Shannon, the audit engagement partner for Brancorp,
an SEC audit client just received a Sentinel Request
proposing tax return preparation services to WhitonRidge, an
upstream affiliate of Brancorp. She works with Katelyn, an
audit manager on the Brancorp engagement team to talk through
what’s required prior to approving the Sentinel Request.
Katelyn: I reviewed the Sentinel Request and the draft
engagement letter for WhitonRidge. The request is for tax
return preparation services and only includes permissible
services, so I think we can go ahead and approve the
Sentinel Request for the proposed services for this
affiliate of our SEC audit client.
Shannon: That’s good news. But have we thought about whether
we need to get Audit Committee concurrence for this service?
I looked at our Sentinel Family Tree and WhitonRidge is an
upstream affiliate that ultimately controls Brancorp.
Katelyn: What do you mean? I thought we only needed to get
Audit Committee pre-approval for services for consolidated
downstream entities.
Shannon: Well, that’s true under SEC and PCAOB pre-approval
rules, but we also need to consider the new IESBA
communication and concurrence requirements.
Katelyn: I’m still getting up to speed with the new IESBA
rules. Can you help me understand how they’re relevant here?
Shannon: IESBA has issued revisions to their rules around the
provision of non-audit services to audit clients, which
now requires concurrence for non-audit services proposed for
entities that control our audit client, and for entities
that are controlled by our audit client, even if they aren’t consolidated.
Katelyn: But Brancorp isn’t even responsible for engaging
us to perform this work. Why would Brancorp’s Audit
Committee need to pre-approve this service for WhitonRidge?
Shannon: While Brancorp might not be responsible for
engaging KPMG, they are responsible for evaluating and
concurring with our conclusion that the service will not
create an unacceptable threat to our independence in
relation to our audit of Brancorp.
Katelyn: Okay. Now I see how the new IESBA rules expand
beyond what’s required by SEC and PCAOB pre-approval rules.
Sounds like we need to get concurrence prior to approving
the Sentinel Request. Is the process around obtaining
concurrence different than what’s required under SEC and
PCAOB pre-approval rules?
Shannon: The IESBA rules provide flexibility in the methods
that can be used to meet these requirements. One approach
would be to have Brancorp’s Audit Committee adopt a
“general policy” approach.
Katelyn: Would that be similar to the SEC’s policies and
procedures approach?
Shannon: Yes, this method identifies categories of services
that the Audit Committee concurs would be permissible under
independence rules.
Katelyn: And if Brancorp’s Audit Committee is agreeable,
we can obtain concurrence for tax compliance services that
can be provided to any controlling entity?
Shannon: That’s right. Then further concurrence wouldn’t be
required with respect to individual tax compliance services
that we’re engaged to perform during the year.
Katelyn: Well, what happens if a service comes up that isn’t
in one of those categories?
Shannon: Then we would need to present the services to Brancorp’s
Audit Committee and obtain concurrence, similar to SEC’s
ad-hoc approach. This is the approach we would need to
take regarding the services we’re proposing for WhitonRidge.
Katelyn: That makes sense. I’ll pull together a slide to
request concurrence for these tax compliance services from
Brancorp’s Audit Committee for you to review. What type of
information should I include?
Shannon: Be sure to use the Audit Committee presentation
templates available on Alex to help with preparing the
required communications.
Katelyn: Sounds great. I’ll do that.