After obtaining Audit Committee pre-approval,
KPMG was engaged by Indy & Co., an SEC audit
client, to provide ESG readiness services.
Midway through providing services, Indy & Co. approached
Anita, a tech assurance manager on the engagement,
requesting assistance in developing their ESG implementation
plan. Anita meets with Jasmine, the managing director on the
engagement, to discuss the request.
Anita: We submitted our draft gap analysis deliverables to
Indy & Co., including recommendations and observations for
consideration and they requested we develop our
recommendations into their implementation plan. I was going
to begin putting this together today.
Jasmine: Hmmm. Let’s check to make sure this is an approved
service included in the engagement letter, and the Sentinel
request. What’s included in our deliverable can’t go beyond that.
Anita: But isn’t developing an implementation plan a
reasonable expansion on our observations and recommendations?
Jasmine: Not necessarily. I believe the scope of the
engagement was limited to the gap analysis. Providing Indy &
Co. with an implementation plan would go beyond the approved
scope of work. Let me take a look and get back to you.
Jasmine reviews the engagement letter and confirms that an
implementation plan is not included within the approved
scope of work. After reaching out to the Sentinel Lead
Partner to discuss the client’s incremental request, Jasmine
meets with Anita again to discuss her findings.
Jasmine: Okay, so I confirmed that an implementation plan
was not included in the approved engagement letter or
Sentinel request.
Anita: Can we just amend the engagement letter and submit an
additional Sentinel request?
Jasmine: Unfortunately, not in this case. I consulted with
the Sentinel Lead Partner to see if the service would be
permissible. She reminded me of the guidance within the
Independence Guidance for ESG Services and the Non-audit
Services Independence Permissions Matrix; and noted that
designing or developing future state implementation plans
are generally prohibited under SEC independence rules.
Anita: So in addition to the implementation plan not being
in the approved scope of work, it would also be considered
impermissible under SEC independence rules?
Jasmine: That’s right. We’re also planning to perform the
ESG attestation engagement in the future. Given the SEC’s
adoption of rules to enhance and standardize climate-related
disclosures, our objectivity would be further impacted
because we would be opining over this subject matter.
Anita: Indy may be upset when we tell them we can’t proceed.
Jasmine: They’ll be disappointed, but they’ll understand.
Management and the Audit Committee expect us to adhere to
the independence rules.
Jasmine worked with Anita to avoid potential independence
violations. The team was able to explain to Indy & Co. why
proceeding with their additional request would affect the
firm’s independence- not only to their audit, but to the
planned ESG attestation engagements KPMG was set to perform.
As a result of the team acting with independence in mind,
they were able to do the right thing for the firm and the
client, being sure not to step over the lines of the initial
engagement’s scope.