NZAuASB ED 2021/4

Amendments to Professional and Ethical Standard 1: Non-Assurance Services

Users of financial statements rely on trusted information and the independent audit is a critical aspect of maintaining trust and confidence in financial reporting.  

To reinforce and strengthen auditor independence, the International Ethics Standards Board for Accountants (IESBA) has issued new provisions relating to the performance of non-assurance services (NAS) by audit firms to their clients. 

Key elements of the revised NAS provisions include:

• A far-reaching prohibition on the provision of a NAS that might create a self-review threat to an audit client that is a public interest entity (PIE).
• Stricter prohibitions on certain types of NAS to audit clients.
• Elimination of materiality as a factor in determining NAS permissibility of PIE audit clients.
• New provisions to enable more robust engagement between firms and those charged with governance of PIE audit clients about independence matters relating to NAS.

Earlier this year the XRB surveyed users of financial statements about their perceptions of auditor independence - specifically, the extent to which the provision of additional services by an audit firm to their client, affects the trust in the audit report.

The XRB intends to adopt the IESBA’s revisions, however based on the feedback we received on auditor independence, the XRB considers that strengthened provisions are needed in New Zealand. We are now seeking feedback on these proposals.

The proposed amendments:  

• Prohibit tax advisory and tax planning services to an audit client that is a Public Interest Entity (PIE), including advising an audit client in its tax return preparation or any adjustments arising therefrom.
• Outline additional factors that are relevant in identifying self-review or advocacy threats created by providing tax advisory and tax planning services.
• Acknowledge that there may be benefits to the auditor performing certain audit-related services, the provision of which will generally not create a self-review threat to independence, and provide examples of such services. The firm is still required to apply the conceptual framework to identify, evaluate and address threats (both for self-review threats and other threats) to independence.
• Limit the timeframe for the application of the transitional provision to 12 months from the effective date of the standard.

Submissions on the exposure draft closed on 31 October 2021.