WEBVTT 00:00:05.640 --> 00:00:09.240 Harrish & Co. is an SEC issuer audit client with an 00:00:09.270 --> 00:00:12.690 Audit Committee Charter that outlines use of the ad-hoc 00:00:12.690 --> 00:00:16.680 pre-approval method. Tiffany, an audit manager on the engagement 00:00:16.680 --> 00:00:19.410 identified that the team did not appropriately obtain 00:00:19.440 --> 00:00:22.650 Audit Committee pre-approval for the tax services that were 00:00:22.650 --> 00:00:26.820 provided to Harrish & Co. during the prior year. The Audit 00:00:26.820 --> 00:00:29.400 Committee chair, who is the committee’s delegate for pre-approval 00:00:29.400 --> 00:00:32.520 of services, pre-approved the services, but they 00:00:32.520 --> 00:00:35.400 were not then presented to the full Audit Committee at their 00:00:35.400 --> 00:00:38.910 next scheduled quarterly meeting. Let’s listen to Tiffany 00:00:38.910 --> 00:00:41.990 discuss the findings and next steps with Brody, the lead 00:00:41.990 --> 00:00:43.140 audit engagement partner. 00:00:43.140 --> 00:00:47.250 Tiffany: After our second quarter Audit Committee meeting, tax 00:00:47.250 --> 00:00:49.920 compliance services were provided to Harrish & Co. 00:00:50.190 --> 00:00:53.070 Because these services popped up after our regular quarterly 00:00:53.070 --> 00:00:56.490 meeting, we didn’t obtain full Audit Committee pre-approval for them. 00:00:56.850 --> 00:01:00.360 Brody: I remember that request. Didn’t we receive the Audit 00:01:00.360 --> 00:01:03.330 Committee’s pre-approval before the team engaged in the services? 00:01:03.479 --> 00:01:07.169 Tiffany: We received the Audit Committee chair’s pre-approval, but it 00:01:07.169 --> 00:01:10.019 looks like we didn’t present the services to the full Audit 00:01:10.019 --> 00:01:11.789 Committee at its next meeting. 00:01:11.910 --> 00:01:15.180 Brody: That’s not good. We’re required to timely report services 00:01:15.180 --> 00:01:18.630 pre-approved by the delegate to the full Audit Committee, to 00:01:18.630 --> 00:01:21.750 provide full transparency. So, we definitely should have 00:01:21.750 --> 00:01:25.950 informed them about these services already. These were tax services, right? 00:01:26.500 --> 00:01:28.480 Tiffany: Yes, tax compliance services. 00:01:28.600 --> 00:01:32.320 Brody: Oh… Then on top of the Audit Committee pre-approval issues, 00:01:32.740 --> 00:01:37.630 because this was a tax service it looks like PCAOB Rule 3524 00:01:37.630 --> 00:01:39.520 comes into play. 00:01:39.569 --> 00:01:42.299 Tiffany: We did provide appropriate information to the delegate to 00:01:42.299 --> 00:01:46.709 satisfy the Rule 3524 requirements. Isn’t that sufficient? 00:01:47.190 --> 00:01:50.100 Brody: We need to describe the services in writing to the full 00:01:50.100 --> 00:01:53.670 Audit Committee, including fee structure details. We need to 00:01:53.670 --> 00:01:55.890 discuss those services with them and then document the 00:01:55.890 --> 00:01:58.350 discussion in the audit workpapers. 00:01:58.410 --> 00:02:00.940 Tiffany: So, because we didn’t go to the full Audit Committee, 00:02:00.940 --> 00:02:02.670 Rule 3524 was violated? 00:02:02.760 --> 00:02:06.270 Brody: That’s right. Addressing all required steps with just the delegate 00:02:06.270 --> 00:02:07.140 is not enough. 00:02:07.140 --> 00:02:11.070 Tiffany: That makes sense now. But boy I can’t believe one small 00:02:11.070 --> 00:02:14.820 oversight can turn into multiple issues. What steps do we 00:02:14.820 --> 00:02:15.630 need to take now? 00:02:16.950 --> 00:02:21.630 Brody recognizes that both the SEC and PCAOB pre-approval 00:02:21.630 --> 00:02:24.990 rules were violated as the team did not present and discuss 00:02:24.990 --> 00:02:29.460 the tax services to the full Audit Committee. Let’s see what he decides to do. 00:02:29.730 --> 00:02:33.950 Brody: Okay, I have reported what happened to Independence and 00:02:33.950 --> 00:02:37.740 they informed me that we must request retroactive approval 00:02:37.770 --> 00:02:40.500 of the tax services and communicate the violations in 00:02:40.500 --> 00:02:42.330 writing to the Audit Committee. 00:02:42.720 --> 00:02:45.360 Tiffany: Ok. I’ll reach out to Independence. We’ll draft the 00:02:45.360 --> 00:02:47.550 communications in preparation for our next meeting. 00:02:48.000 --> 00:02:50.790 Brody: Thank you. Please be sure to include a request for 00:02:50.790 --> 00:02:54.570 confirmation that our objectivity, impartiality of judgement 00:02:54.570 --> 00:02:58.710 and professional skepticism were not impaired as a result of these violations. 00:02:59.010 --> 00:03:03.910 Tiffany: Will do. Is there anything else we need to do internally 00:03:03.910 --> 00:03:05.190 regarding the violations? 00:03:05.520 --> 00:03:09.240 Brody: Yes. We have to work with Independence to prepare a memo to 00:03:09.240 --> 00:03:13.020 include within the audit workpapers. It will document the 00:03:13.020 --> 00:03:15.150 substance of the discussion with the Audit Committee 00:03:15.150 --> 00:03:19.350 regarding the impact that the tax services had on the firm’s independence. 00:03:19.740 --> 00:03:22.910 Brody reported the violations to the Independence Group and 00:03:22.910 --> 00:03:25.890 took necessary action to address the Audit Committee pre-approval 00:03:25.890 --> 00:03:31.260 and PCAOB Rule 3524 violations. By raising the issue, 00:03:31.260 --> 00:03:34.920 Brody gave voice to the firm’s values and built trust 00:03:34.920 --> 00:03:37.950 with the client that we will inform them when issues arise.