WEBVTT 00:00:02.580 --> 00:00:04.890 One of the key responsibilities of the audit 00:00:04.890 --> 00:00:08.340 committee is to appoint and oversee the auditor and ensure 00:00:08.340 --> 00:00:12.300 they remain independent. For SEC issuer audit clients and 00:00:12.300 --> 00:00:15.510 their consolidated entities. audit committees are required 00:00:15.510 --> 00:00:18.900 to pre approve all services before KPMG is engaged. 00:00:19.980 --> 00:00:23.490 Additionally, the new ISO standards require us to obtain 00:00:23.490 --> 00:00:26.160 concurrence from the audit committee for proposed non 00:00:26.160 --> 00:00:29.610 assurance services for Public Interest entity audit clients, 00:00:29.730 --> 00:00:33.510 which include SEC issuers and any entities controlling or 00:00:33.510 --> 00:00:36.750 controlled by the audit client. This means services for 00:00:36.750 --> 00:00:39.990 incremental entities now require concurrence in advance from 00:00:39.990 --> 00:00:43.110 the audit committee, namely upstream controlling entities 00:00:43.140 --> 00:00:46.260 and downstream controlled entities that are not consolidated 00:00:46.830 --> 00:00:50.100 I S bar requires the audit committee to be informed of and 00:00:50.100 --> 00:00:53.190 concur that each non audit service does not impact the 00:00:53.190 --> 00:00:57.150 firm's independence before KPMG is engaged. To help the 00:00:57.150 --> 00:00:59.910 audit committee fulfill their responsibility, we must 00:00:59.910 --> 00:01:02.610 provide them with sufficient information about the services 00:01:02.760 --> 00:01:06.990 and their potential impact on our independence. There are a 00:01:06.990 --> 00:01:09.720 number of steps that need to be taken to be in compliance 00:01:09.720 --> 00:01:12.930 with the SEC audit committee pre approval rules, the 00:01:12.930 --> 00:01:18.180 additional requirements associated with PCAOB rules 3524 and 00:01:18.180 --> 00:01:23.640 3525 and I EZPass new concurrence requirements. And hearing 00:01:23.640 --> 00:01:26.850 to these rules requires that professionals fully understand 00:01:26.850 --> 00:01:30.930 the requirements. SEC rules permit two methods of obtaining 00:01:30.930 --> 00:01:34.410 pre approval for services provided to sec issuer audit 00:01:34.410 --> 00:01:37.950 clients and their subsidiaries. The policies and procedures 00:01:37.950 --> 00:01:41.730 approach and the ad hoc approach, we can identify which pre 00:01:41.730 --> 00:01:44.580 approval method is used by checking the proxy statement or 00:01:44.580 --> 00:01:47.580 the Audit Committee Charter. We should also discuss with the 00:01:47.580 --> 00:01:50.580 audit committee to ensure there is a common understanding of 00:01:50.580 --> 00:01:55.050 the expected approach. I ESPA provides flexibility and how 00:01:55.050 --> 00:01:58.620 communication requirements are met. procedures for obtaining 00:01:58.620 --> 00:02:02.130 concurrence may be established under a general policy on an 00:02:02.130 --> 00:02:05.910 individual engagement basis, or on any other agreed basis. 00:02:06.180 --> 00:02:08.940 When the audit committee uses the policies and procedures 00:02:08.940 --> 00:02:12.120 method of pre approval. SEC rules require that we 00:02:12.120 --> 00:02:15.420 subsequently notify the audit committee on a timely basis, 00:02:15.570 --> 00:02:18.660 usually at the next scheduled meeting when a previously pre 00:02:18.660 --> 00:02:21.990 approved service is being provided. In addition, if a 00:02:21.990 --> 00:02:24.840 proposed service is not approved under the Audit Committee's 00:02:24.840 --> 00:02:28.560 policies and procedures, separate ad hoc pre approval would 00:02:28.560 --> 00:02:31.590 need to be obtained prior to beginning the service. A 00:02:31.590 --> 00:02:34.590 similar approach under the ISO standards would be the 00:02:34.590 --> 00:02:38.700 general policy approach. But unlike the SEC, I as ba does 00:02:38.700 --> 00:02:41.580 not require subsequent reporting of services that have been 00:02:41.580 --> 00:02:45.630 engaged pursuant to concurrence under a general policy. When 00:02:45.630 --> 00:02:49.260 employing the SCCs ad hoc method