IESBA Meeting June 28, 2016 Brian Hunt, IFIAR Vice Chair New York, 28 June 2016 IFIAR: International Forum of Independent Audit Regulators

Agenda IFIAR Governance Structure 2016 Key Work Streams 2015 Inspections Survey Discussion with IESBA 1

2 IFIAR Governance Structure Evolving Governance New Governance Model Permanent Secretariat MMOU Assessments

3 IFIAR Working Groups Global Audit Quality Working Group Enforcement Working Group Standards Coordination Working Group International Cooperation Working Group Inspection Workshop Working Group Investor and Other Stakeholder Working Group

Key Work Streams Improve Global Audit Quality Engage with Big Six Engage with Standard Setters Engage with Investors/Audit Committees

5 Big Six International leadership re: audit, risk, quality Global CEO 1:1s Commitment to 25 per cent reduction in findings Inspections Survey baseline for measurement = 39 per cent of audits feature at least one deficiency

6 Standard Setters Assess standard setting projects Dialogue with IAASB and IESBA Comment letters

7 Our Input Assess most common/frequent findings for areas to improve ISA 600, ISA 540, ISA 315/ISA 330, ISQC1 / ISA 220, professional skepticism, data analytics and standards ISA 320, ISA 620, ISA 330 and ISA 500 and 520 not currently on IAASB’s work plan

8 Our Input Is the standard setting process flexible enough to address urgent emerging issues? Are they clear about auditor requirements? Do they drive consistency of execution and skepticism? Do they consider the public interest? Do they consider inspection findings/themes? Is the pace of change appropriate?

9 Investors & Audit Committees Investors and Other Stakeholders WG launches Advisory Group Thought leadership on enhanced audit committee role

Inspection Findings Survey Fourth annual Survey Inspection findings reported between July June 2015

11 How The Survey Works Members provide Big Six inspections findings PIE, SIFI audits Firm quality control systems Explore inspection themes Compare nature/extent of findings Identify trends in audit quality over time

Results 376 (43 per cent) of 872 inspected audit engagements had deficiencies (2014: 47 per cent) 49 (51 per cent) of 96 inspected major financial institutions had deficiencies (2014: 41 per cent) 29 Members reported findings at PIEs 14 Members reported findings at SIFIs 33 Members reported findings re quality control systems

13 Survey: Findings from Listed PIE Audit Inspections (incl. listed SIFIs) Inspection Theme Number of Findings (a single PIE may have multiple findings for the same theme) # of Listed PIE Audits Inspected # of Listed PIE Audits with at Least One Finding % of Listed PIE Audits Inspected with at Least One Finding Internal Control Testing % Fair Value Measurement % Risk Assessment % Revenue Recognition % Inventory % Adequacy of Financial Statement Presentation and Disclosure % Group Audits % Substantive Analytical Procedures % Adequacy of Review and Supervision %

14 Survey: Findings from Listed PIE Audit Inspections (incl Listed SIFIs) (cont’d) Inspection Theme Number of Findings (a single PIE may have multiple findings for the same theme) # of Listed PIE Audits Inspected # of Listed PIE Audits with at Least One Finding % of Listed PIE Audits Inspected with at Least One Finding Fraud Procedures % Audit of Allowance for Loan Losses and Loan Impairments % Engagement Quality Control Review % Use of Experts and Specialists % Related Party Transactions % Audit Report % Audit Committee Communication % Going Concern % TOTAL # of FINDINGS1.130

15 Survey: SIFI Findings Inspection ThemeNumber of Findings # of SIFI Audits Inspected # of SIFI Audits with at Least One Finding % of SIFI Audits Inspected with at Least One Finding Internal Control Testing % Audit of Allowance for Loan Losses and Impairments % Valuation of Investments and Securities % Use of Experts and Specialists % Risk Assessment % Insufficient Challenge and Testing of Management's Judgments and Assessments % Testing of Customer Deposits and Loans % Audit Methodology including Programs and Tools % Group Audits % Adequacy of Financial Statement Presentation and Disclosures % Substantive Analytical Procedures2 2827% Fraud Procedures2 2927% Audit Committee Communication1 4013% Audit Report0 3200% TOTAL # of FINDINGS185

Survey: Quality Control Findings Total Number of Findings Audit Firms with at Least One Quality Control Finding Inspection Theme #% Engagement Performance % Independence and Ethical Requirements % Human Resources % Monitoring % Client Risk Assessment, Acceptance, and Continuance % Leadership Responsibilities for Quality within the Firm % TOTAL # of FINDINGS508

17 Key Insights Improvement, but pace too slow Persistent, high levels of findings in key areas Total findings in quality control decreased Half say root cause analysis is performed; ¼ say mandated by regulator/other external body 23 per cent say overall improvement of audit quality; 54 per cent no change; 4 per cent overall decline

18 Q & A