IESBA Code vs. local codes in G20 & Major Financials Centers Reyaz Mihular, IESBA member and Emerging Issues and Outreach Committee Chair IESBA Meeting New York September 29, 2016

Adoption in G20 and Major Financials Progress report on analysis of key differences between the IESBA Code and local codes within the G20 and Major Financial centers Final report to be made at future date

Adoption in G20 and Major Financials History and Work Performed Oct 2014: EIOC requested to review adoption in G20 and major financials January 2015: Presentations begin Sources of Information: Presentations National Standard Setters (NSS) Representatives IFAC Quality & Membership (Q&M) team

Adoption in G20 and Major Financials Extent of adoption (as per IFAC Q&M team definition of adoption) Argentina and India not adopted Indonesia, Mexico, S. Arabia & USA partially adopted All others adopted the 2015 Code (with variations) Not adopted 2015 Code: India (’05), S. Korea (‘06), Indonesia (‘08), Canada and Mexico (’09)

Adoption in G20 and Major Financials EIOC Observations: Prioritize adoption of a/c standards over ethics standards Trouble keeping pace with regular changes No indication translation causing delays

Adoption in G20 and Major Financials Board members are asked for: Personal views on why jurisdictions not adopting latest Code Actions IESBA can take to assist jurisdiction with adoption

14 adopt CF in its entirety Different approach: Adoption in G20 and Major Financials – Part A - Conceptual Framework (CF) 14 adopt CF in its entirety Different approach: Australia: Consider multiple insignificant threats in aggregate Canada: no T&S, exception of independence standards USA AICPA: encourages use of CF if no guidance or Code requires. Uses rules-based not principles-based approach UK FRC: More requirements on engagement partner

Board members are asked for their views on: Adoption in G20 and Major Financials – Part A - Conceptual Framework (CF) Board members are asked for their views on: Implications for making the conceptual framework the basis for the IESBA Code if jurisdictions do not follow the conceptual framework concept Additional work the IESBA can perform to understand jurisdictions decision not to follow the conceptual framework concept

Adoption in G20 and Major Financials Part B - Substantive Provisions Ten countries with minor differences Eight take more stringent approach due to local issues Two take less stringent approach No themes between the differences

Adoption in G20 and Major Financials Part B - Section 290 - Independence PIE definition: Significant variations in definition EU regulators: listed & Financial. Allow extension of definition Criteria to assess PIE No. of employees rarely used. Correlation previously, but outdated Alternative criteria used by jurisdictions: Issuers of debt & equity, entities in process of listing, large charities

Adoption in G20 and Major Financials Part B - Section 290 - Independence EIOC Observations Possible alternative PIE Indicators: Industry that entity operating in and significance of that industry in jurisdiction Consequences if entity fails Is one size fits all PIE definition possible?

Board members are asked for their views on: Adoption in G20 and Major Financials Part B - Section 290 - Independence Board members are asked for their views on: Need to enhance factors to consider when assessing if an entity could be deemed a PIE

Adoption in G20 and Major Financials Part B - Partner rotation Significant variations by jurisdiction Only Canada concurs with revised LA proposals (based on available information in rotation requirements) MFR - substantial effects on partner rotation EIOC Observations Not an emerging issue Board should monitor LA project “one size fits all approach” may not be practicable

Adoption in G20 and Major Financials Part B - Provision of Non-Assurance Services (NAS) Guidance in Code NAS permitted provided threats to independence considered and reduced to acceptable level Examples of prohibited NAS in Code – not exhaustive

Adoption in G20 and Major Financials Part B - Provision of Non-Assurance Services (NAS) Two themes emerged: Six jurisdictions: TCWG approve NAS Qualification by entity type, notably PIEs Qualification by threats created, notably advocacy or self-review Self-review: mgmt. responsibilities, account & fin. Statements prep, valuations, internal audit and corporate finance services Main concern over permissible NAS. EU prohibitions address self- review threats and ensuring auditor independence. Advocacy: many provisions, notably around litigation support

Adoption in G20 and Major Financials Part B - Provision of Non-Assurance Services (NAS) EIOC Conclusions NAS prohibitions main difference No indication Code weak - additional restrictions due to local issues EIOC to compile a compilation of NAS differences by jurisdiction to allow detailed comparison

Adoption in G20 and Major Financials Confirmation of Adoption Data Currently rely on member bodies to self-certify status of adoption Need to check enforcement EIOC to seek informal ratification from Firms Firms might only consider from an audit aspect Consider obtaining ratification from local regulator

Adoption in G20 and Major Financials Confirmation of Adoption Data Board members are asked for their views on: How the status of adoption can be ratified