Guidance to Appendix 2.4

1. For the purposes of the Auditor-General’s Code of Ethics and this Guide a public entity group is defined under the applicable financial reporting standards (or their successors) being:
   • PBE IPSAS 35 (PS): Consolidated Financial Statements (Public Sector); or
   • NZ IFRS 10: Consolidated Financial Statements.

Engagements within a group

2. The Audit Service Provider (ASP) is permitted to carry out:
   • “Work of an assurance nature” (as described in Appendix 2.3); and/or
   • Other engagements that are permitted by this Guide. Namely:
     • Temporary accounting and compilation assistance in accordance with AG R601.5 A2.1 to AG R601.5 A2.7.
     • Provision of assistance with the “set-up” of off-the-shelf accounting software that has not been developed by the ASP in accordance with AG 601.5 A2.8.
     • Referral to generic tax requirements in accordance with published Inland Revenue policy. Refer to AG 604.1.4.
     • Provision of off-the-shelf accounting software in accordance with AG 606.4 A2.1 and AG R606.4 A2.2.
   • Work that has no direct or indirect relationship to the entity audited by the ASP on behalf of the Auditor-General, subject to the considerations in paragraph 4 below.

This permission is given subject to the requirement to consult with the OAG if the additional work is of possible media or political interest or is of a sensitive nature. Refer to AG R600.8.13 to AG R600.8.15.

3. From an “independence of mind” perspective there are many engagements that an ASP could carry out for the parent of a group or for another component within the group that would not impact on the independence of the ASP in its capacity as the auditor of a component of the group. However, some of these engagements may not be appropriate from an “independence in appearance” perspective when the Auditor-General is the auditor of the group.
   
   
4. Other than for the permitted engagements in paragraph 2 above, Appointed Auditors are requested to consult with the OAG (using the Independence@oag.parliament.nz email address) when the ASP intends to carry out work for an entity within a group that is not audited by the ASP on behalf of the Auditor-General. When making an assessment as to whether the work should be accepted the OAG will take a number of matters into account, including:
   
   Governance considerations. If the ASP is the auditor of a public entity within a public entity group (public entity A) then the ASP’s ability to carry out other work for another public entity in the group that the ASP does not audit (public entity B) is enhanced if public entity B has a governing body (and management) that is completely different and separate from public entity A.
   
   Nature of the engagement. The nature of the engagement will be influential to the assessment made by the OAG. For example:
   • Engagements where the ASP assumes a management responsibility are unlikely to be permitted. This is because the Auditor-General is the auditor of the group;
   • Engagements involving the design and/or implementation of systems, processes or procedures need to be assessed in terms of whether the engagement may have implications for for the wider group, including the public entities within the group that are audited by the ASP;
   • Engagements that impact on the core activities of the public entity group may not satisfy “independence in appearance” given that the Auditor-General is the auditor of the group;
   • Engagements of a strategic nature that have an indirect relationship to the entity in the group that is audited by the ASP are unlikely to be permitted. For example, advice to the parent of a group that is dependent on internal restructuring within the group that includes the entity audited by the ASP is unlikely to be permitted.
     
     
5. The requirement to consult with the OAG may be relaxed based on experience. For example, certain types of engagements may be pre-approved without the need to consult.

Application to the financial statements of the government

6. The purpose of the financial statements of the government (the FSG) is primarily to provide the financial surplus or deficit for the financial year and the net worth of the government at the end of the financial year, based on financial statements prepared in accordance with generally accepted accounting practice. The only common feature of the entities that comprise the FSG is that they are controlled, to a greater or lesser extent, by the government.
   
   
7. From an audit independence perspective, the threats to the independence of the Auditor-General that emerge from ASPs providing services to entities that comprise the FSG, are greatly reduced when compared to the entities that make up a traditional group that are directly controlled by a single governing body and where the objectives of the group are tightly specified in legislation and regulation, or by a constitution or an equivalent document. If the services are “work of an assurance nature”, as defined in this Guide, such services can be carried out without recourse to the OAG.
   
   
8. ASPs are authorised to provide services to entities within the FSG group, other than to those entities that the ASP audits on behalf of the Auditor-General, without prior consultation with the OAG unless the services present a direct or indirect threat to the independence of the ASP or the Auditor-General in respect of the entity that the ASP audits on behalf of the Auditor-General. In assessing the threat to independence, the ASP should apply the considerations in paragraphs AG R120.15 A1.2 to AG R120.15 A1.4 and the application material in paragraph AG 120.15 A1.5.
   
   
9. If doubt exists whether the services threaten independence the ASP shall consult with the OAG using the Independence@oag.parliament.nz email address).

Engagements outside a group

10. In the public sector there are often strong relationships between public entities that could be interpreted as a controlling relationship but that do not amount to control for financial reporting purposes.
    
    
11. An example is the relationship between school boards of trustees and the Ministry of Education. Under PBE IPSAS 35 (PS), or its successor standards, and this Guide the Ministry of Education is not the parent of school boards of trustees. As result it would be unlikely that an ASP of a school board of trustees would be precluded from engaging with the Ministry of Education unless the engagement might present a conflict with the school audit. Accordingly, the Appointed Auditor of the school is not required to consult with the OAG in this situation unless a conflict might arise.
    
    
12. In the event of a possible conflict the Appointed Auditor shall consult with the OAG using the Independence@oag.parliament.nz email address.