KICPA Seminar Seoul, South Korea November 12, 2013 IESBA Update Jörgen Holmquist, IESBA Chair KICPA Seminar Seoul, South Korea November 12, 2013

Role of Ethics Ethics fundamental to civil society A strength of society when not everything comes from legislation Legislation is necessary But society stronger if the professions are involved in setting rules and principles for how society should work Adherence to a robust code of ethics a hallmark of the accountancy profession Reflects the profession’s commitment to acting in the public interest

Importance of Ethics Standards Robust ethics standards: Are key to fostering and maintaining trust in the profession Help professional accountants (PAs) understand and meet their clients’ and employers’ expectations and therefore better serve them Provide a basis for accountability Help to uphold good reputation of the profession

About the Ethics Board and Its Role Independent Board Overriding objectives: Set standards to support high level of ethical conduct by the profession Facilitate adoption of high-quality ethics standards globally 18 members, including three public members First independent Chair since Sept 2012 Overseen by Public Interest Oversight Board (PIOB) Consults twice yearly with Consultative Advisory Group (CAG)

Engaging with Stakeholders Focus on increasing regulatory trust in Ethics Board Closer dialogue with IOSCO, IFIAR, and national regulators But focus equally on strengthening dialogue with the profession Opportunity to speak to Korean profession greatly appreciated Country visits over past 12 months Australia, China, France, Germany, Ireland, Italy, Japan, Myanmar, Portugal, South Africa, South Korea, Spain, UK, US, Vietnam Media outreach, e.g., El País, Australian Financial Review, Le Monde, and IFAC member body journals and magazines

Highlights of Current Work Program

Responding to Non-Compliance with Laws and Regulations Highlights of Current Work Program Responding to Non-Compliance with Laws and Regulations Impetus for project Regulatory perception that confidentiality provisions in IESBA Code are an impediment to whistle-blowing re non-compliance with laws and regulations Key issue When should a PA override confidentiality and report non-compliance to an appropriate authority? Balances confidentiality principle vs. acting in public interest Debate about disclosure of non-compliance is about what’s reasonable to ask of PAs within their role in the public interest

Changes Being Considered to Exposure Draft Responding to Non-Compliance with Laws and Regulations Changes Being Considered to Exposure Draft A right to override confidentiality to serve the public interest Alignment to ISA terminology (non-compliance with laws or regulations) A less prescriptive approach to the guidance No limitation on the type of reportable non-compliance Only encouraging documentation Communication between successor and predecessor auditors A number of more technical issues

Highlights of Current Work Program Structure of the Code Enhancing the Code’s usability To spur increased adoption and more effective implementation Considering options to facilitate compliance/enforcement, e.g.: Raise visibility of requirements and prohibitions Clarify who is responsible for meeting them Also considering a number of other options, e.g.: Use of plain English, re-packaging, development of complementary materials such as summaries and flow charts, electronic Code, etc No changes in the short term

Long Association of Senior Personnel with an Audit Client Highlights of Current Work Program Long Association of Senior Personnel with an Audit Client A number of issues being considered, e.g. Whether 7-year on / 2-year off rotation requirement remains appropriate Permissible activities during cooling-off period Who should be subject to rotation Involvement of those charged with governance Surveys of jurisdictions and audit committees, and other research Towards ED Q3 2014? Not addressing mandatory firm rotation or mandatory tendering

Non-Assurance Services (NAS) Highlights of Current Work Program Non-Assurance Services (NAS) Project focusing on: Clarification of provisions addressing management responsibilities Clarification of concept of “routine and mechanical” re bookkeeping services Review of emergency exception provisions re bookkeeping and tax services Also to develop position paper to, among other matters: Raise awareness of Code’s approach to NAS and highlight its robustness Highlight potential supplementary ways that may enhance threats and safeguards approach to independence, e.g., audit committee approval, firewalls

Review of Part C of the Code Highlights of Current Work Program Review of Part C of the Code Addressing three priority issues with respect to professional accountants in business (PAIBs) Pressure by superiors and others to engage in unethical or illegal acts Responsibility of PAIBs to produce financial reports that are faithful representations of the economics of transactions Facilitation payments and bribes Towards ED/consultation paper Q3 2014?

Strategy and Work Plan 2015-2018 To prioritize review of structure of the Code Short list of possible projects/initiatives proposed Review safeguards in the Code for appropriateness and adequacy Fee dependency Collective investment vehicles Approval of consultation paper December 2013 Input of Korean stakeholders strongly encouraged

Further enhancing regulatory trust in the Ethics Board Key Challenges Further enhancing regulatory trust in the Ethics Board Threats and safeguards approach / Principles-based Code Robust Code – not Least Common Denominator Further strengthen the Code vs. burden of implementation Understanding extent to which the Code is enforced and how compliance can be further improved Acting in the public interest

The Ethics Board