Providing non-audit services to audit clients
All audit firms strive to add value to their clients, which often takes the form of providing additional non-audit services. Providing such non-assurance services to audit clients may, however, create an independence threat. It is important to identify, evaluate and address the threat to ensure that independence is maintained. This does not necessarily mean that the non-audit service should be terminated, depending on the circumstances, provided that adequate safeguards are in place.
Providing accounting and other services to statutory audit clients
Section 90(2)(b) of the Companies Act requires that, to be appointed as an auditor of a company, a person or firm must not be:
(i)Â Â A director or prescribed officer of the company
(ii) An employee or consultant of the company who was or has been engaged for more than one year in the maintenance of any of the company’s financial records or the preparation of any of its financial statements
(iii)Â A director, officer or employee of a person appointed as company secretary, in terms of Part B of this chapter
(iv) A person who, alone or with a partner or employees, habitually or regularly performs the duties of accountant or bookkeeper, or performs related secretarial work, for the company
(v)Â Â A person who, at any time during the five financial years immediately preceding the date of appointment, was a person contemplated in any of subparagraphs (i) to (iv)
(vi)Â Â A person related to a person contemplated in subparagraphs (i) to (v).
Therefore, it must be confirmed whether the services provided to the company in the five financial years immediately preceding the date of appointment as auditor do not include the following:
1.  Maintenance of financial records or preparation of financial statements for more than one year
2.  Performing the role of company secretary
3.  Bookkeeping or related secretarial work habitually or regularly performed.
For voluntary audits (those not required by the Companies Act), the above requirements do not apply. However, the IRBA Code still requires further consideration of potential threats created by providing accounting and other non-assurance services to audit clients.
Identifying and evaluating threats
Providing non-assurance services to audit clients may create threats to compliance with the fundamental principles, and threats to independence. When a firm provides a non-assurance service to an audit client, there is a risk that the firm will assume a management responsibility. Before a firm or a network firm accepts an engagement to provide a non-assurance service to an audit client, the firm must identify, evaluate and address any threat to independence that may be created by providing that service.
Factors to consider when identifying threats that may be created by providing a non-assurance service to an audit client and evaluating the level of such threats, include:
•  The nature, scope, intended use and purpose of the service
•  The manner in which the service will be provided, such as the personnel to be involved and their location
•  The legal and regulatory environment in which the service is provided
•  Whether the client is a public interest entity
•  The level of expertise of the client’s management and employees, with respect to the type of service provided
•  The extent to which the client determines significant matters of judgment
•  Whether the outcome of the service will affect the accounting records, or matters reflected in the financial statements on which the firm will express an opinion, and, if so:
o  The extent to which the outcome of the service will have a material effect on the financial statements
o  The degree of subjectivity involved in determining the appropriate amounts or treatment for those matters reflected in the financial statements
•  The nature and extent of the impact of the service, if any, on the systems that generate information that forms a significant part of:
o  The client’s accounting records or financial statements on which the firm will express an opinion
o  The client’s internal controls over financial reporting
•  The degree of reliance that will be placed on the outcome of the service as part of the audit
•  The fee relating to the provision of the non-assurance service.
Subsections 601 to 610 of the IRBA Code include examples of additional factors that are relevant to identifying threats to independence created by providing certain non-assurance services, and evaluating the level of such threats.
When a firm provides multiple non-assurance services to an audit client, the firm must consider whether the combined effect of such services creates, or impacts threats to independence.
Before providing a non-assurance service to an audit client, a firm must determine whether the provision of that service might create a self-review threat.
Public interest entities
A firm is not allowed to provide a non-assurance service to an audit client that is a public interest entity, if the provision of that service might create a self-review threat, in relation to the audit of the financial statements on which the firm will express an opinion. However, the firm may provide advice and recommendations on information or matters arising during the course of the audit, as long as the firm does not assume management responsibility, and considers potential threats created by providing such advice.
Before accepting an engagement to provide a non-assurance service for an audit client that is a public interest entity audit client, the firm must inform those charged with governance that the firm has determined that the provision of the service is not prohibited and will not create a threat, or the threat will be eliminated, or reduced to an acceptable level. The firm must provide those charged with governance with information to enable them to make an informed assessment about the impact of the provision of the service on the firm’s independence.
The non-assurance service may not be provided, unless those charged with governance of the public interest entity have concurred with the firm’s conclusion and the provision of that service.
Addressing threats
The threats created may vary, depending on the facts and circumstances of the audit, and the nature of the service. Such threats might be addressed by applying safeguards, or by adjusting the scope of the proposed service.
Possible safeguards to address such threats may include:
•  Using professionals who are not audit team members to perform the service
• Having an appropriate reviewer who was not involved in providing the service review the audit work or service performed
• Obtaining pre-clearance of the outcome of the service from an appropriate authority, for example, a tax authority.
However, safeguards may not be available to reduce the threats created to an acceptable level. In such a situation, the firm is required:
• To adjust the scope of the proposed service to eliminate the circumstances that are creating the threats
• To decline, or end the service that is creating the threats that cannot be eliminated, or reduced to an acceptable level
• To end the audit engagement.
In summary
Your firm needs to consider the non-assurance services provided to audit clients, and perform an analysis of potential threats to ensure that the necessary steps are taken to address any threats identified.
LEAF can assist firms with technical consultations, and staff training on the relevant requirements and procedures.
References
1.  Companies Act, 2008 (Act No. 71 of 2008)
2. IRBA Code of Professional Conduct for Registered Auditors (Revised April 2023): Section 600, Provision of non-assurance services to an audit client.
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