Structure of the Code Phase 1 Don Thomson, Task Force Chair IESBA Meeting New York, USA December 12-16, 2015

Key Features of the Restructuring Structure of the Code Key Features of the Restructuring Enhanced understandability, improved usability Serving the public interest, responsive to stakeholders Requirements distinguished from guidance Increased prominence of principles and the conceptual framework Increased clarity of responsibility IAASB ISQC 1 Task Force considering further clarification Increased clarity of language, improving readability

Other Features of Restructuring Structure of the Code Other Features of Restructuring New title to emphasize key features Guide to the Code More self-contained sections Careful to avoid inadvertent changes in meaning Careful to avoid any weakening of the Code Various matters outside scope noted for Board attention

Structure of the Code Phases 1 and 2 – Agenda Items 3 and 3-A Project Status September 2016, general support and input from Board and CAG Outreach - SMPC, Forum of Firms and IFIAR Reflected on Board and CAG and other input; refined proposals Drafting guidelines revised, oversight and support to other TFs Presenting Phase 1 revisions today; Phase 2 tomorrow Staff-prepared compilation Agenda Item 3-F facilitated consistency review – changes reflected as necessary in text Final documents include Staff-prepared mapping to assist review

Meeting Objectives and Approach Structure of the Code Phases 1 and 2 – Agenda Item 3 Meeting Objectives and Approach Review and obtain input on the draft restructured Code Discuss highlights of proposed changes since September set out in 3-B Discuss highlights of proposed changes arising from advance input Opportunity for IESBA members to raise any other significant matters “Wordsmithing” suggestions welcome off-line Further proposals to be discussed on Thursday Advance input considered by Task Force on Sunday Updated draft text and additional particulars of input received will be available on Wednesday

Conforming Amendments and Consistency Structure of the Code Phase 1 – Agenda Item 3-A Conforming Amendments and Consistency NOCLAR and Safeguards conforming amendments in text Consistency review - editorial changes Compliance with Drafting Guidelines For example, completeness and consistency of headings Consistency between Task Forces For example, between Sections 310 and 210

Preface, Guide and Tables of Contents Structure of the Code Phase 1 – Agenda Item 3-B Preface, Guide and Tables of Contents Preface, Change to active voice from consistency review Paragraph 6, deleted reference to firms to clarify text Paragraph 10, adjusted language to simplify wording Paragraph 11, “may” and “might” added in Guide and Glossary to clarify their particular use in the Code denoting possibility and permission respectively Table of contents paragraph number change; illustrated for Parts in Staff-prepared compilation

Preface, Guide and Tables of Contents Structure of the Code Phase 1 – Agenda Item 3-B Preface, Guide and Tables of Contents Advance Feedback Para. 4, Part 2 – add “performing professional activities” Para. 4, Glossary – change to “used throughout the Code” Para. 6 – restore deleted sentence without parentheses Para. 8 – change to “of which the subsection forms a part” Para.12 – delete “as noted in paragraph 100.2”

Part 1 – Sections 100 to 120 Part 3 – Sections 300 to 350 Agenda Item 3-B Part 1 – Sections 100 to 120 Part 3 – Sections 300 to 350 Part 1 100.3 A2, clarified whose belief re disproportionate outcome 112.2 A1, reference to familiarity removed as threats are first addressed in Section 120 Part 3 Changes in this Part are those which have occurred throughout the Code from the consistency review, NOCLAR and Safeguards

Part 1 – Sections 100 to 120 Part 3 – Sections 300 to 350 Agenda Item 3-B Part 1 – Sections 100 to 120 Part 3 – Sections 300 to 350 Advance Feedback Part 1 112.2 A1 – delete premature reference to threats Part 3 320.3 – delete “changes in” R320.5 and 320.5 A1 – relocate continuance consideration

Structure of the Code Phase 1 - Agenda Item 3-B Part 4A – Paragraphs 400 to 430 400.4, used a footnote to set out the complete name for ISQC 1, improving readability 400.10, removed reference to “line items,” now addressed in Section 900.1 R400.52, refined changes to network firm restructuring 400.70 A1, change highlighting that if a firm’s objectivity is compromised it will be unable to continue as auditor

Structure of the Code Phase 1 - Agenda Item 3-B Part 4A – Paragraphs 400 to 430 Advance Feedback 400.32 A1, etc., – change “members of” to “… members” 400.70 A1 – delete duplicate of compromised objectivity R400.75 – change “set out in” to “identified” 400.80(e)(ii) – change “might be possible” to “is possible” 400.80 A2 – delete duplicate lead in, “when a …”

