Structure of the Code – Phases 1 and 2 Don Thomson, Task Force Chair IESBA CAG Meeting New York, USA September 14, 2016

Project Objectives - The Public Interest Agenda Item B, paragraph 6 Project Objectives - The Public Interest Enhance understandability Facilitate compliance & enforcement Improve usability Facilitate adoption Effective implementation Consistent application

Background January 2013 – Working Group began research Agenda Item B, appendix Background January 2013 – Working Group began research April 2014 – Project approved November 2014 – Consultation Paper issued December 2015 – Exposure Draft (Phase 1) issued April 2016 – Comment period ended

Overview of the Code Part 1 (All Professional Accountants) Part 2 Complying with the Code, Fundamental Principles and Conceptual Framework (Sections 100 to 199) Part 2 Professional Accountants in Business (Sections 200 to 299) Part 3 Professional Accountants in Public Practice (Sections 300 to 399) International Independence Standards (Parts 4A & 4B) Part 4A—Independence for Audits & Reviews (Sections 400 to 899) Part 4B—Independence for Other Assurance Engagements (Sections 900 to 999) Glossary (All Professional Accountants)

Agenda Item B, page 1 Session Objectives Discuss significant project matters, particularly those arising from feedback on Structure ED-1 Obtain representatives' views about proposed responses Provide an update on the project, including Phase 2

Respondents to Structure ED-1 Agenda Item B-1, paragraph 1 Respondents to Structure ED-1 Category Number Regulators and Oversight Authorities 6 National Standards Setters 2 Firms 10 Public Sector Organizations 1 Preparers IFAC Member Bodies & Other Prof. Orgns. 29 Individuals Total (including some collective input) 50

Agenda Item B-1, paragraph 2 and Appendix Highlights Widespread support for the project & its key features Many helpful wording suggestions, including suggestions to avoid possible inadvertent meaning changes Many support proposed timetable but some favor a longer time- frame for completion & final review When ED-2 is issued, the TF will make available a complete proposed restructured Code including final Phase 1 agreed-in- principle & Phase 2 for Structure & Safeguards

Clarification of Introductory Language Agenda Item B-1, paragraphs 3-5 Clarification of Introductory Language Further clarified in introductory language (and paragraph 7 of the Guide) the need for professional accountants to Comply with the fundamental principles (FPs) Maintain independence when required to be independent Apply the conceptual framework (CF) Specific requirements and application material support compliance with FPs and, in independence sections, the requirement to be independent (roadmap from S120)

Agenda Item B-1, paragraphs 3-5 Recurring Language With enhanced introductory language increasing the prominence of requirements to comply with the FPs, be independent (where appropriate) and apply the CF Deleted many recurring requirements to apply the conceptual framework to avoid it being ignored through overuse Repetition of the requirement to apply the conceptual framework retained in the general sections, Sections 200, 300, 400 and 900 Repetition of the requirement to be independent included in Sections 400 and 900

Ordering of Requirements and Application Material Agenda Item B-1, paragraphs 6-7 Ordering of Requirements and Application Material Principles-based approach underlies and reinforces specific requirements and application material Ordering of requirements and application material designed to Maintain the prominence of the principles-based approach Recognize the need for scalability Clearly link application material and any exception to the related requirement

Responsibility for Compliance Agenda Item B-1, paragraphs 8 and 9 Responsibility for Compliance Firms & PAs within firms each have responsibilities Retained use of firm for ease of reference Moved discussion up from 400.7 to 400.5 Added reference to firm in Section120 More closely aligned Code’s language to ISQC 1 Continued liaison with IAASB WG

CF Independence Linkage Agenda Item B-1, Appendix rows 3, 5 and 6 CF Independence Linkage Deleted the statement "Independence is a measure of objectivity" In Section 120 Clarified the linkage between independence and the fundamental principles using the independence definition Clarified the application of the CF to independence Added a roadmap to the independence standards

Disproportionate Outcomes and Ethical Conflict Resolution Agenda Item B-1, Appendix rows 10 and 11 Disproportionate Outcomes and Ethical Conflict Resolution Disproportionate outcomes Encourages consultation if applying requirement considered disproportionate or not in public interest No longer grouped with ethical conflict resolution Ethical conflict resolution material enhanced from abbreviated text in ED-1 (extant material restored) Discussion of both returned to the Code from the Guide

Audit and Review – Title – Guide Agenda Item B-1, Appendix rows 13,14,15 Audit and Review – Title – Guide Many not all supported "audit" for ease of reference Profile should be raised – not merely a footnote – audit equally applies to reviews Title International Code of Ethics for Professional Accountants (including International Independence Standards) Guide to the Code – widespread support With but not part of the Code as it is non-authoritative guidance

Highlights of Suggestions - Avoiding Possible Meaning Changes Agenda Item B-1, paragraphs 10-15 Highlights of Suggestions - Avoiding Possible Meaning Changes Revised text to address possible inadvertent changes in meaning – amongst others, topics included Network firms (distinguished from firms in the restructured Code) Oversight authority (grouped with regulators in ED-1) Firm (used for ease of reference re independence responsibilities)

Update on Structure Phase 2 Agenda Item B, paragraph 3 Update on Structure Phase 2 Restructuring directly by the Structure Task Force Section 800 (extant 290.500) Reports Including Restrictions on Use and Distribution Section 900 (extant 291) Independence - Other Assurance IAASB conforming changes outside project’s remit Overseeing restructuring by other task forces Long Association, NOCLAR, Part C and Safeguards Drafting guidelines help achieve consistency

Agenda Item B-1, paragraphs 17-19 Next Steps September – wording, including changes in meaning December – Phase 2 with complete restructured Code, including agreement-in-principle on Phase 1 Early consideration of implementation issues encouraged Matters for Board attention – input on out of scope matters Electronic enhancements and tools – once Code is final