WEBVTT 00:00:02.580 --> 00:00:04.961 One of the key responsibilities of the Audit 00:00:04.961 --> 00:00:08.776 Committee is to appoint and oversee the auditor and ensure 00:00:08.776 --> 00:00:12.232 they remain independent. For SEC issuer audit clients and 00:00:12.232 --> 00:00:15.747 their consolidated entities, Audit Committees are required 00:00:15.747 --> 00:00:18.845 to pre-approve all services before KPMG is engaged. 00:00:18.845 --> 00:00:22.480 Additionally, the new IESBA standards require us to obtain 00:00:22.480 --> 00:00:25.697 concurrence from the Audit Committee for proposed non-assurance 00:00:25.697 --> 00:00:29.331 services for public interest entity audit clients 00:00:29.331 --> 00:00:32.787 (which include SEC issuers), and any entities controlling or 00:00:32.787 --> 00:00:36.124 controlled by the audit client. This means services for 00:00:36.124 --> 00:00:39.758 incremental entities now require concurrence in advance from 00:00:39.758 --> 00:00:43.214 the Audit Committee – namely upstream controlling entities 00:00:43.214 --> 00:00:46.848 and downstream controlled entities that are not consolidated. 00:00:46.848 --> 00:00:50.363 IESBA requires the Audit Committee to be informed of and 00:00:50.363 --> 00:00:53.640 concur that each non-audit service does not impact the 00:00:53.640 --> 00:00:56.977 firm’s independence before KPMG is engaged. To help the 00:00:56.977 --> 00:00:59.994 Audit Committee fulfill their responsibility, we must 00:00:59.994 --> 00:01:02.969 provide them with sufficient information about the services 00:01:02.969 --> 00:01:06.570 and their potential impact on our independence. 00:01:06.570 --> 00:01:09.582 There are a number of steps that need to be taken to be in 00:01:09.582 --> 00:01:13.963 compliance with the SEC’s Audit Committee pre-approval rules, 00:01:13.963 --> 00:01:18.812 the additional requirements associated with PCAOB Rules 3524 00:01:18.812 --> 00:01:22.688 and 3525 and IESBA’s new concurrence requirements. 00:01:22.688 --> 00:01:26.565 Adhering to these rules, requires that professionals fully 00:01:26.565 --> 00:01:28.470 understand the requirements. 00:01:28.470 --> 00:01:31.968 SEC rules permit two methods of obtaining pre-approval for 00:01:31.968 --> 00:01:35.288 services provided to SEC issuer audit clients and their 00:01:35.288 --> 00:01:38.786 subsidiaries: the policies and procedures approach and the 00:01:38.786 --> 00:01:42.285 ad-hoc approach. We can identify which pre-approval method 00:01:42.285 --> 00:01:45.427 is used by checking the proxy statement or the Audit 00:01:45.427 --> 00:01:48.807 Committee Charter. We should also discuss with the Audit 00:01:48.807 --> 00:01:51.905 Committee to ensure there is a common understanding of the 00:01:51.905 --> 00:01:55.566 expected approach. IESBA provides flexibility in how 00:01:55.566 --> 00:01:58.983 communication requirements are met. Procedures for obtaining 00:01:58.983 --> 00:02:01.941 concurrence may be established under a general policy, on an 00:02:01.941 --> 00:02:05.980 individual engagement basis, or on any other agreed basis. 00:02:05.980 --> 00:02:08.909 When the Audit Committee uses the policies and procedures 00:02:08.909 --> 00:02:11.980 method of pre-approval, SEC rules require that we 00:02:11.980 --> 00:02:14.967 subsequently notify the Audit Committee on a timely basis, 00:02:14.967 --> 00:02:18.911 usually at the next scheduled meeting, when a previously pre-approved 00:02:18.911 --> 00:02:21.911 service is being provided. In addition, if a 00:02:21.911 --> 00:02:25.813 proposed service is not approved under the Audit Committee’s 00:02:25.813 --> 00:02:28.958 policies and procedures, separate ad-hoc pre-approval would 00:02:28.958 --> 00:02:31.958 need to be obtained prior to beginning the service. 00:02:31.958 --> 00:02:34.958 A similar approach under the IESBA standards would be the 00:02:34.958 --> 00:02:38.788 general policy approach, but unlike the SEC, IESBA does 00:02:38.788 --> 00:02:41.932 not require subsequent reporting of services that have been 00:02:41.932 --> 00:02:45.390 engaged pursuant to concurrence under a general policy. 