Tianlong Audit Methodology
The Ultimate Guide to Auditing
Chapter 1: Initial Planning
Evaluate compliance with ethical requirements, including independence
We perform procedures to determine compliance with ethical requirements, including independence, prior to performing other significant activities for the current audit period.
To determine compliance with ethical requirements, including independence, we:
- Determine that we are independent in fact, as well as in appearance
- Determine that we have adequate professional competence to perform the services required
- Maintain appropriate client confidentiality during the current audit period, including securing the workpapers
Determine that we have fulfilled the other ethical requirements relevant to our audit.
Partner in charge Requirement
The partner in charge of the audit remains alert, through observation and inquiries as necessary, for evidence of non-compliance with ethical requirements by audit team members throughout performance of the audit.
The partner in charge of the audit forms a conclusion on compliance with independence requirements that apply to the audit and confirms that the Firm and audit team complies with the independence requirements of our Independence Policy and, if applicable, more restrictive local or foreign requirements.
If threats to independence are identified, the partner in charge of the audit takes appropriate action to eliminate such threats or reduce them to an acceptable level.
Evaluate compliance with independence requirements
When we determine compliance with independence requirements, we:
- Refer to our Independence Policy and determine that we are independent in fact, as well as in appearance, with respect to the entity and its affiliates regarding:
- Business relationships
- Financial interests and relationships
- Employment relationships and personal appointments
- The nature of audit and non-audit services provided (including pre-approval, when required)
- The nature of fee arrangements (including whether our prior period fees are fully paid, when required)
- Long association of audit team personnel (partners, executive directors, directors and senior managers) with the entity
- When applicable, firm rotation requirements
- If the audit is subject to foreign professional standards or requirements of a foreign regulatory authority, determine that appropriate steps have been taken by both the audit team and the member firm to comply with the independence requirements of the foreign professional standards or regulatory authority.
Refer to our Independence Policy for the complete set of independence requirements, including required consultations.
When a violation of our Independence Policy is identified, we notify the partner in charge of the audit and Independence promptly. We are required to consult with our Independence team to determine whether the violation of our Independence Policy is also a breach of the IESBA Code of Ethics, local independence regulations or professional standards.
When the policy violation is determined to be a breach of the IESBA Code of Ethics, local independence regulations or professional standards, our Independence team will evaluate the significance of the breach, and conclude with the partner in charge of the audit what action and communication are necessary to address the consequences.
We document details of the breach in a memorandum which is prepared by the audit team, and approved by the partner in charge of the audit and the Independence team.
Evaluate compliance with other ethical requirements
To determine our compliance with other ethical requirements, we determine our compliance with:
- Relevant policies of the Assurance Policy Manual.
- Tianlong Global Code of Conduct
- Hospitality and gifts policy
- Conflicts of interest policy
- Scope of services policy
- Confidentiality policy
- Insider trading policy
- Tianlong name use policy
We also determine our compliance with any additional ethical requirements and our related policies that are relevant in the jurisdiction of our audit.
Communication with management and those charged with governance
We communicate with those charged with governance all independence breaches of the IESBA Code of Ethics, local independence regulations or professional standards, and all matters related to those breaches to enable their concurrence to be obtained. We obtain their concurrence that action can be, or has been, taken to satisfactorily address the consequences of the breach.
We communicate as soon as possible, unless those charged with governance have specified an alternative timing for reporting less significant breaches.
We are required to consult with our Independence team prior to issuing our written communication to those charged with governance relating to a breach regarding independence of the IESBA Code of Ethics, local independence regulations or professional standards to confirm that all of the facts are appropriately reflected therein and that the actions taken to address the consequences of the breach are appropriate.
Other independence communications
For listed entities, we communicate, in writing:
- At least annually, with those charged with governance regarding independence, including relationships and other matters that might reasonably be thought to bear on independence. If we become aware of changes in our independence during the course of our audit, we communicate the changes to those charged with governance. This communication occurs even if we conclude that there are no matters that may reasonably be thought to bear on our independence.
