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Introduction to Independence

and the Global Independence Policy


January 2011

Contents
PART 1

INTRODUCTION

1.1

Introduction to independence and this guide

1.2

Overview of threats to independence

1.3

Introduction to Policy

PART 2

INDIVIDUAL FINANCIAL INTERESTS AND OTHER RELATIONSHIPS

2.1

Who do the independence requirements apply to?

2.2

What about other close family members?

2.3

What restrictions apply to financial interests?

2.4

Do I have to report my financial interests so that they can be monitored?

2.5

May my family or I borrow money from an audit client?

2.6

What about insurance products and pensions?

2.7

Can I purchase goods and services from an audit client?

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

What happens if I am considering employment or a board position with an audit client?

2.10

Can I accept a gift or favour from an audit client?

2.11

Are there any restrictions on family members being employed at my audit client?

2.12

What other interests or relationships may be restricted?

PART 3

FIRM INTERESTS AND RELATIONSHIPS

3.0 Business Relationships


3.0.1 What types of business relationships may impair independence?
3.1 Non-Audit Services
3.1.1 General principles
3.1.2 Which regulations govern the non-assurance services that may be provided to audit clients?
3.1.3 Where can I find guidance regarding the permissibility of such services?
3.1.4 What are the authorisation and consultation requirements?
3.2 Fee Issues
3.2.1 What types of fee arrangements are prohibited?
3.2.2 What about overdue fees?
3.2.3 Are there other independence issues related to fees?

PART 4

INDEPENDENCE ROLES AND CONSULTATION REQUIREMENTS

4.1

Your role as an individual

4.2

Audit engagement partner role

4.3

Non audit services partner role

4.4

PRI

4.5

Other Independence roles

4.6

US/SEC consultation database

PART 1
1.1

INTRODUCTION

Introduction to independence and this guide

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.

Additional Guidance These can be found via the Independence Portal


PwC Global Independence Policy

1.2

Your firms Independence Policy

Overview of threats to independence

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.

Additional Guidance SEC requirements in GIP


1.3

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
1

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.

Defined terms are in bold when first used hereafter


6

PART 2

INDIVIDUAL FINANCIAL INTERESTS AND RELATIONSHIPS

2.1 Who do the independence requirements apply to?


Whenever you are a restricted person, you are subject to independence restrictions with respect to
the audit client for which you are a restricted person and, where required, its related entities (for
example, including restrictions on financial interests, and business and personal relationships). You
are a restricted person with respect to an audit client if you are:
(a) A member of the audit engagement team.
(b) A person in the chain of command over the audit engagement partner.
(c) A partner or practice staff member who provides non-audit services to the audit client or a
related entity (other than those who provide less than 10 hours of service during the audit
engagement period).
(d) A partner in the audit engagement office.
Accordingly, you may be a restricted person even if you are not directly involved in the audit
engagement.
In addition to this, restrictions apply to financial interests of all partners even if they are not a restricted
person for an audit engagement.
The restrictions that apply to you also apply to your immediate family members (broadly speaking
your spouse or equivalent and your dependents). This includes, but is not limited to, a need to comply
with the policy requirements relating to financial interests.

2.2 What about other close family members?


In certain circumstances, the independence considerations extend to interests and relationships of
other close family members, such as a parent or brother or sister.
For example, your independence may be considered to be threatened if you knew that your brother
had a financial interest in your audit client (although there is no requirement on you to ask such close
family members about their financial interests) or if a close family member was employed by the client.
You should discuss any such circumstances with the audit engagement partner.
SEC Audit Clients:
The SEC rules include specific prohibitions on certain financial interests of other close family members.

Additional Guidance topics 5.6, 5.7 and 5.15


2.3 What restrictions apply to financial interests?
If you are a restricted person with respect to an audit client, neither you nor your immediate family
members are permitted to have:
a direct financial interest in the audit client or a related entity, regardless of materiality
a material indirect financial interest in the audit client or a related entity.