of pre approval, each 00:02:49.260 --> 00:02:52.710 specific service requires approval by the audit committee in 00:02:52.710 --> 00:02:56.370 advance of the service being provided. If the audit 00:02:56.370 --> 00:02:59.130 committee allows for pre approval by an audit committee 00:02:59.130 --> 00:03:02.190 member delegate, the team must then present the service to 00:03:02.190 --> 00:03:05.610 the full audit committee on a timely basis, usually at the 00:03:05.610 --> 00:03:09.360 next scheduled meeting. I EZPass individual engagement basis 00:03:09.360 --> 00:03:13.470 method is similar to SCCs ad hoc method where concurrence is 00:03:13.470 --> 00:03:16.950 required for each specific non audit service in advance of 00:03:16.950 --> 00:03:19.860 the service being provided. There are various templates 00:03:19.860 --> 00:03:23.160 available on ALEKS to help teams comply with pre approval 00:03:23.160 --> 00:03:26.310 methods. The slides in the audit committee presentation 00:03:26.310 --> 00:03:28.800 templates should be tailored to describe the relevant 00:03:28.800 --> 00:03:32.280 services as well as considerations specific to the client. 00:03:32.760 --> 00:03:37.350 There are additional requirements in PCAOB rules 3524 and 00:03:37.350 --> 00:03:41.550 3525. That audit engagement teams must comply with when 00:03:41.550 --> 00:03:44.970 seeking pre approval to perform permissible tax services and 00:03:44.970 --> 00:03:48.120 non audit services related to internal control over 00:03:48.120 --> 00:03:51.810 financial reporting for an SEC issue or audit client or its 00:03:51.810 --> 00:03:58.110 subsidiaries. To comply with part A of PCAOB rules 3524 and 00:03:58.110 --> 00:04:02.160 3525. Complete written descriptions need to be provided by 00:04:02.160 --> 00:04:05.430 the audit team to the audit committee for all related tax 00:04:05.430 --> 00:04:08.790 and non audit internal control related services including 00:04:08.790 --> 00:04:11.940 fee structures when tax services are proposed. fee 00:04:11.940 --> 00:04:15.060 arrangements should be based on a fixed fee or on actual 00:04:15.060 --> 00:04:17.880 time incurred and must be described to the audit committee 00:04:17.880 --> 00:04:21.180 as such. written descriptions provided by the clients 00:04:21.180 --> 00:04:24.450 management or other client teams such as internal audit 00:04:24.570 --> 00:04:27.240 would not satisfy the requirement for the audit team to 00:04:27.240 --> 00:04:31.290 provide the written description. To comply with Part B of 00:04:31.290 --> 00:04:37.080 PCAOB rules 3524 and 3525. We must discuss with the audit 00:04:37.080 --> 00:04:39.990 committee the nature and scope of services and their 00:04:39.990 --> 00:04:43.830 potential effects they may have on our independence. The 00:04:43.830 --> 00:04:46.350 sufficiency of the written descriptions that are provided 00:04:46.350 --> 00:04:49.020 play an important role when having the discussion with the 00:04:49.020 --> 00:04:52.020 audit committee. When written descriptions are incomplete. 00:04:52.050 --> 00:04:54.960 For example, if they do not include all components of the 00:04:54.960 --> 00:04:58.320 service, or required information on the fee structures for 00:04:58.320 --> 00:05:01.830 tax services, there's usually a domino effect resulting in 00:05:01.830 --> 00:05:04.590 incomplete discussions with the audit committee. Because 00:05:04.590 --> 00:05:08.070 these two requirements go hand in hand, extra attention and 00:05:08.070 --> 00:05:11.880 scrutiny of written descriptions is warranted. Remember to 00:05:11.880 --> 00:05:17.790 fulfill Part C of PCAOB, rules 3524 and 3525. We are 00:05:17.790 --> 00:05:20.490 required to document the substance of the discussion with 00:05:20.490 --> 00:05:23.700 the full audit committee. Be sure not to miss this step 00:05:23.700 --> 00:05:26.610 because all elements must be addressed to satisfy rule 00:05:26.610 --> 00:05:30.960 requirements. Our audit documentation should include both 00:05:30.960 --> 00:05:33.810 the written description provided to the audit committee and 00:05:33.810 --> 00:05:35.550 the documentation of the discussion