Non-assurance Services Richard Fleck, IESBA Deputy and Working Group Chair IESBA Meeting New York September 17-20, 2018

Receive a report-back on roundtables in relation to NAS Objective Receive a report-back on roundtables in relation to NAS Discuss WG’s assessments and proposals Update on preliminary benchmarking observations Approve possible project proposal, including timeline

Activities Since June 2018 Meeting Two roundtables Tokyo (July 12) and Melbourne (July 16) WG meeting in New York Prepare and finalize a project proposal Comment letter from SMPC IESBA CAG meeting

General Reactions from SMPC SMPC generally supportive of project proposal Supportive of a principle-based approach for global Code Believe that regulators and NSSs should be allowed the flexibility to tailor NAS provisions based on national circumstances Do not support deletion of the exemptions → unintended consequences to SMPs (i.e., exclusion from tendering) Concerned that extending NAS provisions to audits of SMEs would cause unnecessary costs and complications

General Reactions from CAG (1) Strong support to initiate an NAS project proposal, including decisions to: Retain principles-based approach Emphasize role of, and auditor communications with TCWG Suggestions to emphasize linkages to: Fees Business Model

General Reactions from CAG (2) Cautions about understandability of “trivial and inconsequential” Consider also prohibiting NAS that create advocacy and self- interest threats Agreement that clarification is needed about which NAS are prohibited, but also important to be clear about which types of NAS are permissible NAS Regulatory perspective to help with enforceability Consider situations in which management might not be competent to assume responsibility

Topics Discussed at Roundtables General Policy Objective Materiality PIE and non-PIE provisions Unconditional NAS prohibitions (i.e., “black list”) New and emerging services Auditor communication with TCWG Disclosure and other matters

General Policy Objective Feedback from RT Participants General Policy Objective Ideal to achieve global harmonization of NAS provisions, but is that aim practical? Common high-quality NAS provisions at global level is helpful Calls for clearer and more explicit prohibitions Divergent views about how to achieve right balance Concept of “black list” has challenges Important to continue to link NAS prohibitions to CF because it explains rationale for why the prohibitions exist

Feedback from RT Participants Materiality (1) Views expressed included: General recognition that term is unclear Concern that it is subject to misuse or abuse If concept is retained, consider whether different terminology might be more appropriate Consider whether to use other terms like “acceptable” and “trivial and inconsequential”

Feedback from RT Participants Materiality (2) If term is withdrawn, consider whether there should be more guidance in the Code on how breaches, particularly immaterial breaches, should be handled Calls for more guidance Too early to tell if para. 600.5 A1 of Code is helpful Suggestions for a more explicit link to concept of RITP

PIE and non-PIE Provisions Feedback from RT Participants PIE and non-PIE Provisions Doubt about whether PIE and non-PIE continues to be appropriate approach for Code Important to consider needs of SMEs and SMPs Increasing trends for alternate funding sources Different descriptions/definitions of PIE contribute to complexity Typically PIEs = listed; decrease in number of listed entities in many jurisdictions Concern that SMPs may not have resources to implement PIE provisions and may opt out of providing audits

Communication with TCWG, Disclosure/ Other Feedback from RT Participants Communication with TCWG, Disclosure/ Other Strong support for increased transparency about NAS and NAS fees Support for requiring auditors to obtain NAS preapproval from TCWG Auditor will still need to assert for own view on compliance with independence Little or no support for fee caps Not for IESBA to require disclosure of NAS information by companies to stakeholders

New and Emerging Services Feedback from RT Participants New and Emerging Services Fundamental principles and general provisions in CF continue to be relevant, but more guidance is needed PAs need help to understand ethical implications of new services, including the types of threats they create Response should be timely Advancing technologies are blurring the lines b/w professional services and business relationships Are there other types of NAS that should be dealt with in Code?