Additional Guidance topics 5.4 to 5.9


Partners and their immediate family members are prohibited from having a direct or material indirect
financial interest in an audit client, or any of its related entities, of any PwC firm. There may be
exceptions to this rule in the case of collective investment funds.

Additional Guidance topic 5.4


7

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.

2.4 Do I have to report my financial interests so that they can be monitored?


If you are a partner or managerial practice staff member or above then you are required to report your
direct and material indirect financial interests in securities and collective investment vehicles, as well
as those of your immediate family members, in the Global Portfolio System. This includes those held
in a personal capacity as executor or trustee, as well as any managed on a discretionary basis by
others on your behalf. Acquisitions and disposals should be recorded within 14 days of the
transaction. The system will monitor the permissibility of financial interests held by you, and you will be
notified if the holding becomes restricted and you are required to dispose of the security. Before
acquiring any financial interest, you must ensure that the holding does not violate the independence
requirements of the Policy; this applies equally to those held by your immediate family members if
you have a Portfolio this should be done using the pre-clearance function in the GPS.
You should be aware that certain financial interests are permitted only if you are not a restricted person
with respect to the relevant entity. Circumstances that may be result in an interest becoming
impermissible for you, and which should be monitored by you, include starting to provide services to an
audit client or its related entities, a change in rank within your firm, or a change in office location.

Additional Guidance topic 5.2 of 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.

Additional Guidance paragraph 5.11-4 of GIP


If the audit client is not a bank or financial institution and you are a restricted person, then neither you
nor your immediate family member are permitted to have a loan from the client or a related entity.

Additional Guidance paragraph 5.11-1 of GIP


If you are a restricted person with respect to any audit client then neither you nor your immediate
family member are permitted to make a loan to the client or a related entity, other than a bank deposit
under normal commercial terms.

Additional Guidance paragraphs 5.11-2 and 5.12-1 of GIP


SEC Audit Clients:
Restricted persons and their immediate family members must not have a loan from any SEC restricted
entity or officers, directors, or significant shareholders of an SEC restricted entity, except for the following
loans obtained from a financial institution under its normal lending procedures, terms, and requirements:
a.
b.
c.
d.

Car loans and leases collateralised by the car.


Loans fully collateralised by the cash surrender value of an insurance policy.
Loans fully collateralised by cash deposits at the same financial institution.
A mortgage loan collateralised by the borrowers primary residence, but only if the loan was obtained
while the borrower was not a restricted person or an immediate family member of a restricted person.

There are also rules relating to deposit accounts, credit cards and brokerage accounts.

2.6 What about insurance products and pensions?


Risk based insurance products, such as property and car insurance, are generally permissible if held on
normal commercial terms and are issued by an entity that is not subject to SEC restrictions. Care must be
taken to understand whether the policy is issued by an SEC restricted entity and whether you are a
restricted person with respect to that entity. You should consider all your insurance policies, including on
items such as boats and medical insurance on pets
The policy requirements relating to savings related insurance policies and pension policies, such as
participating insurance and investment-linked insurance policies, are complex and you should seek
advice before entering into such a financial arrangement.

Additional Guidance topics 5.12 and 5.13 of GIP


SEC Audit Clients:
The SEC rules in relation to such products are also complex and are in certain situations more restrictive
than in GIP.

2.7 Can I purchase goods and services from an audit client?


The general principle is that you even if you are a restricted person are permitted to purchase goods
and services from an audit client or a related entity on an arms length basis in the normal course of
business.
However, if you are a member of the audit engagement team or chain of command and the transaction is
material to you (or your immediate family member), an actual or perceived self-interest threat may be
created, especially if the goods or services will be delivered over a period of time that included the date
the audit report is issued. An example would be the purchase of an apartment in an audit clients
property development project. The threat to independence must be evaluated before you enter into such
a transaction and you should discuss it with the audit engagement partner.

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.

