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Leah is the audit engagement partner for Towerfield,

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an SEC audit client. Christian, a managing director

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in advisory previously provided services to Towerfield’s

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parent company, Camton Ridge, Inc. Advisory performed

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a gap assessment of Camton Ridge’s current state system,

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processes and controls against applicable regulatory

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requirements and leading practices. In response to KPMG’s

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high-level observations and recommendations from that

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engagement, the CEO of Camton Ridge asked KPMG to perform a

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similar gap assessment engagement and to design a system to

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help measure the ESG data of both Towerfield and Towerfield’s

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sister affiliate, Kensworth & Co. Christian, excited to

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win more work with the client reached out to Leah about

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possible service options. 

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Christian: So the CEO of Camton Ridge wants us to design a

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technology solution to help measure the ESG data of both

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Towerfield and Kensworth & Co., after we’ve performed the gap

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assessment services.

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Leah: hmm

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Christian: What do you think?

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Leah: Well, I know that because we can’t audit our own work,

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we aren’t able to provide financial information or risk

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management systems design and implementation services to SEC

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audit clients. 

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Christian: Oh, I didn’t know ESG systems fell into that category.

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Leah: They do. But, we may be able to provide this service to

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Towerfield’s affiliate Kensworth, if it meets the

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‘reasonable to conclude’ exception.

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Christian: I don’t understand. Why would we be able to

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provide the service to an affiliate of Towerfield, and not

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Towerfield itself?

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Leah: Well, we can only apply the reasonable to conclude

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exception to affiliates, such as sister or upstream affiliates of

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SEC audit clients where the results of our services won’t

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be subject to our audit procedures. Just remember, the

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exception can never be applied to the audit client itself, or

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its subsidiaries.

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Christian: Well, the CEO of their parent company, Camton Ridge

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requested we provide the services to both entities. If the

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exception can be applied to Kensworth, I’m sure it’s not a

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big deal if we provide the same service to Towerfield.

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Leah’s not fully clear if the reasonable to conclude

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exception can be applied in this case and determines that

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to make an informed decision around the permissibility of

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the proposed services, she needs to collect additional

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information and connect with the Independence Group. After

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receiving their guidance, she reframes the discussion with

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Christian to focus the scope of the engagement on what is

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permissible and in the best interest of both Towerfield

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and KPMG. 

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Leah: And with the right guardrails in place, there’s a lot

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we can do for SEC audit clients and their affiliates. But we

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need to be mindful of where those guardrails are.

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Christian: What do you mean?

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Leah: Financial information or risk management systems

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design and implementation services are one of the SEC’s ten

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prohibited services. We can never perform those services for

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our direct SEC audit clients - like Towerfield. But we can

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apply the reasonable to conclude exception to provide the

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services to Kensworth & Co.

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Christian: Okay- good to know, but how did you get to that decision?

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Leah: After getting clarification from Independence. It’s

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reasonable to conclude the information generated by the

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technology solution we would design for Kensworth will not

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be subject to Towerfield’s financial statement audit, so

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we can proceed with the engagement for Kensworth.

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Christian: So, if we provided the services directly to Towerfield,

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the results would be subject to your team’s audit.

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Leah: Right. If we went outside the guardrails and incurred an

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independence violation, Towerfield’s Audit Committee might

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lose trust in KPMG’s ability to maintain our independence.

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We could not only lose future advisory work, but also our

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audit work with Towerfield, if they were required to find

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another audit service provider due to independence violations.

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Christian: Wow. Okay, so I guess KPMG performing the ESG

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design and implementation services for both entities would

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be a big deal.

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Leah: Yes, it definitely would.

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Christian: So- we can still provide non-audit services to our

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audit clients, but we have the opportunity to provide more

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services to some affiliates by applying the reasonable to

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conclude exception.

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Leah: Exactly.

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Christian: Can we apply the reasonable to conclude exception

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to all the SEC’s ten prohibited services?

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Leah: No, it can only be applied to five of the ten

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prohibited services. Services that would constitute

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performing a management function or providing HR, broker-dealer,

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legal, or expert services - would always remain prohibited.

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Christian: It seems like determining if you can apply the

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reasonable to conclude exception can be complicated.   

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Leah: Yes, very, there are a lot of things to consider. Just

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make sure you always speak with the Sentinel Lead Partner so

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they can determine if the exception can be applied.

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Christian: Got it. 

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Leah: Great. And even though we can’t design the technology

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solution for Towerfield, we can still support them in

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finding a solution. 

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Christian: How so?

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Leah: Well, your team can provide vendor selection assistance

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services to Towerfield.

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Christian: So instead of designing a system to measure Towerfield’s

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ESG data ourselves, we can help them find an

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alternate vendor?

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Leah: Right. We can do the market research and present

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the pros and cons of various vendors based on Towerfield’s

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selection criteria, then provide them with information they

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can use to decide who’ll design the technology.

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Christian: Sounds like a plan. I think that once I explain

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the independence rules to Camton Ridge’s CEO, they’ll

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understand why we can perform the ESG design and

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implementation services for Kensworth - but not Towerfield.

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Leah: Agreed. They’ll appreciate that we still have the

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ability to help Towerfield, just in a different way.

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