Review of Part C Phase 2 - Applicability Helene Agélii – IESBA Member and Task Force Chair IESBA Meeting New York, USA June 19-21, 2017

Applicability – Background Project objective Approach adopted by TF: Holistic Does not identify specific ethical issues/matters ED released in January 2017 with comment period closed on April 25, 2017

Session Outline Overview Clarity of Requirement paragraphs (R120.4 & R300.5) Scope of Requirement paragraphs Relevance of example in paragraphs 120.4A1 & 300.5 A1 Location of Applicability paragraphs Other matters

Received 39 comment letters Respondents are generally supportive of: 1. Overview Received 39 comment letters Respondents are generally supportive of: Objectives of the proposals The holistic approach Only a few respondents expressed general concerns about increasing complexity of Code

1. Overview Key comments: Clarity of the Requirement paragraphs – when is Part C applicable to PAPPs Scope of the Requirement paragraphs – individual non-PAs working in a firm Specific example vs non-exhaustive list of relevant situations Definitions of PAPP and PAIB

1. Overview In response, the TF: Made preliminary revisions to both the proposed requirement and application material Sought early feedback from Structure TF

Matter for IESBA Consideration 1. Overview Matter for IESBA Consideration Views about general comments on Applicability ED and TF’s response

2. Clarity of Requirement Paragraphs (R120.4 & R300.5) Majority of respondents did not raise any issues Key comments: First sentence may be inaccurate – phrase “ethical issues” Should state the whole Code may be applicable Unclear what circumstances will trigger applicability Does not cover the situation whereby a PA has multiple roles as both a PAPP and PAIB

2. Clarity of Requirement Paragraphs – TF Proposals First sentence Revised A PA shall consider the facts and circumstances, including any professional activities, interests and relationships that might create threats to compliance with the FPs, and the context in which they apply and comply with the relevant requirements of the Code ED When facing an ethical issue, a PA shall consider the context within which the issue has occurred.

2. Clarity of Requirement Paragraphs – TF Proposals Second sentence ED Revised Where a PAPP is performing professional activities pursuant to the PAPP’s employment or ownership relationship with the firm, there might be req’ts and AM in Part 2 that are also applicable to those circumstances. If so, the PAPP shall comply with the relevant provisions Where an individual who is a PAPP is performing professional activities other than for clients of the PAPP’s firm, and there are req’ts and AM in Part 2 that are applicable, the PAPP shall comply with those relevant provisions

Clarity of Requirement paragraphs Matter for IESBA Consideration: TF response to comments about clarity of Requirement paragraphs Does IESBA agree with the TF’s preliminary revisions to para R120.4 and R300.5?

3. Scope of Requirement Paragraphs (R120.4 & R300.5) Key concerns from respondents: Compliance of Part C by non-PA individuals working in firm (e.g., a lawyer) Whether the proposals cover contractors of firms

3. Scope of Requirement Paragraphs – TF Proposal Individual non-PAs: Individual non-PAs not within scope (TF’s view) TF’s rationale is based on extant definitions To avoid confusion, revised proposals to include only individuals PAs PAs working as contractors Issue not relevant in light of revised proposals to requirement

Scope of Requirement paragraphs Matters for IESBA Consideration: TF response to comments about scope of Requirement paragraphs Extant definitions TF’s rationale to clarify Part C applicability to individual PAs only

4. Relevance of Examples (120.4 A1 and 300.5 A1) Whilst most respondents did not raise concerns or provide alternatives, other questions raised suggest need for clarification Key suggestions: Minor changes to example Replace with new example (e.g., preparing engagement budgets) Replace with more guidance - non-exhaustive list of situations

4. Relevance of Example – TF Proposals Replace specific example with a non-exhaustive list Rationale – breadth vs depth Four examples that cover different relationships in different situations: Senior staff, supplier, internal department Conflicts of interest, pressure, inducement and preparation of information for internal use

Matters for IESBA Consideration: 4. Relevance of Example Matters for IESBA Consideration: TF’s proposal to replace the specific example with a list of situations Relevance of situations listed in Agenda item 7-B If the example is to be retained, should it be amended or replaced

5. Location of Applicability Paragraphs Respondents are generally supportive A number of options were suggested TF proposal: No change to the locations TF will review additional guidance already in the Code Matter for IESBA Consideration Do IESBA members agree with TF proposal?

6. Other Matters – Structure of the Code Division by Roles Definitions of PAPP and PAIB lacks clarity: Definition of PAPP may include PAIB working in a firm (e.g. CFO of the firm) Definition of PAIB may include PAPP Respondents did not believe these gaps will impact the intended objective of the proposals

6. Other Matters – Structure of the Code TF proposal: Issues regarding definitions outside the scope of this project TF’s view is that these concerns will not impact on the objective of the Applicability paragraphs Recommend the Board to consider the concerns at a later date Matters for IESBA Consideration: Do IESBA members agree with the TF’s proposal?

IESBA to consider a “second read” in September 2017 Way Forward TF will: Consider Board’s comments during its July 2017 meeting Liaise with Structure TF on matters relating to Structure of the Code IESBA to consider a “second read” in September 2017 Finalization of revisions to proposals clarify applicability by December 2017 is on track