial
statements on which the firm will express an opinion, a self-review threat may arise. This threat
will depend on factors such as the degree of subjectivity involved in determining the appropriate
treatment for the outcome of the corporate finance advice in the financial statements and whether
the effectiveness of the advice depends on a specific accounting treatment or presentation.

In cases where there is reasonable doubt about the appropriateness of the related accounting
treatment or presentation under the relevant financial reporting framework, and the outcome of
the corporate finance advice will have a material effect on the financial statements, the self-
review threat may be so significant that no safeguards could reduce it to an acceptable level. In
such cases, the corporate finance advice should not be provided.

Additionally, providing corporate finance services that involve promoting, dealing in, or
underwriting an audit client's shares would create advocacy and self-review threats that are so

9
significant that no safeguards could reduce them to an acceptable level. Therefore, the firm
should not offer such services to an audit client.

Fees

Fees – Relative Size (290.215 – 290.216)

when the total fees received from an audit client represent a large proportion of the total fees
earned by the firm or a significant portion of the revenue generated by an individual partner or
office, it may create a self-interest or intimidation threat. The level of significance of this threat
depends on various factors, including the operating structure of the firm, whether the firm is
well-established or new, and the qualitative and/or quantitative significance of the client to the
firm.

To manage this threat, the firm should evaluate the significance of the threat and implement
safeguards as necessary to either eliminate the threat or reduce it to an acceptable level.
Examples of safeguards that can be applied include:
1. Reducing dependency on the client by diversifying the client base.
2. Conducting external quality control reviews to ensure audit quality and independence.
3. Consulting a third-party organization, such as the Institute of Chartered Accountants or a
relevant professional body, for advice on key audit judgments.
4. Having a professional accountant review the work or provide necessary advice to ensure
independence and objectivity.
5. Regularly conducting independent internal or external quality reviews of the engagement.

By implementing these safeguards, the firm can help ensure that the self-interest or intimidation
threat posed by a significant audit client's fees is appropriately managed and does not
compromise independence and objectivity during the audit process.

Audit clients that are public interest entities (290.217)

When an audit client is a public interest entity and the total fees received from the client and its
related entities for two consecutive years represent more than 15% of the total fees received by
the firm expressing the audit opinion on the financial statements of the client, certain disclosure
and safeguard requirements apply.

In such cases, the firm shall:

1. Disclose to those charged with governance of the audit client the fact that the total fees
represent more than 15% of the total fees received by the firm.

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 2. Discuss with those charged with governance which of the two safeguards below will be
applied to reduce the threat to an acceptable level:
 A pre-issuance review: Before the issuance of the audit opinion on the second year's
financial statements, a professional accountant who is not a member of the firm
conducting the audit performs an engagement quality control review of that
engagement, or a professional regulatory body performs an equivalent review.
 A post-issuance review: After the audit opinion on the second year's financial
statements has been issued, and before the issuance of the audit opinion on the third
year's financial statements, a professional accountant who is not a member of the firm
conducting the audit, or a professional regulatory body, performs a review of the
second year's audit that is equivalent to an engagement quality control review.
3. Determine whether the significance of the threat is such that a post-issuance review
would not reduce the threat to an acceptable level. If the fees significantly exceed 15%,
the firm shall perform a pre-issuance review in such circumstances.

The process is repeated for subsequent years if the fees continue to exceed 15%. The goal is to
ensure that the self-interest threat arising from the dependence on a significant audit client is
properly managed through appropriate disclosure and the application of safeguards.

Fees – Overdue (290.218)

The non-payment of fees by an audit client can create a self-interest threat to independence,
especially if the fees remain unpaid for an extended period or if a significant amount is
outstanding at the time of issuing the audit report for the following year.

Generally, auditors are expected to require payment of fees before issuing the audit report. If fees
remain unpaid after the report has been issued, the firm must carefully evaluate the existence and
significance of the self-interest threat. In such situations, safeguards should be applied to
eliminate the threat or reduce it to an acceptable level.

One example of a safeguard is having an additional professional accountant who was not
involved in the audit engagement provide advice or review the work performed to ensure
objectivity and independence in dealing with the unpaid fees issue.

The firm should also consider whether the outstanding fees might be considered equivalent to a
loan to the client. If the overdue fees are significant, it may raise questions about the firm's
financial relationship with the client and whether it is appropriate to continue providing audit
services. The firm should carefully assess the situation and consider whether it affects their
ability to remain independent and objective in performing the audit engagement.

