WEBVTT 00:00:05.580 --> 00:00:08.310 Leah is the new audit engagement partner for Estatewood, 00:00:08.310 --> 00:00:12.480 an AICPA audit client, also referred to as a private 00:00:12.480 --> 00:00:15.840 audit client. Christopher, a tax managing director 00:00:15.840 --> 00:00:19.200 previously provided permissible tax consulting services to 00:00:19.200 --> 00:00:22.770 Estatewood. In connection with that tax engagement, Estatewood 00:00:22.770 --> 00:00:25.950 had access to the International Tax Reform Analyzer 00:00:25.950 --> 00:00:30.990 tool, a KPMG-hosted tool also known as ITRA. Estatewood 00:00:30.990 --> 00:00:34.080 liked the tool and has requested to continue using it 00:00:34.080 --> 00:00:36.900 on their own to help them with the preparation of their tax 00:00:36.900 --> 00:00:40.710 returns, which they complete in-house. Christopher, eager to 00:00:40.710 --> 00:00:43.830 meet the client’s request, reached out to Leah about allowing 00:00:43.830 --> 00:00:45.330 continued use of the tool. 00:00:45.330 --> 00:00:48.780 Christopher: So, Estatewood’s really interested in continuing to use the 00:00:48.780 --> 00:00:51.450 ITRA tool. They said it will help them with meeting their 00:00:51.450 --> 00:00:54.210 global tax compliance requirements. 00:00:54.210 --> 00:00:57.540 Leah: Are we currently performing tax compliance services for Estatewood? 00:00:57.540 --> 00:00:59.910 Christopher: Estatewood has an in-house tax team who prepares the 00:00:59.910 --> 00:01:01.960 returns, but does that even matter? 00:01:01.960 --> 00:01:05.380 Leah: Yes, because they’re an audit client, we need to be mindful 00:01:05.380 --> 00:01:08.440 of relevant independence rules. I think that we can only 00:01:08.440 --> 00:01:11.170 provide Estatewood access to the tool if we’re providing a 00:01:11.170 --> 00:01:14.560 service that’s directly related to their use of the tool. 00:01:14.560 --> 00:01:17.590 Leah wants to do the right thing; she reaches out to the 00:01:17.590 --> 00:01:20.290 Independence Group so that she can be knowledgeable and 00:01:20.290 --> 00:01:23.620 prepared to continue her conversation with Christopher. Leah 00:01:23.620 --> 00:01:27.100 understands that we need to be mindful of the AICPA hosting 00:01:27.100 --> 00:01:30.790 restrictions when providing client access to a hosted tool. 00:01:30.790 --> 00:01:33.880 After receiving guidance from the Independence Group, Leah 00:01:33.880 --> 00:01:37.000 decides to reconnect with Christopher to discuss what could 00:01:37.000 --> 00:01:40.150 be permissible and in the best interest of the team, the 00:01:40.150 --> 00:01:42.430 firm and Estatewood. 00:01:42.430 --> 00:01:45.610 Leah: And, with the right safeguards in place, there’s a lot we can 00:01:45.610 --> 00:01:48.700 do for private audit clients like Estatewood. But we need 00:01:48.700 --> 00:01:51.700 to be mindful of where the guardrails are, and whether or not 00:01:51.700 --> 00:01:54.190 we’re providing a substantive service that’s directly 00:01:54.190 --> 00:01:58.420 associated with Estatewood’s use of KPMG’s ITRA tool. 00:01:58.420 --> 00:02:00.880 That’s what defines if its use would be permissible. 00:02:00.880 --> 00:02:01.750 Christopher: Really? 00:02:01.750 --> 00:02:04.990 Leah: Yeah, there are a lot of things to consider. Providing 00:02:04.990 --> 00:02:08.800 on-going access to KPMG’s ITRA tool for the client to 00:02:08.800 --> 00:02:12.490 independently prepare its tax returns, or any other purpose, 00:02:12.490 --> 00:02:16.090 would be considered prohibited hosting of client data which 00:02:16.090 --> 00:02:19.420 is an impermissible management function under the AICPA 00:02:19.420 --> 00:02:23.200 Code. If that occurred, it would be an independence violation, 00:02:23.200 --> 00:02:27.160 and the Audit Committee might lose trust in KPMG’s ability to 00:02:27.160 --> 00:02:28.420 maintain our independence. 