WEBVTT

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Harrish & Co. is an SEC issuer audit client with an

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Audit Committee Charter that outlines use of the ad-hoc pre-approval method.

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Tiffany, an audit manager on the engagement

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identified that the team did not appropriately obtain

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Audit Committee pre-approval for the tax services that were

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provided to Harrish & Co. during the prior year. The Audit

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Committee chair, who is the committee’s delegate for pre-approval

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of services, pre-approved the services, but they

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were not then presented to the full Audit Committee at their

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next scheduled quarterly meeting. Let’s listen to Tiffany

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discuss the findings and next steps with Brody, the lead

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audit engagement partner. 

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Tiffany: After our second quarter Audit Committee meeting,

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tax compliance services were provided to Harrish & Co.

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Because these services popped up after our regular quarterly

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meeting, we didn’t obtain full Audit Committee pre-approval 

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for them.

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Brody: I remember that request. Didn’t we receive the Audit

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Committee’s pre-approval before the team engaged in the services?

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Tiffany: We received the Audit Committee chair’s  pre-approval,

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but it looks like we didn’t present the services to the full

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Audit Committee at its next meeting.

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Brody: That’s not good. We’re required to timely report

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services pre-approved by the delegate to the full Audit

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Committee, to provide full transparency. So, we definitely

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should have informed them about these services already.

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These were tax services, right?

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Tiffany: Yes, tax compliance services.

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Brody: Oh… Then on top of the Audit Committee pre-approval

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issues, because this was a tax service it looks like PCAOB

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Rule 3524 comes into play.

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Tiffany: We did provide appropriate information to the

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delegate to satisfy the Rule 3524 requirements. Isn’t that sufficient?

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Brody: We need to describe the services in writing to the

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full Audit Committee, including fee structure details. We

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need to discuss those services with them and then document

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the discussion in the audit workpapers.

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Tiffany: So, because we didn’t go to the full Audit

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Committee, Rule 3524 was violated? 

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Brody: That’s right. Addressing all required steps with just the

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delegate is not enough.  

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Tiffany: That makes sense now. But boy I can’t believe one

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small oversight can turn into multiple issues. What steps

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do we need to take now? 

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Brody recognizes that both the SEC and PCAOB pre-approval

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rules were violated as the team did not present and discuss

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the tax services to the full Audit Committee.

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Let’s see what he decides to do.

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Brody: Okay, I have reported what happened to Independence

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and they informed me that we must request retroactive

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approval of the tax services and communicate the violations

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in writing to the Audit Committee.

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Tiffany: Ok. I’ll work with Independence. We’ll draft

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the communications in preparation for our next meeting.

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Brody: Thank you. Please be sure to include a request for

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confirmation that our objectivity, impartiality of judgement

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and professional skepticism were not impaired as a result of

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these violations.

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Tiffany:  Will do. Is there anything else we need to

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do internally regarding the violations?

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Brody: Yes, we have to work with Independence 

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to prepare a memo to include within the

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audit workpapers.

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It will document the substance of the discussion with the

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Audit Committee regarding the impact that the tax services

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had on the firm’s independence.

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Brody reported the violations to the Independence Group and

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took necessary action to address the Audit Committee pre-approval

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and PCAOB Rule 3524 violations. By raising the issue,

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Brody gave voice to the firm’s values and built trust

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with the client that we will inform them when issues arise.

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