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Contingent Fees (290.219 – 290.222)

Contingent fees are fees that are determined based on the outcome of a transaction or the results
of services performed by the firm. They may create self-interest threats to independence.

In the context of an audit engagement, charging a contingent fee directly or indirectly (e.g.,
through an intermediary) is strictly prohibited. This type of fee arrangement creates a significant
self-interest threat that cannot be reduced to an acceptable level through safeguards. Therefore, a
firm must not enter into any such fee arrangement for audit services.

For non-assurance services provided to an audit client, contingent fee arrangements may also
create self-interest threats. The significance of the threats will depend on various factors such as
the possible range of fee amounts, whether an appropriate authority determines the outcome that
the fee is based on, the nature of the service, and the effect of the event or transaction on the
financial statements.

For other contingent fee arrangements related to non-assurance services, the firm must evaluate
the existence and significance of any threats and apply appropriate safeguards to eliminate the
threats or reduce them to an acceptable level. Examples of safeguards include having a
professional accountant review the relevant audit work or using professionals who are not part of
the audit team to perform the non-assurance service.

Compensation and Evaluation Policies (290.223 – 290.224)

Compensating or evaluating members of the audit team based on the sale of non-assurance
services to the audit client creates a self-interest threat to independence. The significance of this
threat depends on factors such as the proportion of the individual's compensation or performance
evaluation that is tied to the sale of such services, the role of the individual on the audit team,
and whether promotion decisions are influenced by the sale of such services.

If the self-interest threat is not at an acceptable level, the firm must take appropriate action to
address the situation. This can include revising the compensation plan or evaluation process for
the individual involved, or applying safeguards to eliminate the threat or reduce it to an
acceptable level. Examples of safeguards include removing the individual from the audit team or
having a professional accountant review the work of the member of the audit team.

Furthermore, a key audit partner must not be evaluated or compensated based on the success of
selling non-assurance services to the audit client. This prohibition does not apply to normal
profit-sharing arrangements between partners of the firm. The key audit partner's independence
and objectivity in performing the audit should not be compromised by financial incentives
related to selling non-assurance services to the client.
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Gifts and Hospitality (290.225)

Accepting gifts or hospitality from an audit client can create self-interest and familiarity threats
to independence. Self-interest threats arise when the gifts or hospitality could unduly influence
the auditor's objectivity and professional judgment, while familiarity threats arise when such
actions could compromise the auditor's ability to maintain an appropriate level of independence
from the client.

In professional ethics, it is generally accepted that any gift or hospitality, unless it is of trivial or
inconsequential value, can create significant threats to independence that cannot be effectively
mitigated by safeguards. Therefore, to maintain independence and avoid potential conflicts of
interest, a firm or a member of the audit team should not accept gifts or hospitality from the audit
client. This principle helps to uphold the auditor's objectivity and ensures the integrity of the
audit process.

Actual or Threatened Litigation (290.226)

When litigation occurs or appears likely between the firm or a member of the audit team and the
audit client, self-interest and intimidation threats to independence are created. This situation can
affect the relationship between the client's management and the audit team, potentially hindering
complete candor and full disclosure from management regarding all aspects of the client's
business operations.

The significance of the threats depends on factors such as the materiality of the litigation and
whether it relates to a prior audit engagement. To address these threats, safeguards should be
applied to eliminate or reduce them to an acceptable level. Examples of such safeguards include
removing the individual involved in the litigation from the audit team or having an independent
professional review the work performed.

If the threats cannot be effectively mitigated by safeguards and the independence of the audit
team is compromised, the appropriate course of action is to withdraw from or decline the audit
engagement. This ensures the integrity and objectivity of the audit process and maintains public
confidence in the independence of auditors.

Reports that Include a Restriction on Use and Distribution (290.500 – 290.504)

Section 290 of the independence requirements applies to all audit engagements. However, there
are certain circumstances where the independence requirements may be modified for audit
engagements on special purpose financial statements that meet specific conditions:

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 1. The audit engagement must be intended to provide a conclusion in either a positive or
negative form that the financial statements are prepared in all material respects in
accordance with the applicable financial reporting framework. This includes fair
presentation frameworks where the financial statements give a true and fair view or are
presented fairly, in all material respects, in accordance with the applicable financial
reporting framework.
2. The audit report for such engagements must include a restriction on use and distribution.
3. The modifications to independence requirements are not allowed for audits of financial
statements required by law or regulation.

290.501 The modifications to the independence requirements are permitted if the intended users
of the report meet two criteria:
a) They are knowledgeable about the purpose and limitations of the report.
b) They explicitly agree to the application of the modified independence requirements.

