Page 1 Long Association Task Force Marisa Orbea, Task Force Chair IESBA Meeting April 7-9, 2014 Toronto, Canada

Page 2 From Sept. and Dec meetings, IESBA agreed: ‒ Monitor regulatory developments re: mandatory tendering and rotation legislation ‒ Strengthen overall framework of ‒ Maintain 7 yr. time-on period. Reconsider 2 yr. cooling-off period ‒ Mandatory rotation not required for non-PIEs or non-KAPs on PIEs Background Long Association

Page 3 IESBA requested TF to consider : –Longer cooling-off for Key Audit Partners (KAPs) on PIEs –Nature of permissible roles during cooling-off –How to consider time served on audit prior to becoming a KAP –Adding additional guidance in general framework for non- KAPs –Providing guidance on communication with those charged with governance (TCWG) on rotation issues Background Long Association

Page 4 TF proposal in Dec IESBA meeting - 3yr. cooling-off (combined with additional restrictions on permissible activities): –Varied response from IESBA members –Informal poll: 5 yr. cooling-off for Lead and/or Engagement partners. 2 or 3 yr. cooling-off for other-KAPs – 9 IESBA members 3 yr. cooling-off for all KAPs – 7 IESBA members TF requested to consider bifurcation of cooling-off period Length of Cooling-Off Period Long Association

Page 5 TF considered: –Reason to change cooling-off period: Perception concern Any change must be substantive Benefits of change must be balanced against cost of implementation –Familiarity concerns specific to Lead, Engagement and Other KAPs –All PIEs vs Listed Companies –Additional consequences to bifurcation Length of Cooling-Off Period Long Association

Page 6 All CAG Representatives that expressed a view: –indicated a preference for a uniform cooling-off period –Confirmed that a cooling-off period of greater than two years was preferable –Did not indicate a view on the ideal cooling-off period TF recommendation: –Bifurcation preferable option Length of Cooling – Off Period Long Association

Page 7 Conditions proposed at Dec.2013 IESBA meeting: –Cannot influence the audit outcome –Limited contact with engagement team and client Differing views received from IESBA members Should some restrictions be relaxed if a 5 yr. cooling-off is proposed? Permissible Roles during Cooling-Off Long Association

Page 8 TF Considered: –Whether certain roles could be performed after a period (e.g. 2 years) without creating significant threat –Balance addressing perception concern vs. practical problems relating to rotation and access to resources –After 2 years cooling-off could allow: Consult on technical and industry specific matters not previously considered Other services, provide not directly influencing audit outcome Permissible Roles during Cooling-Off Long Association

Page 9 CAG Comments: –Agree that a rotated partner should not be able to directly influence the outcome –Doubt over the practicality of no interaction –A Representative expressed a view that permissible activities should not be relaxed with a 5 yr. rotation period TF Recommendation: –Maintain proposed restrictions –If 5 yr. cooling-off option preferred, allow certain limited activities after 2 years Permissible Roles during Cooling-Off Long Association

Page 10 Dec 2013 proposals: –Familiarity essential to audit quality –How familiarity and self interest threats created –Factors to consider when evaluating threats –Factors – individually and in combination –Examples of safeguards – at engagement level and generally –Guidance on rotation as a safeguard Strengthening of Overall Framework Long Association

Page 11 –Board Responses Reconsider positioning of first sentence Clarify how threats and factors contribute to the significance of the threat Consider references to “senior management” Consider alignment of 1 year cooling-off period to suggested 3 year cooling-off period for PIEs Strengthening of Overall Framework Long Association

Page 12 CAG Comments: –Guidance on rotation as a safeguard appeared confusing –Cooling-off period of more than 1 year could be more appropriate –Is cooling-off period needed at all? TF Recommendation: –If rotation deemed appropriate safeguard – requires a min. cooling-off period –TF continues to recommend 1 year cooling-off Strengthening of Overall Framework Long Association

Page 13 Dec 2013 proposals: –Consider additional guidance in the context of the Code as a whole –Role of TCWG relating to exception provisions TF Recommendation: –Requirement in para /154 to obtain concurrence from TCWG Involvement of TCWG Long Association