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TECHNICAL ADVISORY SERVICES HELPSHEET

Management role

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Published: 01 Jan 2017 Reviewed: 21 Jan 2020 Update History

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Technical helpsheet explaining what is meant by ‘playing any part in management or decision making’ for the purposes of the FRC Ethical Standard.

Introduction

This helpsheet has been issued by ICAEW’s Technical Advisory Service to help ICAEW members interpret ‘management role’ and ‘playing any part in the management or decision making of an audited entity’ in the FRC Ethical Standard.

Members may also wish to refer to the following related helpsheet and guidance:

Subject to the transitional provisions set out in paragraphs 1.69 to 1.72, the FRC Ethical Standard 2019 becomes effective on 15 March 2020. This helpsheet addresses the requirements of both the FRC Ethical Standard 2016 and the FRC Ethical Standard 2019. Paragraph references are labelled 2016 or 2019 accordingly.

Overview

Supporting ethical provision 2.1D (2016) or A2.1 (2019) in the FRC Ethical Standard requires that the firm and each covered person (see Covered person helpsheet) is not involved in the management decision taking of an audited entity.

A non-exhaustive list of example judgements and decisions that should not be made by the firm or a covered person is contained in paragraph 1.25 (2016) or 1.25 (2019) and includes:

  • Setting policies and strategic direction;
  • Directing and taking responsibility for the actions of the entity’s employees;
  • Authorising transactions;
  • Deciding which recommendations of the firm or other third parties should be implemented;
  • Taking responsibility for the preparation and fair presentation of financial statements in accordance with the applicable financial reporting framework; and
  • Taking responsibility for designing, implementing and maintaining internal control.

Non-audit services

A management threat may arise when providing non-audit services to audited entities. A threats and safeguards approach is generally applicable, although the FRC Ethical Standard does include a number of prohibitions on providing non-audit services to audited entities which would involve the firm undertaking a management role.

For example, a firm may not provide tax services (paragraph 5.89 (2016) or 5.69 (2019)), transaction related services (paragraph 5.135 (2016) or 5.101 (2019)) or restructuring services (paragraph 5.140 (2016) or 5.106 (2019)) to an audited entity where the service would involve the firm undertaking a management role.

Paragraph 1.24 (2016) or 1.23 (2019) of the FRC Ethical Standard prohibits a firm or covered person from being involved in the management decision-taking of an audited entity. The 2019 version highlights that non-audit services shall not be provided that involve playing any part in the management decision-taking of an audited entity (1.24 (2019)).

Section 5 of the FRC Ethical Standard should be consulted for further guidance on specific non-audit services.

Management role

The FRC Ethical Standard does not specifically define ‘management role’. In assessing the extent to which services can be provided, firms will need to consider:

  • Whether the extent of the firm’s involvement is such that it is essentially holding the client’s hands throughout the process and project; and
  • Whether the firm’s team can be separated from the client’s project team, or would the firm, in fact or appearance, be core to the project from the perspective of the client or a knowledgeable third party?

Firms would be best placed to carefully assess and document whether they consider it appropriate to provide additional services and should discuss with the firm’s Ethics partner / function where appropriate.

Short-term junior staff secondments are not specifically prohibited by the 2016 version of the FRC Ethical Standard although are discussed in paragraphs 2.39 to 2.44. Loan staff assignments are generally prohibited in the 2019 version of the FRC Ethical Standard as outlined in paragraph 2.36.

Playing any part in the management or decision making

The FRC Staff Guidance Note 02/2016 Playing any part in management or decision making explains that ‘playing any part in the management or decision making of the audited entity’ should be interpreted as including situations in which the auditor is overseeing, directing or supervising the personnel of an audited entity, or in which the auditor makes decisions for that audited entity or plays a part in management’s decision making.

It goes on to note that the auditor should refrain from taking any part in making decisions, should avoid any activities that involve overseeing, directing or supervising the personnel of an audited entity, and should avoid giving any approvals on behalf of management during the course of the engagement.

If in doubt seek advice

ICAEW members, affiliates, ICAEW students and staff in eligible firms with member firm access can discuss their specific situation with the Ethics Advisory Service on +44 (0)1908 248 250 or via webchat.

Terms and conditions

© ICAEW 2024  All rights reserved.

ICAEW cannot accept responsibility for any person acting or refraining to act as a result of any material contained in this helpsheet. This helpsheet is designed to alert members to an important issue of general application. It is not intended to be a definitive statement covering all aspects but is a brief comment on a specific point.

ICAEW members have permission to use and reproduce this helpsheet on the following conditions:

  • This permission is strictly limited to ICAEW members only who are using the helpsheet for guidance only.
  • The helpsheet is to be reproduced for personal, non-commercial use only and is not for re-distribution.

For further details members are invited to telephone the Technical Advisory Service T +44 (0)1908 248250. The Technical Advisory Service comprises the technical enquiries, ethics advice, anti-money laundering and fraud helplines. For further details visit icaew.com/tas.

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  • Update History
    01 Jan 2017 (12: 00 AM GMT)
    First published
    09 Feb 2024 (12: 00 AM GMT)
    Changelog created. Converted to new template. Links updated. Helpsheet has not had a full review.
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