WEBVTT 00:00:06.600 --> 00:00:10.230 Tom is an audit partner for Bayyen Inc., an SEC 00:00:10.230 --> 00:00:13.740 audit client. Tom was recently informed that Bayyen’s parent 00:00:13.740 --> 00:00:17.820 company, Pondson, is expected to acquire Stoen & Co. on 00:00:17.820 --> 00:00:21.240 December 1st. Stoen will become a sister affiliate of 00:00:21.270 --> 00:00:24.570 Bayyen after the transaction is completed (as both Bayyen 00:00:24.570 --> 00:00:28.350 and Stoen will be material to Pondson). Tom is working with 00:00:28.350 --> 00:00:31.770 Rosemary, an audit manager, to identify if there are any 00:00:31.800 --> 00:00:34.500 independence-impairing services that are being provided to 00:00:34.500 --> 00:00:38.340 Stoen. In completing her preliminary review, Rosemary has 00:00:38.340 --> 00:00:41.160 obtained access to the Sentinel family tree from the 00:00:41.160 --> 00:00:44.010 Sentinel Lead Partner of Stoen and has generated the 00:00:44.010 --> 00:00:47.730 Sentinel service history report. Two independence-impairing 00:00:47.760 --> 00:00:49.230 services were 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 --> 00:00:58.770 can be transitioned to another provider smoothly before then. 00:00:58.890 --> 00:01:01.110 What about the other service? We need to 00:01:01.140 --> 00:01:04.350 unwind all independence-impairing services before the 00:01:04.350 --> 00:01:07.440 closing date to avoid incurring any independence violations. 00:01:07.650 --> 00:01:10.020 It’s a payroll service that may be very disruptive 00:01:10.020 --> 00:01:13.320 and costly to the client to terminate before the acquisition closing. 00:01:13.560 --> 00:01:15.330 Well provided that certain criteria are 00:01:15.330 --> 00:01:19.140 met, we may be allowed to implement the SEC Transition 00:01:19.140 --> 00:01:21.630 Framework to transition out of the service. 00:01:22.200 --> 00:01:24.090 I’ve heard about that framework-- do you have any 00:01:24.090 --> 00:01:26.970 suggestions on how I can determine if we’ll be able to apply it? 00:01:27.290 --> 00:01:29.690 Yes, I’d recommend reviewing chapter 12 00:01:29.720 --> 00:01:32.630 in the Risk Management Manual. It outlines the 00:01:32.630 --> 00:01:36.380 transition provisions for mergers and acquisitions. After 00:01:36.380 --> 00:01:40.040 reviewing, please reach out to Independence to confirm since 00:01:40.070 --> 00:01:43.490 consultation with them is required in order to implement the framework. 00:01:43.670 --> 00:01:45.800 That sounds good. I’ll get started on this as soon 00:01:45.800 --> 00:01:46.400 as I can. 00:01:46.910 --> 00:01:49.400 Rosemary started the evaluation process 00:01:49.400 --> 00:01:53.060 right away by reviewing chapter 12 in the US Risk Management 00:01:53.060 --> 00:01:56.450 Manual. Being unfamiliar with the time and attention that 00:01:56.450 --> 00:01:59.570 may be required, she reached out to the Independence Group. 00:01:59.930 --> 00:02:02.510 Thanks for reaching out, Rosemary! The framework 00:02:02.510 --> 00:02:05.630 can be applied in limited circumstances, so we’ll have to 00:02:05.630 --> 00:02:08.660 confirm certain criteria are met. By promptly bringing this 00:02:08.660 --> 00:02:11.360 service to our attention, you’ve met the requirement to 00:02:11.360 --> 00:02:14.300 timely identify the service before the effective date. 00:02:14.600 --> 00:02:17.120 That’s good to hear! And based on our review of the 00:02:17.120 --> 00:02:19.970 services, do you think we would meet the additional conditions? 00:02:20.020 --> 00:02:23.440 Possibly, as it appears the service was permissible prior to 00:02:23.440 --> 00:02:26.620 the acquisition. For starters, have you discussed this 00:02:26.620 --> 00:02:29.320 payroll service with the team that is currently providing it? 00:02:29.440 --> 00:02:32.800 Yes, and the advisory team notified us that the payroll 00:02:32.800 --> 00:02:36.130 filing deadline is shortly after the acquisition date. That 00:02:36.130 --> 00:02:38.590 means that it would not be possible to terminate the 00:02:38.590 --> 00:02:41.290 relationship prior to the acquisition without causing 00:02:41.290 --> 00:02:43.390 significant disruption to the client. 00:02:43.960 --> 00:02:47.800 Ok, that’s a crucial component of the framework. It sounds 00:02:47.800 --> 00:02:50.620 like we can move forward. Keep in mind that if the framework 00:02:50.620 --> 00:02:53.680 can be applied, the services are expected to be promptly 00:02:53.680 --> 00:02:56.980 terminated, but no later than six months after the effective 00:02:56.980 --> 00:03:00.250 date of the acquisition. Okay, that’s understood. Your lead 00:03:00.250 --> 00:03:03.220 audit engagement partner also needs to communicate the 00:03:03.220 --> 00:03:06.190 service and the application of the framework to the client’s 00:03:06.220 --> 00:03:07.000 Audit Committee. 00:03:07.120 --> 00:03:09.310 I’ll let the partner know we need to communicate the details 00:03:09.310 --> 00:03:11.890 to the Audit Committee, in writing. Thanks for your help. 00:03:11.950 --> 00:03:15.040 By acting right away and reaching out to the Independence 00:03:15.040 --> 00:03:18.580 Group regarding transition framework requirements Rosemary 00:03:18.580 --> 00:03:21.460 was able to receive confirmation that the framework could be 00:03:21.460 --> 00:03:25.120 applied, and services could be transitioned in a way that 00:03:25.120 --> 00:03:27.220 causes minimal disruption to the client.