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Independence rules prohibit KPMG, including

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its Covered Persons, from having certain business and

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employment relationships with audit clients and their affiliates.

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We require audit engagement teams to make written inquiries

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of their SEC audit client’s directors and officers about

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certain relationships that they, their spouse or spousal

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equivalent, and their dependents may have with KPMG, to

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confirm there are no prohibited relationships with KPMG.

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Teams can either send a questionnaire directly or include

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within a questionnaire sent by the client. When including in

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the client’s questionnaire, we should be sure that the

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question includes inquiring about relationships that the

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director or officer’s spouse or spousal equivalent and

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dependents may have, as this is sometimes overlooked.

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Responses to these questionnaires should be completed by

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client directors and officers after year-end to encompass

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the entirety of the audit period. If previously undisclosed

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relationships are reported, the audit engagement partner

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must consult with the Independence Group.

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We rely on the client to provide us with accurate

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information, informing us about relationships that may

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require additional independence consideration. Equally

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important, is the responsibility of KPMG professionals to

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assess their relationships.

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Did you know, certain activities that the firm partakes in

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outside of the professional services we deliver to clients

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could be considered a business relationship when a third

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party is involved? Whether it’s hosting or sponsoring an

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event, entering into a go-to-market relationship or using

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third party software, each activity requires consideration

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before proceeding. Different activities call for different

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action to verify permissibility. Therefore, it’s crucial to

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allocate sufficient time to assess these activities before

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entering into any business relationship.

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We also need to be mindful of independence considerations

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even when we anticipate the termination of an audit

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relationship. The SEC has indicated that an audit firm

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could impair its independence under the SEC general standard

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if it were to propose on a prohibited business relationship

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or non-audit service before the end of the audit and

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professional engagement period, regardless of whether it

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would not be engaged until after the audit relationship has

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ended. An engagement team must consult with the Independence

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Group prior to proposing any impermissible business

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relationship or non-audit service before the issuance of the

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firm's final audit report.

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KPMG has dedicated groups to assist you with evaluating

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these activities. You can find guidance in the Business

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Relationships Toolkit found on the Independence portal,

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which includes templates, questionnaires and helpful

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guidance documents.

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Additionally, employment relationships must be taken into

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account for engagement teams to maintain compliance with

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independence rules.

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When a former KPMG professional joins an audit client, teams

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are required to consider whether engagement procedures need

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to be modified to address the risk that the professional’s

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prior knowledge of the audit plan could reduce

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effectiveness. If a former professional joins an audit

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client within one year of leaving the firm and has

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significant interaction with the audit team, an appropriate

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professional designated by the Business Unit Professional

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Practice Partner must review the subsequent annual audit to

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help ensure the team maintained appropriate skepticism when

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evaluating the representations and work of the former KPMG professional.

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Financial ties with the firm must also be severed prior to a

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former KPMG professional joining an audit client in an

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accounting role, financial reporting oversight role or key

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position. If the lead audit engagement partner becomes aware

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of the client’s intent to offer such a role to a former KPMG

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partner, they must consult with the Independence Group to

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determine that the former partner’s financial relationships

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are addressed. Additionally, members of the audit engagement

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team and those in chain of command for an audit client must

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serve a cooling-off period before joining an SEC issuer

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audit client in a financial reporting oversight role. The

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audit engagement partner must, also consult with the

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Independence Group if they become aware of the client’s

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intent to offer a financial reporting oversight role to a

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former member of the audit engagement team or chain of

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command within the cooling-off period. Provisions included

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in our audit engagement letter and management representation

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templates also require the audit client to inform us about

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such employment relationship situations so that they can be

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appropriately evaluated to protect our independence.

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By implementing these measures and sharing in the

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responsibility with audit clients to provide accurate

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information, the firm is able to uphold the integrity of our

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audits and promote objectivity of all engagement professionals.

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