Additional Guidance topic 5.19 of GIP


2.9 What happens if I am considering employment or a board position with an
audit client?
If you are approached by an audit client with, or are considering, an offer of employment, you must
discuss the matter with the audit engagement partner or territory PRI promptly. A cooling off period may
be necessary before you can join the client to ensure that the firms independence is not jeopardised.
If you subsequently decide to leave PwC and join a client for which you were a restricted person, then
steps will be taken internally to ensure that the firms independence is not jeopardised. This may involve
a review of your work. Certain conditions apply.
Partners and employees of a PwC firm must not serve as a director, an officer or in any other executive or
non-executive position of influence of an audit client, or any of its related entities, of any PwC firm.

Additional Guidance topics 5.17 and 5.18 of GIP


2.10 Can I accept a gift or favour from an audit client?
Members of an audit engagement team or the chain of command are not permitted to accept gifts or
favours (including hospitality) from the audit client, or a related entity, unless the gifts or favours are of
such a token nature that any self-interest or familiarity threats would be insignificant. In case of any
doubt, the audit engagement partner should be consulted.

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.

Additional Guidance topic 5.15 of GIP


SEC Audit Clients:
If a close family member of a partner or a practice staff member is in an accounting role or financial
reporting oversight role at an SEC restricted entity, the partner or practice staff member to whom he or
she is related must not be a restricted person with respect to the SEC restricted entity.

2.12 What other interests or relationships may be restricted?


There are independence requirements set out in the policy relating to executor and trustee positions and
holdings; beneficial interests of estates and trusts; brokerage accounts; business relationships, as well as
other personal relationships with clients (such as a close personal relationship with a director of the
client). These requirements may affect you and your family depending upon your particular
circumstances.

Additional Guidance Section 5 of GIP

11

PART 3
3.0

FIRM INTERESTS AND RELATIONSHIPS

Business Relationships

3.0.1 What types of business relationships may impair independence?


A PwC firm must not have a joint business relationship with an audit client (or any of its related entities)
of any PwC firm, or its management, unless the relationship is insignificant, and any related financial
interest is immaterial, to the firm and the audit client (or, if relevant, its management). This would include,
for example, entering into a joint venture or marketing arrangement.
A joint business relationship is a relationship where a PwC firm actively collaborates together with another
party for mutual business development and/or commercial gain from relationships or transactions with
one or more third parties.
Other business relationships, referred to as simple business relationships are generally permitted if in
the normal course of business and on terms similar to those that would be available to other
organisations of similar size or standing. If the relationship is material to either party, any threats to
independence must be evaluated and safeguards applied when necessary.
There are also certain restrictions on services that may be provided to an audit client through a joint
business relationship or prime/subcontractor arrangements.

Additional Guidance topic 6.5 of GIP


SEC Audit Clients:
A PwC firm must not have a joint business relationship with an SEC restricted entity or with persons
associated with an SEC restricted entity in a decision-making capacity (such as its officers, directors or
significant shareholders). This applies regardless of materiality. This extends to prime/sub-contractor
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

3.1.1 General principles


The performance by a PwC firm of certain non-assurance services to an audit client or a related entity
may create, or may be seen to create, a threat to independence. The threats are generally those of selfreview and advocacy. For example, a self-review threat would be created if the audit firm was involved in
the design and implementation of IT systems that generate information that is significant to the audit
clients accounting records.

3.1.2 Which regulations govern the non-assurance services that may be


provided to audit clients?
The Code of Ethics issued by the IESBA, on which the GIP is based, identifies a number of nonassurance services which do, or may, create threats to independence. The Code prohibits the provision
of certain services to Public Interest Entity audit clients because of an insurmountable threat to
independence. The auditor is also prohibited from doing anything that is a management responsibility.
Apart from these prohibitions, the Code and GIP adopts a threats and safeguards approach which
requires an evaluation of any actual or perceived threat to independence and the adoption of safeguards
when necessary to eliminate a threat or to reduce it to an acceptable level. Examples of safeguards
12

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.

