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I wanted to know if a non-bank client gives a loan to its auditing firm, which is immaterial to both entities, then do the safeguards need to be applied?
Many thanks Professor!
First consider if the audit client is a bank:
“A firm, an audit team member, or any of that individual’s immediate family shall not accept a loan, or a guarantee of a loan, from an audit client that is a bank or a similar institution unless the loan or guarantee is made under normal lending procedures, terms and conditions.”
“materiality” doesn’t come into this – the transaction must be on NORMAL lending terms.
For a non-bank client, “lending” is not its business and as you say, is only permitted if it is immaterial to the client AND the recipient (firm/audit team member/immediate family member). This does not require safeguards – if immaterial to the client it can have no bearing on the financial statements.