Structure of the Code Phase 1 – Agenda Item 3-B Part 4A – Paragraphs 510 to 525 511.6 A1, deleted repetitive text 520.4 A1, and 520.6 (c)(ii), further clarified the application of materiality or significance test to network firms R524.8, adjusted the wording to better express the meaning of the paragraph

Structure of the Code Phase 1 – Agenda Item 3-B Part 4A – Paragraphs 510 to 525 Advance Feedback 510.7 A1, etc. – change “members of” to “… members” 511.6 A1 – change “home mortgages” to “mortgages” R511.8, etc. – change “respectively” to “as applicable” 520.4 A1 – delete “such a relationship is significant” R520.6, etc. – revise insignificant network firms wording R521.9 – delete “network firm” from title

Structure of the Code Phase 1 – Agenda Item 3-B Glossary New definitions May and might in Guide and Glossary Predecessor accountant (NOCLAR) Proposed accountant (NOCLAR) PAIB definition adjusted (Part C); RITP adjusted (Safeguards) Described terms Cooling-off – added Materiality deleted, matter for Board attention

Structure of the Code Phase 1 – Agenda Item 3-B Glossary Advance Feedback “Cooling-off” – add “period” “Eligible audit engagement” add description

Highlights of changes from ED 1 and Basis for Agreement-in-Principle Unintended changes of meaning Network firm, necessary adjustments made Guide to the Code No longer part of the Code; Some material moved back to the Code Prominence of the fundamental principles and need to be independent highlighted Linkage between independence and objectivity clarified Generally necessary retained in Sections 310 and 210

Other Significant Matters Structure of the Code Phase 1 – Agenda Item 3-B Other Significant Matters Do IESBA Members wish to raise any other significant matters that have not already been discussed? Preface and Guide Part 1 Part 3 Part 4A The Task Force welcomes “wordsmithing” input off-line

Agenda Item 3-A Next Steps Proposed ED-2 with complete restructured Code, including agreement-in-principle on Phase 1 Early consideration of implementation issues encouraged Important for users of the Code to consider these issues CAG emphasized the importance of IESBA also considering issues Matters for Board attention – input on out of scope matters Electronic enhancements further work in 2017 and tools – once Code is final

Forward Timeline (Tentative) Structure of the Code Phases 1 and 2 Forward Timeline (Tentative) DECEMBER 16 JUNE 2017 SEPT 2017 DEC 2017 Structure Phase 1 Agree-in-principle   Approve Final Structure Phase 2 Approve ED 2 Update Full review Safeguards Phase 1 Safeguards Phase 2 First-read LA/NOCLAR/ Part C Phase 1 Approve ED restructured text

Structure of the Code Phase 2 Don Thomson, Task Force Chair IESBA Meeting New York, USA December 13, 2016

Structure of the Code Phase 2 – Agenda Items 3-A and 3-H Phase 2 Status Staff-prepared compilation facilitated consistency review Phase 2 consistent with Phase 1 3-D includes TF’s revised proposals – reflects ED-2 “Chapters” Section 800 and Part 4-B reflect the Drafting Guidelines and include Safeguards conforming amendments (gray text) The Task Force welcomes “wordsmithing” input off-line Final consideration of Phases 1 and 2 on Thursday

Structure of the Code Phase 2 – Agenda Item 3-D Part of Part 4-A Section 800 Introductory text reordered to conform to drafting conventions R800.13 – text modified from “prepares” to “performs” an eligible audit engagement

Structure of the Code Phase 2 – Agenda Item 3-D Part of Part 4-A Section 800 Advance Feedback R800.8 – delete the first “interests and relationships”

Structure of the Code Phase 2 – Agenda Item 3-D Part 4-B Introductory text reordered to conform to drafting conventions 900.1 – added a second example 910.4 A1 – reinstated reference to “directly” and “indirectly” (also paragraph 510.4 A1)

Structure of the Code Phase 2 – Agenda Item 3-D Part 4-B Advance Feedback 900.1 – change second example to performance assurance 900.13, etc. – remove references to unused section numbers R900.17, line 1 – change “any threat” to “a threat” R900.53 – delete “as appropriate” 907.2 – add reference to types of threats R911.5, etc. – change “respectively” to “as applicable”

Other Significant Matters and Explanatory Memorandum Structure of the Code Phase 2 – Agenda Item 3-D Other Significant Matters and Explanatory Memorandum Do IESBA Members wish to raise any other significant matters that have not already been discussed? Section 800 Part 4B Explanatory Memorandum