Introduction (924.1 to 924.2)
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924.1

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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924.2

Employment relationships with an assurance client might create a self-interest, familiarity 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 (924.3 A1 to 924.5 A3)
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924.3 A1

A familiarity or intimidation threat might be created if any of the following individuals have been an assurance team member or partner of the firm:

  • A director or officer of the assurance client.

  • An employee who is in a position to exert significant influence over the subject matter information of the assurance engagement.

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R924.4

If a former partner has joined an assurance client of the firm or a former assurance team member has joined the assurance client as:

  • A director or officer; or

  • An employee in a position to exert significant influence over the subject matter information of the assurance engagement, the individual shall not continue to participate in the firm's business or professional activities.

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924.4 A1

Even if one of the individuals described in paragraph R924.4 has joined the assurance client in such a position and does not continue to participate in the firm's business or professional activities, a familiarity or intimidation threat might still be created.

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924.4 A2

A familiarity or intimidation threat might also be created if a former partner of the firm has joined an entity in one of the positions described in paragraph 924.3 A1 and the entity subsequently becomes an assurance client of the firm.

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924.4 A3

Factors that are relevant in evaluating the level of such threats include:

  • The position the individual has taken at the client.

  • Any involvement the individual will have with the assurance team.

  • The length of time since the individual was an assurance team member or partner of the firm.

  • The former position of the individual within the assurance team or firm. An example is whether the individual was responsible for maintaining regular contact with the client's management or those charged with governance.

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924.4 A4

Examples of actions that might be safeguards to address such a familiarity or intimidation threat include:

  • Making arrangements such that the individual is not entitled to any benefits or payments from the firm, unless made in accordance with fixed pre-determined arrangements.

  • Making arrangements such that any amount owed to the individual is not material to the firm.

  • Modifying the plan for the assurance engagement.

  • Assigning to the assurance team individuals who have sufficient experience relative to the individual who has joined the client.

  • Having an appropriate reviewer review the work of the former assurance team member.

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R924.5

A firm shall have policies and procedures that require assurance team members to notify the firm when entering employment negotiations with an assurance client.

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924.5 A1

A self-interest threat is created when an assurance team member participates in the assurance engagement while knowing that the assurance team member will, or might, join the client sometime in the future.

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924.5 A2

An example of an action that might eliminate such a self-interest threat is removing the individual from the assurance engagement.

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924.5 A3

An example of an action that might be a safeguard to address such a self-interest threat is having an appropriate reviewer review any significant judgments made by that assurance team member while on the team.