WEBVTT 00:00:06.600 --> 00:00:09.630 Tom is an audit partner for bae and incorporated an 00:00:09.630 --> 00:00:13.380 SEC audit client. Tom was recently informed that Bae ins 00:00:13.380 --> 00:00:17.820 parent company ponson is expected to acquire stone and CO on 00:00:17.820 --> 00:00:21.690 December 1, stone will become a sister affiliate of Bayon. 00:00:21.690 --> 00:00:25.260 After the transaction is completed, as both ban and stone 00:00:25.260 --> 00:00:29.280 will be material to ponson, Tom is working with rosemary, an 00:00:29.280 --> 00:00:32.370 audit manager to identify if there are any independence 00:00:32.370 --> 00:00:35.490 impairing services that are being provided to stone and 00:00:35.490 --> 00:00:38.790 completing her preliminary review. Rosemary has obtained 00:00:38.790 --> 00:00:41.880 access to the Sentinel family tree from the Sentinel lead 00:00:41.880 --> 00:00:44.910 partner of stone and has generated the Sentinel service 00:00:44.910 --> 00:00:48.450 history report to independence and pairing services were 00:00:48.450 --> 00:00:49.230 identified. 00:00:49.500 --> 00:00:52.590 It seems that both services will become impermissible after 00:00:52.590 --> 00:00:55.680 the effective date of the acquisition. One of the services 00:00:55.680 --> 00:00:58.440 can be transitioned to another provider smoothly before 00:00:58.440 --> 00:00:58.770 then, 00:00:58.890 --> 00:01:02.190 what about the other service? We need to unwind all 00:01:02.190 --> 00:01:05.010 independence impairing services before the closing date to 00:01:05.010 --> 00:01:07.440 avoid incurring any independence violations? 00:01:07.590 --> 00:01:10.200 It's a payroll service that may be very disruptive and 00:01:10.200 --> 00:01:12.690 costly to the client to terminate before the acquisition 00:01:12.690 --> 00:01:13.320 closing. 00:01:13.560 --> 00:01:16.740 Well, provided that certain criteria are met, we may be 00:01:16.770 --> 00:01:20.040 allowed to implement the SEC transition framework to 00:01:20.040 --> 00:01:21.630 transition out of the service. 00:01:22.140 --> 00:01:24.870 I've heard about that framework. Do you have any suggestions 00:01:24.870 --> 00:01:27.030 on how I can determine if we'll be able to apply it? 00:01:27.300 --> 00:01:30.150 Yes, I'd recommend reviewing chapter 12. In the risk 00:01:30.150 --> 00:01:33.930 management manual. It outlines the transition provisions for 00:01:33.930 --> 00:01:37.590 mergers and acquisitions. And then after reviewing, please 00:01:37.590 --> 00:01:40.890 reach out to independents to confirm since consultation with 00:01:40.890 --> 00:01:43.500 them as required in order to implement the framework. 00:01:43.680 --> 00:01:46.380 That sounds good. I'll get started on this as soon as I can. 00:01:46.890 --> 00:01:50.220 Rosemary started the evaluation process right away by 00:01:50.220 --> 00:01:53.610 reviewing chapter 12. In the US risk management manual, 00:01:54.000 --> 00:01:56.790 being unfamiliar with the time and attention that may be 00:01:56.790 --> 00:01:59.550 required, she reached out to the independence group. 00:01:59.910 --> 00:02:02.760 Thanks for reaching out rosemary, the framework can be 00:02:02.760 --> 00:02:06.060 applied in limited circumstances. So we'll have to confirm 00:02:06.060 --> 00:02:09.150 certain criteria are met by properly bringing the service to 00:02:09.150 --> 00:02:12.330 our attention. You've met the requirement to timely identify 00:02:12.330 --> 00:02:14.310 the service before the effective date. 00:02:14.340 --> 00:02:17.100 That's good to hear. And based on our review of the 00:02:17.100 --> 00:02:19.200 services, do you think we would meet the additional 00:02:19.200 --> 00:02:19.980 conditions? 00:02:20.010 --> 00:02:23.310 Possibly, as it appears that service was permissible prior 00:02:23.310 --> 00:02:26.610 to the acquisition? For starters, have you discussed this 00:02:26.610 --> 00:02:29.160 payroll service with the team that is currently providing 00:02:29.160 --> 00:02:29.340 it? 00:02:29.430 --> 00:02:32.790 Yes. And the advisory team notified us that the payroll 00:02:32.790 --> 00:02:36.120 filing deadline is shortly after the acquisition date. That 00:02:36.120 --> 00:02:38.610 means that it would not be possible to terminate the 00:02:38.610 --> 00:02:41.280 relationship prior to the acquisition without causing 00:02:41.280 --> 00:02:43.380 significant disruption to the client. 00:02:43.920 --> 00:02:47.400 Okay, that's a crucial component of the framework. Yeah, it 00:02:47.400 --> 00:02:50.190 sounds like we can move forward. Keep in mind that if the 00:02:50.190 --> 00:02:53.250 framework can be applied, the services are expected to be 00:02:53.250 --> 00:02:56.550 promptly terminated, but no later than six months after the 00:02:56.550 --> 00:02:59.550 effective date of the acquisition. Okay, that's understood. 00:02:59.670 --> 00:03:03.150 Your lead audit engagement partner also needs to communicate 00:03:03.150 --> 00:03:05.730 the service and the application of the framework to the 00:03:05.730 --> 00:03:06.990 clients audit committee. 00:03:07.080 --> 00:03:09.330 I'll let the partner know we need to communicate the details 00:03:09.330 --> 00:03:11.880 to the audit committee in writing. Thanks for your help. 00:03:11.970 --> 00:03:15.030 By acting right away and reaching out to the independence 00:03:15.030 --> 00:03:18.570 group regarding transition framework requirements. Rosemary 00:03:18.570 --> 00:03:21.450 was able to receive confirmation that the framework could be 00:03:21.450 --> 00:03:25.140 applied and services could be transitioned in a way that 00:03:25.140 --> 00:03:27.210 causes minimal disruption to the client.