iesba project updates - isca.org.sg 2 | proprietary and copyrighted information • revised and...

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IESBA Update

Caroline Lee, IESBA Member

April 13, 2018


• Revised and Restructured Code

– Architecture

– Effective Date

• Current Projects and Initiatives

– Inducements Professional Skepticism NAS Fees Technology

Agenda


Overall Architecture

Part 1 (All Professional Accountants)Complying with the Code, Fundamental Principles and Conceptual Framework

(Sections 100 to 199)

Part 2Professional Accountants in Business


Part 3Professional Accountants in Public Practice


International Independence Standards (Parts 4A & 4B)

Part 4A—Independence for Audits & Reviews


Part 4B—Independence for Assurance Engagements Other than

Audit and Review Engagements


Glossary (All Professional Accountants)

Revised and Restructured Code



Part 1 – Complying with Code, FPs and CF

The Conceptual Framework

Professional Competence and Due Care

Integrity

Objectivity Confidentiality

Professional Behavior

Independence


What is the Conceptual Framework?

• Not possible to include a complete

and all-inclusive list of facts and

circumstances that might trigger

ethics issues

• Important to have a set of principles

to assist all PAs deal with ethics

issues not explicitly dealt with in Code

• More robust and explicit provisions as

a result of Safeguards project

Safeguards


Safeguards

Identifying and Evaluating Threats

• Understand facts and circumstances

– Professional activities, interests and relationships

• Conditions, policies and procedures are not safeguards

– Impact the identification of threats

– Relevant factors in PA’s evaluation of whether a threat is at an acceptable level

• When threats are not at an acceptable level, PAs are

required to address them

– Eliminate circumstance; Apply safeguards; or Decline/End professional activity


Self-interest

Self-review Advocacy

Familiarity Intimidation

Safeguards

Categories of Threats


Revised, Clearer Definitions of Key Concepts

Safeguards

Reasonable and Informed Third

Party (new)

Conditions, Polices and Procedures

(new)

Safeguards (revised)

Acceptable Level (revised)

Appropriate Reviewer (new)


NAS Safeguards Related Revisions

Safeguards

Evaluate and address threats from providing anyNAS to audit client, even those not specified

Explains materiality in relation to an audit client’s financial statements

Firm/network firm to consider combined effect of threats from providing multiple NAS to same client

Prohibition of assuming management

Introduction and General Provisions


• More prominent provisions to prohibit auditors from assuming

management responsibilities when providing NAS to audit clients

– Clarification that prohibition applies in all circumstances

• Firms/network firms may provide advice and recommendations to

assist management of an audit client discharge its responsibilities

– More prominent provisions to emphasize the prerequisite client responsibilities

that need to be in place when a firm or network firm provides advice and

recommendations to assist management of an audit to avoid assuming

management responsibility

Avoiding Management Responsibility

Safeguards


• Several revisions and refinements made to clarify

provisions relating to recruiting services

– New description of recruiting services

– New req’t to establish prerequisite client responsibilities for when a

firm or network firm provides recruiting services to an audit client

– New subheadings to emphasize the types of recruiting services

that are prohibited

Safeguards

Revisions to Recruiting Services


• Firms and network firms shall not act as a negotiator on the client’s

behalf when providing recruiting services to an audit client

• Firms and network firm shall not providing recruiting services to

audit clients that involve:

1. Searching for or seeking candidates; and

2. Undertaking reference checks

for (a) directors and officers; or (b) a member of senior management in a

position to exert significant influence over the preparation of the client’s

accounting records or financial statements for audit clients

Safeguards

Prohibitions Relating to Recruiting Services


• For all PAs

– New AM to emphasize importance of

obtaining an understanding of facts and

circumstances when exercising professional

judgment

• For auditors and assurance practitioners

– New AM to explain how compliance with

fundamental principles supports professional

skepticism


Professional Skepticism and Professional Judgment


• Include PAs employed, engaged or contracted in an executive or non-

executive capacity in, for example:

– Commerce, industry or service

– Public sector

– Education

– Not-for-profit sector

– Regulatory or professional bodies

• Legalities of PA’s relationship with the employing organization has no

bearing on ethical responsibilities


Professional Accountant in Business



Professional Accountant in Public Practice

• PA, irrespective of functional classification (for example, audit,

tax or consulting) in a firm that provides professional services

– The term PAPPs is also used to refer to a firm of PAPPs

• Professional activity is a broad umbrella term

– Requires accountancy or related skills undertaken by a PA, including

accounting, auditing, tax, management consulting, and financial

management

– Professional services are professional activities performed for clients


• Questions about whether PAIB provisions

in Code should apply to PAPPs

• Revised provisions clarify that:

