| 156 | In this Standard, the term 'accounting services' is defined as the provision of services that involve the maintenance of accounting records or the preparation of financial statements that are then subject to audit. Advice on the implementation of current and proposed accounting standards is not included in the term 'accounting services'. |
| 157 | The range of activities encompassed by the term 'accounting services' is wide. In some cases, the audited entity may ask the audit firm to provide a complete service including maintaining all of the accounting records and the preparation of the financial statements. Other common situations are: |
| the audit firm may take over the provision of a specific accounting function on an outsourced basis (for example, payroll); |
| the audited entity maintains the accounting records, undertakes basic bookkeeping and prepares a year-end trial balance and asks the audit firm to assist with the preparation of the necessary adjustments and the financial statements. |
| 158 | The provision of accounting services by the audit firm to the audited entity creates threats to the auditor's objectivity and independence, principally self-review and management threats, the significance of which depends on the nature and extent of the accounting services in question and upon the level of public interest in the audited entity. |
| 159 | When providing accounting services to an audited entity, unless the firm is working with informed management, there is a risk that the audit firm undertakes a management role. |
| 160 | The audit firm shall not undertake an engagement to provide accounting services to: |
| (a) | an audited entity that is a listed company or a significant affiliate of such an entity, save where the circumstances contemplated in paragraph 164 apply; or |
| (b) | any other audited entity, where those accounting services would involve the audit firm undertaking part of the role of management. |
| 161 | Even where there is no engagement to provide any accounting services, it is usual for the auditor to provide the management with accounting advice on matters that have come to the auditor's attention during the course of the audit. Such matters might typically include: |
| comments on weaknesses in the accounting records and suggestions for addressing them; |
| errors identified in the accounting records and in the financial statements and suggestions for correcting them; |
| advice on the accounting policies in use and on the application of current and proposed accounting standards. |
| This advice is a by-product of the audit service rather than the result of any engagement to provide non-audit services. Consequently, as it is part of the audit service, such advice is not regarded as giving rise to any threat to the auditor's objectivity and independence. |
| 162 | For listed companies or significant affiliates of such entities, the threats to the auditor's objectivity and independence that would be created are too high to allow the audit firm to undertake an engagement to provide any accounting services, save where the circumstances contemplated in paragraph 164 apply. |
| 163 | The audit firm's policies and procedures will set out whether there are circumstances in which accounting services are not undertaken for non- listed audited entities as described in paragraph 47 of APB Ethical Standard 1. |
| 164 | In emergency situations, the audit firm may provide a listed audited entity, or a significant affiliate of such a company, with accounting services to assist the company in the timely preparation of its financial statements. This might arise when, due to external and unforeseeable events, the audit firm personnel are the only people with the necessary knowledge of the audited entity's systems and procedures. A situation could be considered an emergency where the audit firm's refusal to provide these services would result in a severe burden for the audited entity (for example, withdrawal of credit lines), or would even threaten its going concern status. In such circumstances, the audit firm ensures that: |
| (a) | any staff involved in the accounting services have no involvement in the audit of the financial statements; and |
| (b) | the engagement would not lead to any audit firm staff or partners taking decisions or making judgments which are properly the responsibility of management. |
| 165 | For entities other than listed companies or significant affiliates of listed companies, the auditor may undertake an engagement to provide accounting services, provided that: |
| (a) | such services: |
| (i) | do not involve initiating transactions or taking management decisions; and |
| (ii) | are of a technical, mechanical or an informative nature; and |
| (b) | appropriate safeguards are applied to reduce the self-review threat to an acceptable level. |
| 166 | The maintenance of the accounting records and the preparation of the financial statements are the responsibility of the management of the audited entity. Accordingly, in any engagement to provide the audited entity with accounting services, the audit firm does not initiate any transactions or take any decisions or make any judgments, which are properly the responsibility of the management. These include: |
| authorising or approving transactions; |
| preparing originating data (including valuation assumptions); |
| determining or changing journal entries, or the classifications for accounts or transactions, or other accounting records without management approval. |
| 167 | Examples of accounting services of a technical or mechanical nature or of an informative nature include: |
| recording transactions for which management has determined the appropriate account classification, posting coded transactions to the general ledger, posting entries approved by management to the trial balance or providing certain data-processing services (for example, payroll); |
| assistance with the preparation of the financial statements where management takes all decisions on issues requiring the exercise of judgment and has prepared the underlying accounting records. |
| 168 | Examples of safeguards that may be appropriate when accounting services are provided to an audited entity include: |
| accounting services provided by the audit firm are performed by partners and staff who have no involvement in the external audit of the financial statements; |
| the accounting services are reviewed by a partner or other senior staff member with appropriate expertise who is not a member of the audit team; |
| the audit of the financial statements is reviewed by an audit partner who is not involved in the audit engagement to ensure that the accounting services performed have been properly and effectively assessed in the context of the audit of the financial statements. |
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