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ISCA Issues EP 100 Exposure Drafts on Group Audits and Public Interest Entities

ISCA issues two Exposure Drafts – Proposed Changes to EP 100 Code of Professional Conduct and Ethics (EP 100 EDs) for public consultation to adopt:

  1. IESBA’s final pronouncement (FP), Revisions to the Code Relating to the Definition of Engagement Team and Group Audits (ET-GA FP) with a proposed effective date of 15 December 2023.
  2. IESBA’s FP, Revisions to the Definitions of Listed Entity and Public Interest Entity in the Code (PIE FP) and the revised SG definition of “Public interest entity” (PIE) in the Glossary of EP 100 with a proposed effective date of 15 December 2024.

1. EP 100 ED to adopt ET-GA FP

The proposals in the ET-GA FP address holistically independence considerations in an audit of group financial statements. For purposes of specifying independence provisions for group audits, new terms are included in EP 100 whose definitions are based on or aligned as closely as possible with those in Singapore Standard on Auditing 600 (Revised) Special Considerations – Audits of Group Financial Statements (Including the Work of Component Auditors) (SSA 600 (Revised)).

The key revisions to EP 100 to adopt the ET-GA FP are as follows:

  • Align the definition of “engagement team” (ET) in EP 100 with that in Singapore Standard on Quality Management 1 Quality Management for Firms that Perform Audits or Reviews of Financial Statements, or Other Assurance or Related Services Engagements (SSQM 1) and address related independence implications.
  • Consistent with SSQM 2 Engagement Quality Reviews, amend the definitions of “assurance team”, “audit team” and “review team” to recognise that engagement quality reviewers may be sourced from within or outside the firm or its network.
  • Provide guidance to facilitate the determination of individuals who are included in the ET and audit team/group audit team.
  • Enhance independence considerations for individuals and firms in an audit of group financial statements with a new Section 405 (Group Audits) that:
    • Requires appropriate communication between a group auditor firm (GAF) and a component auditor firm (CAF) on relevant ethical requirements, including those related to independence, consistent with SSA 600 (Revised).
    • More explicitly sets out the process to address a breach of an independence provision at a CAF within or outside the GAF’s network.
    • Specifies the approach to independence for individuals at a CAF outside the GAF’s network.
  • Clearly set out the independence provisions applicable to a PIE that would apply to a CAF outside the GAF’s network when the group audit client is a PIE, and the component audit client is not a PIE.

 

ISCA welcomes comments on all matters addressed in the EP 100 ED. Specifically, when the group audit client is a PIE, we would like to hear any feedback or concern with applying PIE independence provisions for non-PIE component audit clients of CAFs outside the GAF’s network.

Please send your comments to professionalstandards@isca.org.sg by 31 May 2023.

2. EP 100 ED to adopt PIE FP and revised SG PIE definition

The key revisions to EP 100 to adopt the PIE FP are as follows:

  • Introduce an overarching objective for additional independence requirements for entities that are PIEs.
  • Provide guidance on factors for consideration when determining the level of public interest in an entity.
  • Introduce a transparency requirement for firms to publicly disclose the application of independence requirements for PIEs in performing an audit of the financial statements of an entity.
  • Expanded definition of a PIE by specifying a broader list of PIE categories and including a new category and term, “publicly traded entity” (PTE) to replace the term “listed entity”.

 

In light of the expanded definition of PIE and new category and term “PTE” to replace the term “listed entity”, the EP 100 ED proposes that for purposes of local adaptation of the PIE FP:

  • The SG PIE definition be revised to clarify on the entities that would fall within the scope of revised IESBA PIE definition and as such, would be considered as PIEs locally. The revised SG PIE definition clarifies that a listed business trust (BT) or listed real estate investment trust (REIT) should also be treated as a PIE locally. There is no change to the scope of SG PIE definition for financial institution, large charity and large institution of a public character as defined in the Glossary of EP 100.
  • SG provision, paragraph SG410.27A, currently applies to audit clients that are listed entities. The scope of SG410.27A would be clarified to include audit clients that are PTEs, listed BTs and listed REITs.

Please send your comments on the EP 100 ED to adopt PIE FP and revised SG PIE definition to professionalstandards@isca.org.sg by 14 June 2023.


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