3.1.4 What are the authorisation and consultation requirements?


Before proposing to provide services to a prospective client, the proposing team must make inquiries (in
accordance with GIP and local instructions) to determine whether the prospective client is an assurance
client (including an audit client, or a related entity, and whether it is an SEC restricted entity).

Additional Guidance topic 7.2 of GIP


Any non-audit service provided to an audit client on the PwC Independence List (or to certain related
entities of the client) must be authorised by the group audit engagement partner before the PwC firm
engages to provide such services. This authorisation should be obtained using the Authorisation for
Services (AFS) system. Where pre-approval by the client's audit committee or other governance body is
required, either by regulation or by client internal policy, the group audit engagement partner must ensure
that this is obtained before communicating his or her authorisation to the proposing team.
In the context of a group audit, the group audit engagement partner must determine whether additional
authorisations are needed, such as from the audit engagement partner responsible for a subsidiary audit.
Before agreeing to provide a new non-audit service to audit client that is not on the Independence List, or
to an entity controlled by the client, the engagement partner on the proposed non-audit engagement
must, on the basis of an assessment of the permissibility of the service, communicate with the audit
engagement partner about the proposed service and relevant terms and considerations. The purpose of
this communication is to enable the audit engagement partner to consider whether the proposed nonaudit service will create a threat to independence, and whether there are safeguards available that would
eliminate or reduce the threat to an acceptable level. It also provides an opportunity for the audit
engagement partner to have discussions with the audit committee or other governance body of the client,
where appropriate.
The independence requirements of other territories may apply and the audit engagement partner will
determine whether additional consultation and/or authorisation is required.

Additional Guidance topic 4.9 of GIP


SEC Audit Clients:
Services to any SEC audit client that is an "issuer", as well as to its subsidiaries, must be approved in
advance by the clients audit committee. The group audit engagement partner should ensure that such
pre-approval is appropriately documented in the audit file.
The AFS system should also be used to request authorisation from the group audit engagement partner
for the provision of audit services to any audit client on the PwC Independence List (or to certain related
entities) that are subject to a requirement for pre-approval of audit services by the audit client's body of
governance.
The group audit engagement partner may determine and specify those audit services that have been preapproved by the clients audit committee and include a "consolidated" AFS request in the AFS system.
Such services should be communicated to PwC engagement teams involved in the group audit, in which
case separate AFS requests for those specified services are not required.

14

Additional Guidance topic 4.9 of GIP


3.2

Fee Issues

3.2.1 What types of fee arrangements are prohibited?


Fees must not be charged on a percentage, contingency or similar basis in respect of any assurance
engagement.
Fees must not be charged, directly or indirectly, on a contingent or similar basis in respect of a
non-assurance engagement provided to an audit client or, where appropriate, a related entity, if:
a)
b)
c)

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.

Additional Guidance topic 6.8


3.2.2 What about overdue fees?
If prior year audit fees remain unpaid when the current years report the firm must determine whether the
overdue fees might be regarded as being equivalent to a loan to the client and whether, because of the
significance of a self-interest threat , it is appropriate for the firm to be re-appointed or continue the audit
engagement.
SEC Audit Clients:
The current years audit report must not be issued if billed or unbilled fees, or a note receivable arising
from such fees, remain unpaid for any professional services provided more than one year before the date
of the report.

3.2.3 Are there other independence issues related to fees?


A threat to independence may be created if the total fees from an audit client group represent a large
proportion of the total fees of the PwC firm expressing an audit opinion or if the fees generated by the
client represent a large proportion of the revenue from an individual partners client portfolio or a large
proportion of the revenue of an individual office of a PwC firm. The significance of the threat must be
evaluated and safeguards applied when necessary. In some situations, certain mandatory safeguards
apply.

Additional Guidance topic 6.7 of GIP

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PART 4

INDEPENDENCE ROLES AND CONSULTATION REQUIREMENTS

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

Your role as an individual

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

Audit engagement partner role

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

Non-audit services partner role

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

Other independence roles

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

US/SEC consultation database

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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