00:02:45.390 --> 00:02:48.898 When employing the SEC’s ad-hoc method of pre-approval, each 00:02:48.898 --> 00:02:52.466 specific service requires approval by the Audit Committee in 00:02:52.466 --> 00:02:55.507 advance of the service being provided. 00:02:55.507 --> 00:02:58.782 If the Audit Committee allows for pre-approval by an Audit Committee 00:02:58.782 --> 00:03:02.232 member delegate, the team must then present the service to 00:03:02.232 --> 00:03:05.683 the full Audit Committee on a timely basis – usually at the 00:03:05.683 --> 00:03:09.250 next scheduled meeting. IESBA’s individual engagement basis 00:03:09.250 --> 00:03:13.017 method is similar to SEC’s ad-hoc method, where concurrence is 00:03:13.017 --> 00:03:16.268 required for each specific non-audit service in advance of 00:03:16.268 --> 00:03:19.543 the service being provided. There are various templates 00:03:19.543 --> 00:03:23.035 available on Alex to help teams comply with pre-approval methods. 00:03:23.035 --> 00:03:26.210 The slides in the Audit Committee presentation 00:03:26.210 --> 00:03:29.368 templates should be tailored to describe the relevant services, 00:03:29.368 --> 00:03:32.760 as well as considerations specific to the client. 00:03:32.760 --> 00:03:36.759 There are additional requirements in PCAOB Rules 3524 00:03:36.759 --> 00:03:40.621 and 3525 that audit engagement teams must comply with when 00:03:40.621 --> 00:03:43.983 seeking pre-approval to perform permissible tax 00:03:43.983 --> 00:03:47.921 services and non-audit services related to internal control 00:03:47.921 --> 00:03:51.827 over financial reporting for an SEC issuer audit client or 00:03:51.827 --> 00:03:54.000 its subsidiaries. 00:03:54.000 --> 00:03:59.047 To comply with part “a” of PCAOB Rules 3524 and 3525, complete 00:03:59.047 --> 00:04:02.072 written descriptions need to be provided by the audit team 00:04:02.072 --> 00:04:05.073 to the Audit Committee for all related tax and non-audit 00:04:05.073 --> 00:04:08.498 internal control related services, including fee structures 00:04:08.498 --> 00:04:12.122 when tax services are proposed. Fee arrangements should be 00:04:12.122 --> 00:04:16.008 based on a fixed fee or on actual time incurred and must be 00:04:16.008 --> 00:04:19.010 described to the Audit Committee as such. Written 00:04:19.010 --> 00:04:22.382 descriptions provided by the client’s management or other 00:04:22.382 --> 00:04:25.945 client teams, such as internal audit, would not satisfy the 00:04:25.945 --> 00:04:30.000 requirement for the audit team to provide the written description. 00:04:30.000 --> 00:04:35.077 To comply with part “b” of PCAOB Rules 3524 and 3525, we must 00:04:35.077 --> 00:04:38.182 discuss with the Audit Committee the nature and scope of 00:04:38.182 --> 00:04:42.044 services and their potential effects they may have on our 00:04:42.044 --> 00:04:45.006 independence. The sufficiency of the written descriptions 00:04:45.006 --> 00:04:48.007 that are provided play an important role when having the 00:04:48.007 --> 00:04:50.008 discussion with the Audit Committee. When written 00:04:50.008 --> 00:04:53.012 descriptions are incomplete, for example, if they do not 00:04:53.012 --> 00:04:55.968 include all components of the service or required 00:04:55.968 --> 00:04:59.446 information on the fee structures, for tax services, there’s 00:04:59.446 --> 00:05:02.924 usually a domino effect, resulting in incomplete discussions 00:05:02.924 --> 00:05:05.989 with the Audit Committee. Because these two requirements go 00:05:05.989 --> 00:05:08.989 hand in hand, extra attention and scrutiny of written 00:05:08.989 --> 00:05:10.989 descriptions is warranted. 00:05:10.989 --> 00:05:16.003 Remember, to fulfill part “c” of PCAOB Rules 3524 and 3525, 00:05:16.003 --> 00:05:19.013 we are required to document the substance of the discussion 00:05:19.013 --> 00:05:23.076 with the full Audit Committee. Be sure not to miss this step 00:05:23.076 --> 00:05:27.007 because all elements must be addressed to satisfy rule requirements. 00:05:27.007 --> 00:05:30.0333 Our audit documentation should include both 00:05:30.0333 --> 00:05:33.333 the written description provided to the Audit Committee AND 00:05:33.333 --> 00:05:35.550 the documentation of the discussion. 00:05:35.550 --> 00:05:41.081