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Contents
PART 1
INTRODUCTION
1.1
1.2
1.3
Introduction to Policy
PART 2
2.1
2.2
2.3
2.4
2.5
2.6
2.7
2.8
Are there any restrictions if I was formerly employed by an audit client or I was a member of the
clients board of directors?
2.9
2.10
2.11
Are there any restrictions on family members being employed at my audit client?
2.12
PART 3
PART 4
4.1
4.2
4.3
4.4
PRI
4.5
4.6
PART 1
1.1
INTRODUCTION
As auditors of financial statements and providers of other types of professional services, PwC firms and
their partners and staff are expected to comply with the fundamental principles of objectivity, integrity
and professional behaviour, including, where required, independence. The fundamental principle of
objectivity imposes an obligation on each PwC firms partners and staff not to compromise their
professional judgment because of bias, conflict of interest or undue influence of others.
It is in the public interest that PwC firms and their partners and staff are independent of clients in respect
of which they provide assurance opinions. Being independent, and being seen to be independent,
underpins objectivity in the case of assurance opinions on which third parties rely. Independence
comprises:
(a) Independence of Mind
The state of mind that permits the expression of a conclusion without being affected by influences
that compromise professional judgement, thereby allowing an individual to act with integrity and
exercise objectivity and professional scepticism.
(b) Independence in Appearance
The avoidance of facts and circumstances that are so significant that a reasonable and informed
third party would be likely to conclude, weighing all the specific facts and circumstances, that a
firms, or a member of the audit engagement teams, integrity, objectivity or professional scepticism
has been compromised.
Audit and other assurance independence standards and regulations are established by the
professions standard-setting bodies and by the regulators of the markets in which PwC firms operate.
Disregard of the regulations, or even inadvertent failure to comply with them, exposes PwC firms to
legal and regulatory action and loss of public trust in their work.
The purpose of this guide is to provide an introduction to independence requirements and an overview
of certain aspects of the PwC Global Independence Policy (the Policy or GIP) and the United States
Securities and Exchange Commission (SEC) rules as they may apply to you and your immediate
family members (and in some cases other close family).
This guide is intentionally concise, does not cover all the requirements or circumstances, and
you should refer to the detailed Policy and any local regulations for further information. The
independence requirements are complex and you should seek advice if in any doubt.
The Policy contains the minimum independence standards for all PwC firms. It is based on the
International Ethics Standards Board for Accountants (IESBA) Code of Ethics which serves as a
minimum standard for member bodies of the International Federation of Accountants (IFAC) and
firms.
The Policy addresses interests and relationships of partners and practice staff, PwC firms and the
provision of services.
To meet business needs and any local regulatory or professional requirements, PwC firms may impose
additional independence requirements and processes on their partners and staff that are more
restrictive than GIP. You will need to be aware of and comply with any such additional local
requirements and any policies issued by other PwC firms that have a cross-border effect relevant to
work you are doing for clients. As appropriate, these will be available in the Independence Portal; such
territory policies can be accessed by selecting the relevant region and going to the Policy section.
1.2
Independence regulations and ethical requirements are based on the principle that interests and
relationships that a firm providing an assurance opinion, or its partners and staff, have with an audit
client (and in some cases their related entities) may create one or more of the following threats to
independence when performing assurance services:
a.
Self-Interest Threat, the threat that a financial or other interest will inappropriately influence an
individuals judgement or behaviour. For example, your objectivity may be, or may be perceived
to be, impaired if you had an investment in the client entity, the value of which would be affected
by the outcome of the audit engagement and report.
b.
Self-Review Threat, the threat that the results of a previous judgement or service performed by a
PwC firm and its personnel will not be appropriately evaluated when forming a judgement as part
of providing a current assurance service. For example, your objectivity in forming a view on the
carrying value of an asset may be, or may be seen to be, impaired if you or a partner or employee
of your firm had assisted the client in valuing the asset for financial reporting purposes.
c.
Advocacy Threat, the threat that a PwC firm or its personnel will promote a clients position or
opinion to the point that subsequent objectivity is compromised. For example, your objectivity in
forming a view on the carrying value of a potential liability may be, or may be seen to be,
compromised if you or another member of the firm were assisting the client in the related litigation
against a third party, or in advocating a clients position publicly you may be seen as too closely
associated with managements interests.
d.
