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An example to consider

Assume that in February 2022, your audit client, J Inc., suddenly lost a key employee. Your firm met all the
required safeguards, including that you did not expect the situation to reoccur, and loaned Dan, a senior
associate, to J for approximately three weeks. During that time, Dan prepared various reports and analyses
under the direction of J’s treasurer. All were considered permissible nonattest services.

In July 2022, a flood damages some of J’s computers, causing the company to lose several property and sales
tax returns, which are due in two weeks. Can the firm loan staff to help J meet its tax obligation? The firm
should apply its professional judgment and come to a decision by answering the following questions:

Should the firm have reasonably expected, during the February arrangement, that J would need
another such arrangement in the future?
As these events are separate and distinct incidents, most likely the answer would be “no.”

How much time has passed since the previous staff augmentation arrangement?
Five months have passed — a relatively brief period that can impact the appearance of the firm’s
independence.

Does the new situation differ from what existed for the prior arrangement?
Yes, it does, which would more likely support the notion that the firm did not expect the first situation to
reoccur.

Would the work performed under a new arrangement be different from the work Dan performed
earlier that year?
Yes. Dan prepared treasury reports and analysis; the new request relates to preparing tax returns.

Would the firm lend the same staff to J under this new arrangement?
The answer to this question will depend on the availability of other staff to respond to the client’s current
needs. Loaning the same staff person to the client would be more likely to impact the appearance of the
firm’s independence.
What are J’s other options, if any, to address the current situation?
How challenging it will be for J to engage another firm will depend on the nature of the services being
requested and the availability of other service providers to meet the client’s needs. Tax return preparation is
a widely available service, but other factors (e.g., firmness of the tax deadline and how long the firm thinks it
would need to complete the returns) may be appropriate considerations.

As noted above, the firm should carefully consider the appearance of its independence before taking on
another staff augmentation assignment. The guidance states that even if independence in fact would
not be affected, but independence in appearance would be, the firm should not move forward with
the arrangement. If the firm is unable to loan staff to the client, but the independence requirements
for performing nonattest services can be met, the firm could assist the client via a nonattest services
engagement instead.

would not apply to affiliates included in the FSAC’s Augmentation Interpretation to a Financial
consolidated financial statements. To illustrate: Statement Attest Client’s Affiliates.”).
■ Company A (an audit client) controls Com- ■ Both Companies B and C are affiliates of A
pany B. Company A also exercises significant included in A’s consolidated financial state-
influence over Company C, and C is mate- ments. Therefore, the firm could not loan staff to
rial to A (see the chart “Application of Staff affiliates B or C unless the arrangement meets

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