Introduction (520.1 to 520.2)
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Firms are required to comply with the fundamental principles, be independent and apply the conceptual framework set out in Section 120 to identify, evaluate and address threats to independence.

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A close business relationship with an audit client or its management might create a self-interest or intimidation threat. This section sets out specific requirements and application material relevant to applying the conceptual framework in such circumstances.

Requirements and Application Material

General (520.3 A1 to 520.3 A2)
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520.3 A1

This section contains references to the "materiality" of a financial interest and the "significance" of a business relationship. In determining whether such a financial interest is material to an individual, the combined net worth of the individual and the individual's immediate family members may be taken into account.

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520.3 A2

Examples of a close business relationship arising from a commercial relationship or common financial interest include:

  • Having a financial interest in a joint venture with either the client or a controlling owner, director or officer or other individual who performs senior managerial activities for that client.

  • Arrangements to combine one or more services or products of the firm or a network firm with one or more services or products of the client and to market the package with reference to both parties.

  • Distribution or marketing arrangements under which the firm or a network firm distributes or markets the client's products or services, or the client distributes or markets the firm or a network firm's products or services.

Firm, Network Firm, Audit Team Member or Immediate Family Business Relationships (R520.4 to 520.4 A1)
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A firm, a network firm or an audit team member shall not have a close business relationship with an audit client or its management unless any financial interest is immaterial and the business relationship is insignificant to the client or its management and the firm, the network firm or the audit team member, as applicable.

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520.4 A1

A self-interest or intimidation threat might be created if there is a close business relationship between the audit client or its management and the immediate family of an audit team member.

Common Interests in Closely-Held Entities (R520.5)
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A firm, a network firm, an audit team member, or any of that individual's immediate family shall not have a business relationship involving the holding of an interest in a closely-held entity when an audit client or a director or officer of the client, or any group thereof, also holds an interest in that entity, unless:

  • The business relationship is insignificant to the firm, the network firm, or the individual as applicable, and the client;

  • The financial interest is immaterial to the investor or group of investors; and

  • The financial interest does not give the investor, or group of investors, the ability to control the closely-held entity.

Buying Goods or Services (520.6 A1 to 520.6 A2)
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520.6 A1

The purchase of goods and services from an audit client by a firm, a network firm, an audit team member, or any of that individual's immediate family does not usually create a threat to independence if the transaction is in the normal course of business and at arm's length. However, such transactions might be of such a nature and magnitude that they create a self-interest threat.

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520.6 A2

Examples of actions that might eliminate such a self-interest threat include:

  • Eliminating or reducing the magnitude of the transaction.

  • Removing the individual from the audit team.

Note About Available Versions

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June 2021

You are now leaving the extant Code to view another version that contains passages that have either been superseded or that have been issued but are not yet effective.

This version of the eCode incorporates changes to Part 4B.

Part 4B relating to independence for assurance practitioners with respect to underlying subject matter covering periods is effective for periods beginning on or after June 15, 2021; otherwise, it is effective as of June 15, 2021. Early adoption is permitted.

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