Familiarity Threat, the threat that due to a long or close relationship with a client, a PwC firm or
its personnel will be too sympathetic to their interests or too accepting of their work. For example,
your objectivity may be compromised in forming a view on the truth and fairness of a clients
financial statements if your brother were the Finance Director or you developed too close a
personal relationship with a member of client management.
e.
Intimidation Threat, the threat that a PwC firm or its personnel will be deterred from acting
objectively because of actual or perceived pressures, including attempts to exercise undue
influence over the firm or individual. For example, you may be deterred from giving an objective
audit report if you or the firm were overly reliant on the client in terms of fees and there was a
threat from management that the firm would be asked to resign if the opinion was unfavourable.
Such a threat could also arise if you were subject to the demands of an over-domineering or
powerful client officer or director.
There is also a principle that the audit firm and its personnel must not do anything that is a
management responsibility for an audit client, or in the case of SEC restricted entities, perform a
management function.
The Policy establishes requirements which either eliminate any such threats (e.g. by avoiding the
circumstances giving rise to the threat) or reduce any threats to an acceptable level through the
application of safeguards. For example, in order to avoid a self-interest threat, members of an audit
engagement team are prohibited from having certain financial interests in their audit client. The
adoption of separate engagement teams for audit and non-audit work may, in certain situations, be
sufficient to overcome any actual or perceived self-review threat.
Audit engagement teams must evaluate threats to independence and consider the application of
safeguards to overcome any threats to independence, even if the specific circumstance is not
specifically addressed by the Policy.
If threats to independence cannot be eliminated or reduced to an acceptable level, the firm must refuse
to perform, or withdraw from, the audit engagement.
The independence requirements of the SEC do not explicitly consider or endorse a threats and
safeguards approach to auditor independence issues. Instead, they require the auditor to avoid
relationships and circumstances that would cause the firm to be, or to appear be, incapable of
exercising objective and impartial judgement on all issues encompassed within the audit engagement.
Accordingly, rules have been determined to achieve this. In many cases, these rules implicitly address
the five threats outlined above. The specific incremental rules are detailed, for ease of reference, in
the relevant topics of the Policy. The SEC rules applying to SEC audit clients and their related entities
are generally more restrictive than GIP. These rules must be complied with in addition to the
requirements of the Policy, where they apply.
Introduction to Policy
The Policy is divided into Sections that address significant topics and each details Network policy,
additional SEC requirements, PwC standard processes and implementation guidance. The Sections
are:
1.
2.
3.
4.
5.
6.
7.
8.
9.
10.
Introduction
Definitions
For Member Firm Use
Engagement Management and Engagement Team Responsibilities
Individual Financial Interests and Relationships
Member Firm Financial and Business Relationships
Non-Assurance services
Assurance reports that have restricted use and distribution
Member Firm Processes and Controls
Violations consultation and reporting processes
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The Policy addresses independence requirements that apply when a PwC firm audits an entitys
financial statements (and therefore audit clients). The same policy requirements also apply to a
review of financial statements (review clients). The Policy also deals with the requirements relating
to the provision of other assurance engagements to a (non-audit) assurance client; these are not
addressed in this guide but may apply to you and you should refer to the relevant topics in the Policy if
you are involved in providing (non-audit) assurance services.
The Section on Definitions is especially critical to understanding the Policy requirements. It explains
the key terms used (for example, related entities of audit clients and restricted person). You
should read that Section carefully so that you understand, and can comply with, the Policy. You should
consider consulting your PRI or another independence expert if you do not understand anything in that
Section.
Section 5 dealing with Individual Financial Interests and Relationships is particularly important to you
as an individual.
You will see that various topics throughout the Policy contain certain more restrictive requirements
when the audit client is a public interest entity, given the heightened public interest in such entities.
PART 2
Financial interests are interests in equity or other securities (such as mutual funds and other collective
investment schemes) or debentures, loan stock or other debt instruments of an entity.