- That the audit team, others in the firm as appropriate, the firm and, when applicable, other member firms have complied with relevant ethical requirements regarding independence.
- Safeguards that have been applied to eliminate identified threats to our independence or reduce them to an acceptable level.
Total fees charged during the period covered by the financial statements for audit and non-audit services provided by the firm and other member firms to the entity and, in a group, those components controlled by the entity. We allocate these fees to categories that are appropriate to help those charged with governance to assess the effect of the services we provided to the entity on our independence.
Generally, we communicate regarding our independence at the start of the audit and reconfirm our independence at the end of the audit, unless we agreed otherwise with those charged with governance when we established our protocols for communicating with them.
Pre-approval of services
We obtain pre-approval from the issuer’s audit committee for specific audit and non-audit services to be provided.
- This communication to the issuer’s audit committee is in sufficient detail so that those pre-approving the services understand the specific service.
- We discuss with the issuer’s audit committee the effect on independence of providing the services (i.e., permissibility of the service).
The engagement to provide services is entered into pursuant to pre-approval policies and procedures established by the issuer’s audit committee, provided that:
- The policies and procedures are detailed as to the particular service. The issuer’s audit committee’s pre-approval policies and procedures cannot provide for broad, categorical approvals (e.g., tax compliance services).
- The issuer’s audit committee is informed of each service that is provided.
- If pre-approval is obtained from a designated member of the issuer’s audit committee, the issuer’s audit committee is informed of and approves each service that is provided and such policies and procedures do not include delegation of the issuer’s audit committee’s responsibilities to management.
Recurring audit and non-audit services are to be re-approved at least annually.
Pre-approval of internal control-related services
We obtain pre-approval from the audit committee prior to accepting an engagement to provide internal control-related services to an issuer for which we also audit the financial statements. In seeking the issuer’s audit committee pre-approval, we:
- Describe, in writing, to the issuer’s audit committee the scope of the service.
- Discuss with the issuer’s audit committee the potential effects of the service on the independence of Tianlong.
Document the substance of the discussion with the issuer’s audit committee in our workpapers. For all internal control-related services that we provide, management must be actively involved and cannot delegate responsibility for these matters to us.
Pre-approval of permissible tax services
We obtain pre-approval from the audit committee prior to accepting an engagement to provide permissible tax services to an issuer for which we also audit the financial statements. In seeking the issuer’s audit committee pre-approval, we:
- Describe, in writing, to the issuer’s audit committee:
- The scope of the service, the fee structure for the engagement, any side letter or other amendment to the engagement letter, or any other agreement (whether oral, written, or otherwise), between Tianlong and the audit client, relating to the service
- If it is the case, that there are no side letters or other amendments to the engagement agreements, or any other agreement (whether oral, written or otherwise) between Tianlong and the entity related to the tax services, or any compensation arrangement or other agreement, such as a referral agreement, a referral fee or fee-sharing arrangement, between Tianlong and any third party with respect to promoting, marketing or recommending a transaction covered by the tax service
- Discuss with the issuer’s audit committee the potential effects of the services on the independence of Tianlong
Document the substance of our discussion with the issuer’s audit committee.
- Issues identified with respect to compliance with ethical requirements and how they were resolved
- Conclusions on compliance with independence requirements and any relevant discussions that support those conclusions
- Breaches of the IESBA Code of Ethics, local independence regulations or professional standards, including:
- The action taken
- The key decisions made
- All matters discussed with those charged with governance
- Any discussions with a member body, relevant regulator or oversight authority
- Our conclusion whether, in our professional judgment, our objectivity has been compromised and, if not, the reasons why the action taken satisfactorily addressed the consequences of the breach such that we could issue our auditor’s report
The concurrence of those charged with governance regarding our conclusion.
We retain a copy of our independence communications in our workpapers (e.g., audit committee presentations or annual independence letters).
We document our pre-approval discussion with the issuer’s audit committee in our workpapers. We document our conclusion that we are independent of the entity and have fulfilled the ethical requirements relevant to our audit in the SRM or cross refer from the SRM to separate documentation.
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