Intended users can gain knowledge about the purpose and limitations of the report through their
participation in establishing the nature and scope of the engagement. This can be done directly or
indirectly through their representative with the authority to act for the intended users. By
involving the intended users in this way, the firm can communicate with them about
independence matters, evaluate threats to independence, apply necessary safeguards, and obtain
their agreement to the modified independence requirements.

290.502 The firm is required to communicate with the intended users about the independence
requirements that will be applied in the audit engagement. If the intended users are a class of
users (e.g., lenders in a syndicated loan arrangement) who are not specifically identifiable by
name at the time the engagement terms are established, they must be made aware of the
independence requirements agreed upon by their representative (e.g., by making the engagement
letter available to all users through the representative).

290.503 If the firm issues both an audit report with a restriction on use and distribution and
another audit report without such a restriction for the same client, the provisions of paragraphs
290.500 to 290.514 do not alter the requirement to apply the provisions of paragraphs 290.1 to
290.226 to the audit engagement without the restriction.

290.504 The modifications allowed under the circumstances described above are specified in
paragraphs 290.505 to 290.514. However, the firm must comply with all other provisions of
Section 290 apart from these modifications.

Public Interest Entities (290.505)

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If the audit engagement meets the criteria for special purpose financial statements with a
restriction on use and distribution, and the intended users are knowledgeable about the purpose
and limitations of the report and explicitly agree to the modified independence requirements,
then the firm is not required to follow the additional independence requirements that are specific
to audit engagements for public interest entities.

The purpose of this exemption is to recognize that certain types of audit engagements, such as
those involving special purpose financial statements with restricted use and distribution, may
have a different risk profile compared to audits of public interest entities. As a result, some of the
additional independence requirements applicable to public interest entities may not be necessary
in these specific cases.

Related Entities (290.506)

although related entities are not automatically considered as audit clients for the purpose of
independence, if any relationships or circumstances with related entities could impact the
independence of the audit engagement, the audit team must take those into account and apply
relevant safeguards accordingly. The aim is to ensure that the evaluation of independence
remains thorough and robust, considering all relevant factors, including related entities, when
necessary.

Network and Network Firms (290.507)

network firms are not automatically considered as part of the firm for the purpose of
independence when the conditions in paragraphs 290.500 to 290.502 are met, if any interests or
relationships of a network firm could potentially impact the independence of the audit
engagement, the audit team must take those into account and evaluate the threats to
independence accordingly. This ensures that any relevant connections or associations with
network firms are considered in the independence assessment to maintain objectivity and
integrity in the audit process.

Financial Interest, Loans and Guarantees, Close Business Relationships and Family and
Personal Relationships (290.508 – 290.512)

when the conditions set out in paragraphs 290.500 to 290.502 are met, certain provisions in
Section 290 apply only to specific individuals within the firm and their close family members.
The evaluation of threats to independence includes considering interests and relationships
between the audit client and various members of the audit team, including those who provide
consultation on technical or industry-specific issues, perform quality control for the engagement,
and have the ability to influence the outcome of the audit engagement. Additionally, the
significance of threats arising from financial interests in the audit client held by individuals and
15
the firm is assessed, and safeguards must be applied to eliminate or reduce any threats to an
acceptable level.

Furthermore, if the firm has a material financial interest, whether direct or indirect, in the audit
client, the self-interest threat created would be so significant that no safeguards could mitigate it
to an acceptable level. Therefore, the firm is not permitted to have such a financial interest in the
audit client under these circumstances.

Employment with an Audit Client (290.513)

In the evaluation of threats to independence, employment relationships, as described in

paragraphs 290.132 to 290.136, are also considered. If a threat from such an employment
relationship exists and is not at an acceptable level, appropriate safeguards should be applied to
either eliminate the threat or reduce it to an acceptable level. Examples of safeguards that could
be used to mitigate the threat include those outlined in paragraph 290.134. These safeguards aim
to ensure that the employment relationship does not compromise the independence of the audit
engagement and maintain the objectivity and integrity of the audit process.

Provision of Non – Assurance Services (290.514)

If the firm conducts an engagement to issue a restricted use and distribution report for an audit
client and also provides a non-assurance service to the same audit client, the independence
requirements set out in paragraphs 290.154 to 290.226 must be followed, subject to the
modifications allowed in paragraphs 290.504 to 290.507. This means that the firm needs to
comply with the standard independence requirements, but certain provisions may be modified or
exempted based on the specific circumstances of the engagement and the agreement with the
intended users of the report, as explained in paragraphs 290.500 to 290.502.

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