A financial interest will be deemed direct if the interest is under the control of and beneficially or
directly owned by the individual (even if managed on a discretionary basis by others). Examples of
direct interests include:
ownership of equity stock in a company
shares or units in a mutual fund or other collective investment vehicle
equity investments held via an investment club over which you have control over investment
policy and decisions
interests held through an investment-linked insurance policy.
Interests held as an executor or trustee will also be treated as direct if the holder, or an immediate
family member, has a beneficial interest in the estate or trust.
Indirect financial interests are interests in companies or other entities beneficially owned through a
collective investment vehicle, estate, trust, or other intermediary over which the individual or entity has
no control or ability to influence investment decisions. Examples of indirect interests include:
An interest in an entity held through an equity or unit holding in a mutual fund or collective
investment scheme. You would need to evaluate the materiality of the underlying investment to
you (and your immediate family), based on the net assets of the fund, your holding of the fund, the
funds investment in the client, and your joint net worth.
An interest in an entity held by being (solely) a beneficiary of an estate or trust.
SEC Audit Clients:
The SEC rules include other specific circumstances when an interest will be deemed direct.
The Policy is based on the concept of control and beneficial or direct ownership. Independence
restrictions are not avoided if an individuals financial interests are managed on a discretionary basis,
as a blind trust, or if a third party holds investments for them as a nominee.
Some PwC firms, because of local regulations or practice management considerations, may adopt
stricter requirements for staff members than required by GIP.
2.5 May my family or I borrow from or deposit money with an audit client?
If you are a restricted person with respect to an audit client, or a related entity, which is a bank or
financial institution, you or your immediate family members are permitted to have a loan from that
entity only if the loan is obtained in the ordinary course of business under normal lending procedures,
terms and requirements. Examples of such loans would include home mortgages, bank overdrafts,
car loans and credit card balances. If the loan is unsecured and material to you, then you should
discuss the matter first with the audit engagement partner.
There are also rules relating to deposit accounts, credit cards and brokerage accounts.
2.8 Are there any restrictions if I was formerly employed by an audit client or I
was a member of the clients board of directors?
You must not be a member of an audit engagement team or be in the chain of command for that
engagement if you have recently served as an officer or director of the client or have been an employee
in a position to exert influence over the financial statements (for example, in a financial accounting role).
Consultation is required in such circumstances.
2.11 Are there any restrictions on family members being employed at my audit
client?
You may not provide professional services to an audit client if an immediate family member is a
director or officer of an audit client or is an employee in a position to exert direct and significant
influence over the financial statements or was in such a position during any period covered by the
engagement.
10
If you are a member of an audit engagement team, or chain of command, you must report any
circumstances of other close family members being employed by your client to the audit engagement
partner.
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PART 3
3.0
Business Relationships
The Policy governing business relationships with audit clients (or connected persons) is complex and if
you are involved in considering a potential business relationship or providing services to an audit client in
conjunction with another party you must consult with your territory PRI. Such relationships require prior
review and approval.
3.1
Non-assurance services
include:
Ensuring that those providing a non-assurance service are not members of the audit engagement
team (self-review);
Involving an additional professional accountant to review the work done (self-review);
Involving another firm to re-perform the non-assurance service to the extent necessary to enable it to
take responsibility for that service (self-review).
In some cases, the required safeguards are identified in Policy.
Certain regulators, most notably the SEC, have adopted a rules based approach which also prohibits the
provision of certain specified services to audit clients.
SEC Audit Clients:
The SEC prohibits the following activities to an SEC restricted entity:
Bookkeeping*
Financial information systems design and implementation*
Appraisal or valuation services, fairness opinions, and contribution-in-kind reports*
Actuarial services*
Internal audit outsourcing*
Management functions
Human resources
Broker-dealer, investment advisor, or investment banking services
Legal services
Expert services unrelated to the audit, and
Any other services that the US Public Company Accounting Oversight Board (PCAOB) determines,
by regulation, are impermissible. This includes certain tax services.
* Unless it can be shown that the results of the service are not subject to audit procedures.
Consultation is required on the application of this complex rule.
The fact that a service is not specifically prohibited by the SEC does not mean it is permitted. Guiding
principles that should be used when analysing the impact of services include the following:
The auditor cannot function in the role of management or as an employee of the audit client
The auditor cannot audit his or her own work
The auditor cannot act as an advocate of the audit client
The auditor must not have a mutual or conflicting interest with the audit client.