– PAs have a responsibility to consider the context of

ethics issue and consider all provisions in the Code,

irrespective of its location

– There are situations where the provisions in Part 2

will also be relevant to PAPPs


Applicability of Part 2 Provisions to PAPPs


• Identify

– Self-interest threats to FPs of professional competence and due care

– Facts and circumstances include: insufficient time, incomplete information, lack of

experience, inadequate resource

• Evaluate

– Factors for evaluating level of threat include: single vs team, seniority, supervision

• Address

– Examples of safeguards include: get assistance/training, or allocate more time


Example of Applying CF to Part 2 – Acting with

Sufficient Expertise


• Part 4A – Audit and Review Engagements

– Provisions apply to both audits and reviews

– Reference to ISQC 1 to clarify responsibility for independence

– Some req’ts explicitly refer to “firms” and “network firms”

• Part 4B – Other Assurance Engagements

– Closely aligned to provisions in Part 4A

– Consistent with extant Part 4B apply to “firms” only (does not apply

to network firms)


International Independence Standards (IISs)


• Identify

– Familiarity and self-interest threats to independence

• Evaluate

– Examples of factors include: individual, audit client

• Address

– Example of action to eliminate: Rotation

– Examples of safeguards include: change role/nature

of tasks, appropraite reviewer, QRs

International Independence Standards (Parts 4A and 4B)

Example of Applying CF to Independence – Long

Association

IESBA determined

that certain threats

cannot be at

acceptable level

Specific req’ts for

PIEs with respect to

certain individuals

(rotation)


• All audit clients

– Type of threats created

– Scope of NAS

– Examples of factors to consider

– Example of actions to address, including safeguards if any

• Specific situations (PIEs/non PIEs)

– Prohibitions and other requirements

– Additional factors and/or actions to address threats if any

Independence and NAS

Structure of NAS Subsections


Effective Dates

• NOCLAR: July 15, 2017

• Long Association

– Audits and reviews: f/s periods beginning ≥ Dec 15, 2018

– Other assurance engagements covering periods: periods beginning

≥ Dec 15, 2018; otherwise Dec 15, 2018

• Restructured Code (including Safeguards revisions)

– Parts 1, 2 and 3: June 15, 2019

– Part 4A (independence for audits and reviews): f/s periods

beginning ≥ June 15, 2019

– Part 4B (independence for other assurance engagements):

engagements covering periods: periods beginning ≥ June 15, 2019;

otherwise June 15, 2019



• 2017 proposals to revise inducements provisions

– Clarify appropriate boundaries for offering, accepting, or

encouraging others to offer or accept inducements

– Explicit prohibition for inducements with intent to

improperly influence behavior (bribery and corruption

included)

– Improved guidance to assist PAs apply the conceptual

framework in other circumstances

• Feedback to ED was considered and IESBA anticipates finalization in June 2018

Inducements

Current Projects and Initiatives


• Consultation paper anticipated Q2 2018

• Will explore key questions:

‒ Behavioral characteristics inherent in PS?

‒ Should those characteristics be exercised by all PAs?

‒ Should the Code be further developed as a result?

• Aim includes supporting and reinforcing effective

exercise of PS in audit and assurance context

• Close coordination with IAASB and IAESB

Professional Skepticism



• WG formed December 2017

• Fact finding underway to scope out project

– Updating G-20 benchmarking

– Three global roundtables being planned for June-

July 2018 in Paris, Washington and Tokyo

• Taking holistic view of the issues

• Leveraging revised safeguards provisions

Non-assurance Services



• IESBA seeks to determine whether there is a

relationship between fees and threats to

independence and compliance with FPs

• Fees questionnaire released in Nov 2017

– Tailored questions for each stakeholder group

• Feedback to survey being analysed and WG will

report final recommendations in Q2 2018

Fees


https://www.ifac.org/publications-resources/iesba-fees-questionnaire


Trends and Developments in Technology

Exponential, disruptive technology (e.g. Emergent AI and robotics, blockchain, big data, cloud computing, mobile, social networks)

Emerging or newer models of work and service delivery (e.g. contingent workforce; managed and outsourced services)

On the Horizon…

• Profession and others recognizing

pressing need to understand and

address transformative effects

• Firms strategically adapting business

models and investing heavily in new

digital capabilities for audit

– Leveraging data analytics, bots, etc

– New skills required

• Clear strategic priority for IESBA



Safeguards

NOCLAR

Long association

Professional skepticism and professional judgment

Applicability of extant Part C to PAs in public practice

Pressure and other enhancements to PAIB provisions

Inducements (coming June 2018)



• Coming in 2018

– Basis for Conclusions documents

– IESBA Staff Q&A publications

– Video Q&As

– At-a-Glance and fact sheets

– Presentation slides

– Other support

• Outreach and communication

Rollout Initiatives

www.ethicsboard.org/restructured-code


http://www.ethicsboard.org/restructured-code

The Ethics Board

www.ethicsboard.org

http://www.ethicsboard.org/

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