For smaller Public Accounting Firms (PAFs), the definition of “audit team” under ISCA EP 100 deserves closer attention, particularly where the firm provides both financial statement preparation and audit services to the same client.
The definition extends beyond personnel directly involved in an audit engagement and may have implications for partner responsibilities, independence assessments and governance arrangements under Singapore Standard on Quality Management (SSQM) 1.
Who Forms Part of the Audit Team?
Under the Glossary to EP 100, the “audit team” includes the audit engagement team and other individuals who can directly influence the audit outcome. These include individuals responsible for supervising the engagement partner, recommending remuneration, providing technical consultation or performing engagement quality reviews.
The definition also extends through successive levels of seniority to the firm’s Senior or Managing Partner, Chief Executive or equivalent. Accordingly, a managing partner may be considered part of the audit team even without direct involvement in the engagement.
Implications for Independence Assessment
This distinction becomes relevant where a PAF prepares financial statements and audits them for the same non-public interest entity (non-PIE) client.
Under EP 100, paragraph R601.5, such services are permitted only when they are routine or mechanical in nature and independence threats that are not at an acceptable level are appropriately addressed.
One possible safeguard is to assign financial statement preparation to personnel outside the audit team.
Consider a two-partner firm where Partner A prepares the financial statements and Partner B performs the audit. If Partner A is also the firm’s Managing Partner, Partner A may fall within the audit team definition, potentially undermining the intended segregation.
The appointment of separate partners does not necessarily eliminate the self-review threat.
Connection with SSQM 1
SSQM 1 requires firms to establish appropriate leadership responsibilities, accountability and governance arrangements within their systems of quality management.
For smaller PAFs, these arrangements provide useful context when assessing whether a partner’s responsibilities bring that individual within the EP 100 audit team definition.
Where management responsibilities are shared collectively, the firm’s governance documentation, remuneration arrangements and allocation of quality management responsibilities should reflect how decisions are actually made.
A change in designation alone would not necessarily change the underlying independence assessment.
Practical Considerations
PAFs may wish to consider:
- Reviewing dual-service engagements for potential self-review threats.
- Identifying audit team members beyond the engagement team, including partners with supervisory or remuneration responsibilities.
- Checking consistency between actual governance arrangements and SSQM 1 documentation.
- Assessing the effectiveness of safeguards, particularly where separate personnel perform financial statement preparation.
- Documenting the basis for independence conclusions and any safeguards applied.
Conclusion
For smaller PAFs, the definition of “audit team” under EP 100 highlights the importance of looking beyond the individuals directly performing an audit.
Understanding how partner responsibilities, firm governance and SSQM 1 documentation interact may help firms identify independence threats that might otherwise be overlooked