The SEC rule also includes the broad principle that PwC personnel should not provide services to SEC
restricted entities in which they act, temporarily or permanently, in an employee or managerial role or
perform any decision-making supervisory or ongoing monitoring function. The type of prohibited activities
is extensive and includes services of an administrative nature.
Regulators in certain other countries have restricted the provision by the auditor of non-assurance
services. Details are included in the relevant PwC firms Policy on the Independence Portal and in
supplemented SOPS (see below).
3.1.3 Where can I find guidance regarding the permissibility of such services?
The GIP addresses the broad categories of non-assurance services and specifies the requirements
(including prohibitions), which often depends upon whether the audit client is a Public Interest Entity or
not.
13
Detailed guidance on the application of Policy is provided in the Statements of Permitted Services
(SOPS) which can be found on the Independence Portal.
The SOPS should be referred to in assessing the permissibility of a non-assurance service. Both GIP
and the SOPS include specific materials relevant to SEC restricted entities. The SOPS are supplemented
for other territory restrictions on services,
If you are in any doubt, you should consult your territory PRI or LoS RMP.
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Fee Issues
The fee is charged by the PwC firm expressing the opinion on the financial statements and the fee is
material or is expected to be material to that firm, or
The fee is charged by another PwC firm that participates in a significant part of the audit and the fee
is material or is expected to be material to that firm, or
The outcome of the non-assurance service, and therefore the amount of the fee, is dependent on a
future or contemporary judgment related to the audit of a material amount in the financial statements.
In other circumstances where contingent fees are contemplated, consideration should be given to local
professional and regulatory guidelines and an evaluation of any self-interest threat to independence must
be carried out.
PwC firms are permitted to enter into arrangements where a client (other than an SEC restricted
entity) agrees to consider paying an additional fee, for non-assurance services, based solely upon the
clients qualitative assessment of the value of the services provided (a value added fee).
SEC Audit Clients:
Contingent, finding based, and value added fee arrangements, whether PwC would receive the fee
directly or indirectly, are prohibited for any service or product provided to an SEC restricted entity.
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PART 4
All partners and practice staff have a role to play in ensuring that the firm and its personnel comply with
relevant independence requirements. This part provides a high-level summary.
4.1
You are personally responsible for ensuring your compliance with PwCs independence requirements.
You should ensure that you are familiar with the requirements and follow your firms training programmes.
If there are any circumstances about which you are unsure, you should raise the matter with your territory
PRI and/or the engagement leader. You will be asked, via an Annual Compliance Confirmation, to
confirm your compliance with the policy.
4.2
The audit engagement partner (and in the case of a group audit, the group audit engagement partner)
is responsible for ensuring that the firms independence on that client is not impaired. This involves an
evaluation of facts and circumstances to ensure that the policy requirements are complied with.
Consultation with others such as the territory PRI or other independence specialists may be required.
The Networks systems and compliance processes are designed to help the partner fulfil this
responsibility.
4.3
A partner providing non-audit services to an audit client or, as relevant, to a related entity has a joint
responsibility with the audit engagement partner to ensure that PwCs independence is not impaired by
the service. Any matters which may create a threat to independence should be brought to the attention of
the audit engagement partner and the non-audit service partner should ensure that authorisation for the
service is obtained where required by policy.
4.4
PRI
PwC firms must have a partner responsible for independence matters (PRI) who will be responsible for
the relevant processes and controls. PwC firms are responsible for implementing processes and
controls to support their and their partners and employees compliance with PwC independence
policies and any applicable external independence requirements. This responsibility includes
implementing appropriate training, confirmation, monitoring and disciplinary processes.
4.5
In addition to these important roles, the Global Independence Leadership Team provides strategic
leadership in areas of policy and compliance matters, including the on-going development of systems and
processes to facilitate compliance. The GILT includes regional independence leaders who have
oversight of independence activities in their region and are available to help and support PRIs as well as
engagement partners. The GILT activities are supported by a Global Independence Centre.
4.6
The US firm has issued protocols regarding formal consultations involving the US Independence Office
regarding SEC audit clients, including policy on the use of its consultation database. Your firm may have
similar local requirements.
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