A Quarterly Newsletter from the UAE and Oman member firms of the PKF International Ltd. network

VOL 18, Issue 4 October 2016



The Capital Markets Authority (CMA) has issued a new circular to chief executives, officers and general managers of all listed companies and funds, and to accredited audit firms registered with the CMA with regard to rules for providing non audit services.

The CMA has reduced the ambit for non-audit services being provided by auditing firms to their audit clients in Oman. The number of permitted non-audit services has been reduced from 13 to just 3 i.e. audit-related services, taxation advisory services and investigations.

As per the Executive President of the CMA the objectives of tightening the rules on non-audit services provided by audit firms was that the non-audit services permitted under the previous circular contained those that have now specifically been restricted in other regulatory jurisdictions as these were found to have impaired auditors’ objectivity and independence. As the global regulatory environment has drastically changed since the last circular was issued, the services permitted under the previous circular needed to be reviewed and revised to keep pace with global best practices after taking into account the local conditions.

The circular was issued on 18 April 2016 and is applicable to the following entities regulated by the CMA:

  • Listed public stock companies
  • Mutual investment funds
  • Companies operating in the securities field and their agencies
  • Insurance companies, agents and brokers
  • Credit rating companies

“Non-Audit Services” comprise any engagement in which an audit firm provides professional services, other than the audit of financial statements to an audited entity or an audited entity’s affiliates.

“Audited Entity’s Affiliates” include subsidiaries, associates, joint ventures or another entity within the group of the audited entity on which the audited entity exercises significant influence or is significantly influenced by them.

“Subsidiaries, Associates or Joint Ventures” mean those that are treated as such under International Financial Reporting Standards.

“Directly or Indirectly” shall include the rendering of services by the auditor either himself / itself or through any of its partners or through its parent, subsidiaries or associates or through any other entity whatsoever, in which the firm or any partner of the firm has significant influence or control or whose name or trademark or brand is used by the firm or any one of its partners.

1. What is allowed?

The Auditors shall not, directly or indirectly, provide the audited entity and its affiliates any non-audit services, whatsoever in nature, apart from its primary role as auditor except services permitted by these Rules. Auditors may provide the following non-audit services:

Audit related as follows:

  • Reporting required by law or regulation to be provided by the auditor;
  • Reviews of interim financial information;
  • Reporting on regulatory returns;
  • Reporting to a regulator on client assets:
  • Reporting on government grants;
  • Reporting on internal financial controls when required by law or regulation.

Tax related subject to the following:

  • Services are provided by partners and staff who have no involvement in the audit of the financial statements;
  • Services are reviewed by an independent tax partner or a senior employee of taxation services;
  • Tax computations prepared by the audit team are reviewed by a partner or senior staff member with appropriate expertise who is not a member of the audit team or an audit partner not involved in the audit engagement reviews, to see whether the tax work has been properly and effectively addressed;
  • The audit firm shall not undertake an engagement to prepare current or deferred tax calculations that are or may reasonably be expected to be used when preparing accounting entries that are material to the financial statements of the audited entity;
  • The audit firm shall not undertake an engagement to provide tax services to an audited entity where this would involve acting as an advocate for the audited entity, before the income tax committee or court in the resolution of an issue that is material to the financial statements or where the outcome of the tax issue is dependent on a future contemporary audit judgment.

Investigations of matters arising from Auditor’s findings or observations related to the audit of Financial Statements, embezzlements or mis-appropriation of Company’s funds that does not compromise the independence of the auditor or poses any self-review threat.

2. Declaration of independence
An auditor or an audit firm shall confirm annually in writing to the audit committee that the auditor, the audit firm and partners, senior managers and managers, conducting the audit are independent from the audited entity; and discuss with the audit committee the threats to their independence and the safeguards applied to mitigate those threats, as documented by them.

3. Exemptions
Any non-audit service contracts that had already been approved by the audit committees for the services permitted under the previous circular before the issuance of this circular, may continue to be delivered if the execution of such non-audit service assignments has already started. Otherwise, the execution of such non-audit service assignments shall not commence unless they fall under the services permitted under the new circular. However, audit firms are restricted from providing non-audit services to their audit clients only and not others.

4. Fees
The fee for the non-audit services referred to in (1) above, if any, shall be determined and approved by the Audit Committee before such non-audit services are performed provided that the total fee for non-audit services during the year shall not exceed twenty five percent of the average audit fee paid by the entity for the last three years. The Company shall disclose in in its annual Corporate Governance Report the following: (a) Fees for Audit Services; (b) Fees for Non- Audit Services and the nature of services provided.

5. Non Compliance
Any contract of non-audit services with the auditors, by the audited entity, its subsidiaries, associates, joint ventures or affiliates other than the services permitted in these rules, shall be null and void. CMA shall examine the conduct of the auditors for its compliance with the Auditors Accreditation Rules in such cases and take measures as specified therein. Disciplinary measures may result in issuance of warning, suspension or removal of the auditor from the list of accredited audit firms in serious cases of violation.

Quoting the Excutive President of the CMA, auditors have a crucial role as a watchdog safeguarding shareholders’ interest, which is the most critical line of defence and a key pillar for effective corporate governance, to protect investors and other stakeholders who repose trust in auditors and rely heavily upon audited financials in making their investment decisions. The auditor should not only be independent and objective, he must also appear to be so. The new rules will create a robust regulatory framework which will strengthen investors’ confidence in the capital market and attract investments, and in turn benefit listed entities and their shareholders in particular, and the overall Omani economy in general.

(This article is compiled by Mr. Ian Raymond Pereira, Senior Director in PKF L.L.C., the PKF member firm in the Sultanate of Oman.)