Kelsey, an audit managing director, works with Mark,
a recently promoted audit manager, on the Willtop, LLC SEC
audit engagement. Kelsey is meeting with Mark to discuss the
Sentinel family tree audit procedure.
Kelsey: Ensuring the accuracy of our client’s Sentinel
family tree is critical. Can you take a look at the tree and
make any needed updates?
Mark: Sure, I can do that.
Kelsey: Reviewing the Sentinel family tree helps ensure the
data is accurate. Review will need to occur more frequently
if our client has an acquisition or other transactions that
change its affiliated entities.
Mark: I see. So the tree needs to be up to date at all times?
Kelsey: Definitely. The Sentinel family tree is key to
helping us maintain independence, assuring teams are aware
upfront of possible service restrictions. If client
ownership structure changes aren’t reflected in the family
tree, we’re putting both the firm and individuals at risk
of non-compliance. It’s our responsibility to keep the tree
updated, so others can rely on it to appropriately evaluate
services and other proposed relationships.
Mark: Ok. I’ll ask the client if there were any changes
since the last quarter, and then I’ll make those updates to
the tree right away.
Kelsey: Unfortunately, just asking is not enough. We need to
perform our own comparison of the Sentinel family tree
against the full legal entity listing at least once every 12 months.
We need to make sure each entity is listed properly,
has the correct legal entity name, and we always need to
check for spelling errors.
Mark: Okay, yeah I want to make sure I do this right. So,
any pointers?
Kelsey: For smaller trees, I usually do a side-by-side
comparison of the Sentinel family tree against a PDF of the
legal entity listing from the client.
Mark: What about for larger trees?
Kelsey: Then I’ll request all their legal entities in an
Excel file. And using the Sentinel Entity Management Tool,
download the tree as an Excel file and compare.
Mark: Ok, well that seems easy enough.
Kelsey: You’ll need to check for correct placement of
the entity on the tree in Sentinel. Incorrect placement could
impact the independence review and approval, depending on the
rules that apply. If the entity is placed incorrectly--for
example, it is placed under the wrong parent entity-- the
Sentinel Lead Partner might not consider appropriate non-audit
service permissions or other system checks may not take place.
Mark: Sounds good, well I’ll inspect the entity’s placement
within the tree.
Kelsey: Also be sure to check the materiality of Willtop’s
sister entities, as materiality could impact whether an entity is
considered an affiliate or not.
Mark: Okay, will do, anything else?
Kelsey: Our client’s tree also needs to include all
affiliated persons, directors, and officers such as the CFO or
anyone who’s in a financial reporting oversight role.
Mark: What if I find that an entity or affiliated person is
missing from the tree, what actions should I take?
Kelsey: Start by checking if the entity already exists in Sentinel.
We don’t want to create any duplicates in the system.
If it’s in Sentinel, you’ll need to add that entity
to the tree. If you’re not able to find it in Sentinel,
create a new entity.
Mark: Got it. Thanks for walking me through this. To be honest,
I didn’t realize all the considerations involved in
completing this independence procedure. Your tips are really helpful.
After consulting with Kelsey and referencing the KPMG Audit
Execution Guide (KAEG), Mark completed the Sentinel family tree
audit procedure. The lead audit engagement partner reviewed
the tree within the Sentinel Entity Management Tool and
determined all affiliates and affiliated persons were
properly reflected.