Views about Feedback on Roundtables

WG Assessments and Proposals Matters for Consideration Self-review threat/ Materiality/ PIE vs non-PIE New and Emerging Services Communication with TCWG NAS Disclosure Requirements Matters not be Pursued “Blacklist” in the Code; Disclosure of NAS Provided by audited entities NAS Fee Cap Firms’ Business Models

Self-review Treat, Materiality, PIE vs non-PIE WG Assessment and Proposals Self-review Treat, Materiality, PIE vs non-PIE Is the current approach to self-review threats in the Code appropriate? Should the Code prohibit all NAS that create self-review threats? Should the concept of materiality be retained? Should the distinction between PIE and non-PIE provisions in the Code should be retained?

New and Emerging Services WG Assessments and Proposals New and Emerging Services Are there are other types of NAS, including new and emerging services that should be explicitly included in the Code? Review general NAS provisions in the Code to ensure that they remain appropriate Ensure a mechanism to provide timely guidance (e.g., staff publications, Q&A)

Achieving Transparency About NAS WG Assessment and Proposals Achieving Transparency About NAS Establish NAS disclosure req’ts at global level Jurisdictions to determine how best to respond to transparency issues Confidentiality? What to disclose? NAS fees? Where to disclose it?

Communication with TCWG WG Assessment and Proposals Communication with TCWG Consider whether, and if so how to establish req’ts in the Code for auditor communications with TCWG about NAS Duplicate in what’s already in IAASB’s ISA 260 (Revised) or add a reference? Should such req’ts apply to listed entities or PIEs? IAASB-IESBA applicability alignment needed IESBA’s remit does not extend to TCWG

Input from the Fees Working Group Options relating to ratio of NAS fees to audit fees issues Require firms to assess the cumulative effect of providing multiple NAS to audit clients Consider the role of disclosure of fee-related information Communication with TCWG about NAS/ pre-approval of NAS Require firms to re-evaluate threats to independence when ratio of NAS/ audit fees reach a particular threshold Establish caps on ratio of NAS/ audit fees (PIEs vs non-PIEs)?

Preliminary Benchmarking Code and the EU Regulation Code and SEC/ PCAOB Code, EU, SEC/PCAOB All acknowledge that providing NAS to audit clients might create “threats” to independence All include prohibitions for similar types of NAS, but different approaches used (e.g. materiality, self-review, threats and safeguards)

IESBA Code vs EU Regulation Preliminary Benchmarking IESBA Code vs EU Regulation IESBA Code Focus only NAS prohibitions that apply to PIEs Most NAS prohibitions have materiality as a qualifier Includes contextual information about each type of NAS EU Regulation Focus on EU Regulation only, which applies to PIEs only Absolute prohibitions Materiality consideration allowed for Member States, not firms Assuming management responsibility Taking part in management or decision making Bookkeeping Corporate finance services Providing general counsel Corporate finance advice General Counsel IESBA

Preliminary Benchmarking Code Versus SEC/PCAOB Focus on certain types of NAS Accounting and bookkeeping, tax, administrative, valuation, loaned staff, internal audit, IT, legal, recruiting Different approach Self-review threats, materiality, significant, safeguards in Code vs. “not subject to audit” in SEC/ PCAOB Different lexicon Firm and network firm, non-assurance, divisions and related entities in Code vs. Accounting firm, non-audit, and affiliate of the entity in SEC/ PCAOB

Proposed Timeline Approve project proposal? IESBA discussion of issues Indicative Timing Milestone September 2018 Approve project proposal? December 2018 IESBA discussion of issues March 2019 CAG and IESBA discussion of issues May/ June 2019 NSS Discussion IESBA: First read of ED/ CP September 2019 CAG and IESBA: Approve ED/ CP for exposure

Matters for Considerations Do IESBA members agree with the WG’s assessments and proposals? Do IESBA members believe that all NAS matters for consideration are appropriately dealt in the Project Proposal? Are there any other matters that IESBA members believe should be dealt with in a NAS project?

Project Proposal Do IESBA members agree to approve the NAS Project Proposal?

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