Fees Briefing Paper Chishala Kateka, IESBA Member and Fees Working Group Chair IESBA Meeting March 13-15, 2017
Overview of the Session Receive an update of the WG’s fact finding activities Provide input on the upcoming stakeholders outreach Exchange views about next steps
Background - Fees Initiative Responsive to regulatory concerns and PIOB’s call in early 2015 to revisit issues on auditor independence from a broader perspective, including fee-related issues Supported by CAG and other stakeholders IESBA brought forward its fees related initiatives that was originally scheduled to commence in 2017 WG was established in July 2015
Background – Objectives of the WG Two objectives Fact finding – Is there is a relationship between fees and threats to compliance with FPs and to independence? Develop recommendation for IESBA’s consideration
Background – Four Areas of Focus Level of audit fees Relative size of fees Ratio of non-audit services fees to audit fees Firm with significant non-audit service business
Background – Non-audit vs non-assurance “Non-audit services” is used in the terms of reference and the research scope “Non-assurance services” is the term used widely in the Code The WG agrees to use “non-assurance services” for forming conclusions about its fact finding activities except when referring to the codes, rules or regulations of others
Approach to Fact Finding Three key fact finding activities: 1. Review of academic research 2. G-20 benchmarking 3. Stakeholders outreach
Fact Finding - Review of Academic Research 2. G-20 benchmarking 3. Stakeholders outreach
Fact Finding - Review of Academic Research Based on Prof. Hay’s observations: Evidence for four areas of focus is generally lacking or mixed except for one aspect There has been consistent findings that suggest a link between higher non-audit fees charged and threats to independence in appearance. Overall, research findings did not suggest widespread ethical problems
Fact Finding - Review of Academic Research WG’s view: Findings in the summary of academic research are generally inconclusive More information is required to better understand the nature and extent of any fee-related issues
Fact Finding - G-20 Benchmarking 1. Review of academic research 2. G-20 benchmarking 3. Stakeholders outreach
Fact Finding - G-20 Benchmarking The WG conducted an overview of the fees provisions in G-20 jurisdictions The WG has highlighted three jurisdictional measures in the briefing paper: Pre-approval of services by TCWG Required auditor communication about fees Fee cap for provision of non-audit services to audit clients
Matters for IESBA Consideration IESBA members are asked to share their views about: The WG’s fact finding completed to-date and its observations. The list of stakeholders in Appendix 2 and the questions to be asked of each stakeholder group.
Fact Finding – Stakeholders Outreach 1. Review of academic research 2. G-20 benchmarking 3. Stakeholders outreach
Fact Finding – Stakeholders Outreach The WG intends to send questionnaires to firms, regulators and audit oversight bodies, corporate governance community and investors The WG is seeking the Board’s input on two aspects: The list of stakeholders under each category of stakeholders The questions for each category
Fact Finding – Stakeholders Outreach Stakeholder group: Firms Those charged with governance Audit oversight bodies and regulator National Standard Setters Investors
Next Steps WG will distribute questionnaires to stakeholders after incorporating the Board’s comments and changes WG will review responses and conduct additional follow up discussions, outreach activities and research if appropriate
Matters for IESBA Consideration IESBA members are asked for views about possible next steps, or other actions, if any, that the WG should take to obtain an understanding of whether there is a relationship between fees charged and threats to compliance with the fundamental principles or to independence.