Independence rules prohibit KPMG, including
its Covered Persons, from having certain business and
employment relationships with audit clients and their affiliates.
We require audit engagement teams to make written inquiries
of their SEC audit client’s directors and officers about
certain relationships that they, their spouse or spousal
equivalent, and their dependents may have with KPMG, to
confirm there are no prohibited relationships with KPMG.
Teams can either send a questionnaire directly or include
within a questionnaire sent by the client. When including in
the client’s questionnaire, we should be sure that the
question includes inquiring about relationships that the
director or officer’s spouse or spousal equivalent and
dependents may have, as this is sometimes overlooked.
Responses to these questionnaires should be completed by
client directors and officers after year-end to encompass
the entirety of the audit period. If previously undisclosed
relationships are reported, the audit engagement partner
must consult with the Independence Group.
We rely on the client to provide us with accurate
information, informing us about relationships that may
require additional independence consideration. Equally
important, is the responsibility of KPMG professionals to
assess their relationships.
Did you know, certain activities that the firm partakes in
outside of the professional services we deliver to clients
could be considered a business relationship when a third
party is involved? Whether it’s hosting or sponsoring an
event, entering into a go-to-market relationship or using
third party software, each activity requires consideration
before proceeding. Different activities call for different
action to verify permissibility. Therefore, it’s crucial to
allocate sufficient time to assess these activities before
entering into any business relationship.
We also need to be mindful of independence considerations
even when we anticipate the termination of an audit
relationship. The SEC has indicated that an audit firm
could impair its independence under the SEC general standard
if it were to propose on a prohibited business relationship
or non-audit service before the end of the audit and
professional engagement period, regardless of whether it
would not be engaged until after the audit relationship has
ended. An engagement team must consult with the Independence
Group prior to proposing any impermissible business
relationship or non-audit service before the issuance of the
firm's final audit report.
KPMG has dedicated groups to assist you with evaluating
these activities. You can find guidance in the Business
Relationships Toolkit found on the Independence portal,
which includes templates, questionnaires and helpful
guidance documents.
Additionally, employment relationships must be taken into
account for engagement teams to maintain compliance with
independence rules.
When a former KPMG professional joins an audit client, teams
are required to consider whether engagement procedures need
to be modified to address the risk that the professional’s
prior knowledge of the audit plan could reduce
effectiveness. If a former professional joins an audit
client within one year of leaving the firm and has
significant interaction with the audit team, an appropriate
professional designated by the Business Unit Professional
Practice Partner must review the subsequent annual audit to
help ensure the team maintained appropriate skepticism when
evaluating the representations and work of the former KPMG professional.
Financial ties with the firm must also be severed prior to a
former KPMG professional joining an audit client in an
accounting role, financial reporting oversight role or key
position. If the lead audit engagement partner becomes aware
of the client’s intent to offer such a role to a former KPMG
partner, they must consult with the Independence Group to
determine that the former partner’s financial relationships
are addressed. Additionally, members of the audit engagement
team and those in chain of command for an audit client must
serve a cooling-off period before joining an SEC issuer
audit client in a financial reporting oversight role. The
audit engagement partner must, also consult with the
Independence Group if they become aware of the client’s
intent to offer a financial reporting oversight role to a
former member of the audit engagement team or chain of
command within the cooling-off period. Provisions included
in our audit engagement letter and management representation
templates also require the audit client to inform us about
such employment relationship situations so that they can be
appropriately evaluated to protect our independence.
By implementing these measures and sharing in the
responsibility with audit clients to provide accurate
information, the firm is able to uphold the integrity of our
audits and promote objectivity of all engagement professionals.