00:02:28.420 --> 00:02:29.590 Christopher: Wow. 00:02:29.590 --> 00:02:33.070 Leah: We could not only lose future tax work but also our audit 00:02:33.070 --> 00:02:35.560 work with Estatewood if they were required to find a 00:02:35.560 --> 00:02:39.070 different audit service provider due to independence violations. 00:02:39.070 --> 00:02:41.350 Christopher: So, I guess it would be a big deal! 00:02:41.350 --> 00:02:43.210 Leah: It definitely would. 00:02:43.210 --> 00:02:46.210 Christopher: I’m just concerned Estatewood will be upset if we tell 00:02:46.210 --> 00:02:48.510 them they can’t continue to use the tool. 00:02:48.510 --> 00:02:52.001 Leah: They may be disappointed, but they understand that we need 00:02:52.001 --> 00:02:55.434 to be independent. We can propose providing them with tax 00:02:55.434 --> 00:02:59.400 compliance services, which could include access to the ITRA tool. 00:02:59.400 --> 00:03:02.274 Christopher: Yeah, that’s a good idea. I guess I was so focused on 00:03:02.274 --> 00:03:05.202 providing access to the tool, I didn’t think about the 00:03:05.202 --> 00:03:08.130 services we could provide in response to their request. 00:03:08.130 --> 00:03:11.049 Leah: If Estatewood’s in line with us providing an associated 00:03:11.049 --> 00:03:14.127 service along with access to the tool, just be aware that 00:03:14.127 --> 00:03:17.100 during the engagement, you must always act based on the 00:03:17.100 --> 00:03:20.550 decisions of Estatewood management, and not our determinations. 00:03:20.550 --> 00:03:24.570 Christopher: So, they will have to assume all management responsibilities, correct? 00:03:24.570 --> 00:03:27.941 Leah: Right. They must make all management decisions, reviews, and 00:03:27.941 --> 00:03:31.255 approvals. They’ll also need to designate an individual to 00:03:31.255 --> 00:03:34.514 oversee the service, evaluate the adequacy of the service 00:03:34.514 --> 00:03:37.380 results and accept responsibility for the results. 00:03:37.380 --> 00:03:39.300 Christopher: Okay, that’s good to know. 00:03:39.300 --> 00:03:42.790 Leah: One more thing your team needs to keep in mind. If you do end 00:03:42.790 --> 00:03:45.880 up utilizing the ITRA tool while performing the tax 00:03:45.880 --> 00:03:49.141 compliance services, the audit team cannot use the ITRA 00:03:49.141 --> 00:03:52.575 tool to assist with the audit procedures performed over the 00:03:52.575 --> 00:03:54.120 same amounts or calculations. 00:03:54.120 --> 00:03:57.805 Christopher: That makes sense. If the client uses the tool for a tax service, 00:03:57.805 --> 00:03:58.530 audit cannot. 00:03:58.530 --> 00:04:01.554 Leah: Right. If Estatewood wants to proceed, we’ll need to loop in 00:04:01.554 --> 00:04:04.379 their management and Those Charged with Governance to be 00:04:04.379 --> 00:04:07.205 sure they understand the independence risks. After that, 00:04:07.205 --> 00:04:10.180 please document the threats and safeguards when you submit 00:04:10.180 --> 00:04:11.370 your Sentinel request. 00:04:11.370 --> 00:04:14.577 Christopher: Will do, I feel good about proposing this solution to Estatewood. 00:04:14.577 --> 00:04:17.730 Since there are some complex rules that we need to comply 00:04:17.730 --> 00:04:20.992 with, can we work together and do a run through of what I’m 00:04:20.992 --> 00:04:22.950 going to cover when I meet with them? 00:04:22.950 --> 00:04:24.570 Leah: Of course. 00:04:24.570 --> 00:04:27.670 After running through talking points with Leah, Christopher 00:04:27.670 --> 00:04:30.771 met with Estatewood to propose providing access to the 00:04:30.771 --> 00:04:33.872 ITRA tool as part of tax compliance services that will be 00:04:33.872 --> 00:04:36.813 provided to the client. Estatewood was pleased with 00:04:36.813 --> 00:04:39.807 Christopher’s solution, they agreed to the scope of the 00:04:39.807 --> 00:04:42.694 engagement and wanted to proceed as soon as possible. 00:04:42.694 --> 00:04:45.849 Christopher submitted the Sentinel request and was able to 00:04:45.849 --> 00:04:48.575 execute the engagement letter and proceed with the 00:04:48.575 --> 00:04:51.570 engagement once the Sentinel Approval Number was issued.