Recruiting Services Under Subsection 5609 and Corporate Finance Under 5610

Recruiting Services explained: this guide covers what it means, who it applies to, the step-by-step process, documents required, fees, due dates and penalties in India — so you can stay compliant with confidence and avoid costly mistakes.

Subsection 5609 bars recruiting services that involve acting as negotiator for a client, and bars four recruiting activities for directors, officers and influential senior managers; Subsection 5610 bars promoting, dealing in or underwriting the client's securities, and advice whose effectiveness depends on a doubted measurement.

Subsection 5609 — what recruiting services cover

Paragraph 5609.2 A1 lists the activities that make up recruiting services:

• developing a job description;
• developing a process for identifying and selecting potential candidates;
• searching for or seeking out candidates;
• screening potential candidates — by reviewing professional qualifications or competence and determining suitability, undertaking reference checks, and interviewing and selecting suitable candidates and advising on competence; and
• determining employment terms and negotiating details, such as salary, hours and other compensation.

Paragraph 5609.4 A1: providing recruiting services might create a self-interest, familiarity or intimidation threat — note that self-review is not among them, which distinguishes this subsection from most of Section 5600.

What the client must decide when the firm provides recruiting services

Paragraph R5609.3 recalls R5400.20 and requires the firm to be satisfied that:

• (a) the client assigns responsibility to make all management decisions with respect to hiring the candidate to a competent employee, preferably within senior management; and
• (b) the client makes all management decisions with respect to the hiring process, including determining the suitability of prospective candidates and selecting them, and determining employment terms and negotiating details such as salary, hours and other compensation.

Paragraph 5609.4 A2 identifies what does not usually create a threat, so long as no management responsibility is assumed: reviewing the professional qualifications of a number of applicants and providing advice on their suitability, and interviewing candidates and advising on a candidate's competence for sustainability reporting, administrative or control positions.

Paragraph 5609.4 A3 gives three factors — the nature of the requested assistance; the role of the individual to be recruited; and any conflicts of interest or relationships that might exist between the candidates and the firm. Paragraph 5609.4 A4 offers one safeguard: professionals who are not assurance team members.

The two prohibitions on recruiting services

Paragraph R5609.5: when providing recruiting services, the firm or network firm shall not act as a negotiator on the client's behalf. This applies to any role, at any level.

Paragraph R5609.6: a firm shall not provide recruiting services if they relate to:

• (a) searching for or seeking out candidates;
• (b) undertaking reference checks of prospective candidates;
• (c) recommending the person to be appointed; or
• (d) advising on the terms of employment, remuneration or related benefits of a particular candidate,

with respect to (i) a director or officer of the entity, or (ii) a member of senior management in a position to exert significant influence over the preparation of the client's sustainability information or the records underlying it.

Subsection 5610 — corporate finance services

Paragraph 5610.2 A1 gives examples of corporate finance services: assisting a client in developing corporate strategies; identifying possible targets to acquire; advising on the potential purchase or disposal price of an asset; assisting in finance raising transactions; providing structuring advice; and providing advice on the structuring of a corporate finance transaction or on financing arrangements.

Paragraph 5610.3 A1: such services might create a self-review threat where the results risk affecting the assured information or its underlying records, and might also create an advocacy threat. Paragraph 5610.4 A1 gives the factors — the degree of subjectivity in determining the appropriate treatment for the outcome of the advice, and the extent to which the outcome will directly affect amounts recorded in the assured information or might have a material effect on it.

The three corporate finance prohibitions

For a non-public interest entity, 5610.7 A1 gives the two standard safeguards — professionals who are not assurance team members, and an appropriate reviewer not involved in providing the service. For a public interest entity, 5610.8 A1 offers only the first, and only against an advocacy threat, since a self-review threat is prohibited by R5610.8.

Practical checklist for recruiting services and corporate finance

• Before starting recruiting services, confirm the client has assigned hiring decisions to a competent employee, preferably in senior management.
• Never negotiate on the client's behalf, for any position.
• For a director, officer or influential senior manager, do not search, reference-check, recommend or advise on terms.
• Draw limb (ii) by influence over the sustainability information, not by title.
• Confine permitted recruiting services to assessing a client-produced shortlist.
• Screen every corporate finance mandate against R5610.5, which admits no exception.
• Build the assurance team doubt channel that R5610.6 and R5604.13 both assume.
• For a public interest entity, apply R5610.8 before considering safeguards.

Common mistakes in recruiting services and corporate finance

• Producing a candidate longlist for a senior sustainability role.
• Taking up references for a prohibited position.
• Negotiating a package on the client's behalf at any level.
• Reading limb (ii) as covering board-level roles only.
• Advising investors on an assurance client's instruments.
• Treating R5610.6 as applying only to public interest entities.