Leah is the new audit engagement partner for Estatewood,
an AICPA audit client, also referred to as a private
audit client. Christopher, a tax managing director
previously provided permissible tax consulting services to
Estatewood. In connection with that tax engagement, Estatewood
had access to the International Tax Reform Analyzer
tool, a KPMG-hosted tool also known as ITRA. Estatewood
liked the tool and has requested to continue using it
on their own to help them with the preparation of their tax
returns, which they complete in-house. Christopher, eager to
meet the client’s request, reached out to Leah about allowing
continued use of the tool.
Christopher: So, Estatewood’s really interested in continuing to use the
ITRA tool. They said it will help them with meeting their
global tax compliance requirements.
Leah: Are we currently performing tax compliance services for Estatewood?
Christopher: Estatewood has an in-house tax team who prepares the
returns, but does that even matter?
Leah: Yes, because they’re an audit client, we need to be mindful
of relevant independence rules. I think that we can only
provide Estatewood access to the tool if we’re providing a
service that’s directly related to their use of the tool.
Leah wants to do the right thing; she reaches out to the
Independence Group so that she can be knowledgeable and
prepared to continue her conversation with Christopher. Leah
understands that we need to be mindful of the AICPA hosting
restrictions when providing client access to a hosted tool.
After receiving guidance from the Independence Group, Leah
decides to reconnect with Christopher to discuss what could
be permissible and in the best interest of the team, the
firm and Estatewood.
Leah: And, with the right safeguards in place, there’s a lot we can
do for private audit clients like Estatewood. But we need
to be mindful of where the guardrails are, and whether or not
we’re providing a substantive service that’s directly
associated with Estatewood’s use of KPMG’s ITRA tool.
That’s what defines if its use would be permissible.
Christopher: Really?
Leah: Yeah, there are a lot of things to consider. Providing
on-going access to KPMG’s ITRA tool for the client to
independently prepare its tax returns, or any other purpose,
would be considered prohibited hosting of client data which
is an impermissible management function under the AICPA
Code. If that occurred, it would be an independence violation,
and the Audit Committee might lose trust in KPMG’s ability to
maintain our independence.
Christopher: Wow.
Leah: We could not only lose future tax work but also our audit
work with Estatewood if they were required to find a
different audit service provider due to independence violations.
Christopher: So, I guess it would be a big deal!
Leah: It definitely would.
Christopher: I’m just concerned Estatewood will be upset if we tell
them they can’t continue to use the tool.
Leah: They may be disappointed, but they understand that we need
to be independent. We can propose providing them with tax
compliance services, which could include access to the ITRA tool.
Christopher: Yeah, that’s a good idea. I guess I was so focused on
providing access to the tool, I didn’t think about the
services we could provide in response to their request.
Leah: If Estatewood’s in line with us providing an associated
service along with access to the tool, just be aware that
during the engagement, you must always act based on the
decisions of Estatewood management, and not our determinations.
Christopher: So, they will have to assume all management responsibilities, correct?
Leah: Right. They must make all management decisions, reviews, and
approvals. They’ll also need to designate an individual to
oversee the service, evaluate the adequacy of the service
results and accept responsibility for the results.
Christopher: Okay, that’s good to know.
Leah: One more thing your team needs to keep in mind. If you do end
up utilizing the ITRA tool while performing the tax
compliance services, the audit team cannot use the ITRA
tool to assist with the audit procedures performed over the
same amounts or calculations.
Christopher: That makes sense. If the client uses the tool for a tax service,
audit cannot.
Leah: Right. If Estatewood wants to proceed, we’ll need to loop in
their management and Those Charged with Governance to be
sure they understand the independence risks. After that,
please document the threats and safeguards when you submit
your Sentinel request.
Christopher: Will do, I feel good about proposing this solution to Estatewood.
Since there are some complex rules that we need to comply
with, can we work together and do a run through of what I’m
going to cover when I meet with them?
Leah: Of course.
After running through talking points with Leah, Christopher
met with Estatewood to propose providing access to the
ITRA tool as part of tax compliance services that will be
provided to the client. Estatewood was pleased with
Christopher’s solution, they agreed to the scope of the
engagement and wanted to proceed as soon as possible.
Christopher submitted the Sentinel request and was able to
execute the engagement letter and proceed with the
engagement once the Sentinel Approval Number was issued.