Review of Part C of the Code – Inducements & Applicability Helene Agélii – IESBA Member and Task Force Chair IESBA CAG Meeting Madrid, Spain September 13, 2017

Overview of the Session Inducements Provisions Update and report back on March 2017 CAG Applicability ED Highlight significant issues raised by respondents to ED Discuss TF proposed response Obtain CAG’s views in advance of Board meeting

Inducements – Overview Deliberations IESBA deliberated issues and TF proposals (Mar & Jun 2017) Approval ED approved by IESBA (Jun 2017) Exposure ED issued for exposure (Sept 8, 2017) Comments Due Dec 8! Review TF anticipates discussing feedback on ED and proposed response with CAG and IESBA (March 2018)

Inducements – Report Back TF/IESBA responses to key matters raised by CAG Definition of bribery and corruption not necessary ED establishes description of inducement; clarifies term as being neutral Use of RITP test in enhanced conceptual framework ED clarifies general approach to dealing with inducements Terms “trivial and inconsequential”, “immediate family” and “close family” not new terms

Inducements – ED Key Features Description of Inducements Compliance with Laws and Regulations Intent Test Application of Conceptual Framework Immediate or Close Family Member Conforming Changes for PAPP Sections

Inducements – Matter for CAG Consideration CAG Representatives are asked to note report back and share any reactions

Applicability – Overview Project objective Approach adopted by IESBA

Applicability – Overview IESBA anticipates approval of proposed text DEC 2017 Further consideration of issues and “first read” of revised proposals SEPT 2017 IESBA discussion of comments on ED and TF response JUN 2017 ED released with 90 day comment period JAN 2017 Applicability – Overview

Applicability – ED Comment Overview Received 40 comment letters Respondents are generally supportive of: Objective of the proposals The holistic approach Only a few respondents expressed general concerns about increasing complexity of Code

Applicability – Issues and TF Proposals Key issues raised by respondents: Clarity and Scope of Requirement Illustrative Examples Location of Guidance Material Structure Related Matters

Issue 1 – Clarity and Scope of Requirement (Circumstances) Comment PAs should be required to consider whole Code and comply with relevant provisions Proposal TF does not support this suggestion as it may draw focus away from project objective

Issue 1 – Clarity and Scope of Requirement (Circumstances) Comment: Phrase “facing an ethical issue” implied that PA has already encountered a specific ethical issue that needs to be addressed Proposals TF has revised first sentence to clarify that ethical issue may or may not have taken place yet

Issue 1 – Clarity and Scope of Requirement (Circumstances) Comment Proposed text should cover PA who serve as both PAPPs and PAIBs in multiple roles Proposal TF does not agree with this suggestion A PA should already be aware of the guidance if working as a PAIB Suggestion would draws focus away from project objective

Issue 1 – Clarity and Scope of Requirement (Circumstances) Comment Unclear about circumstances that may trigger Part C applicability Because all professional activities (including client services) can be understood to be pursuant to a PA’s employment

Issue 1 – Clarity and Scope of Requirements (Circumstances) TF agrees A PA’s employment with a firm and client engagement are closely connected Provision of professional activities in a firm employment context will often be connected to or impact client engagement in some ways TF’s View The phrase “pursuant to PA’s employment” is sufficiently broad to cover this aspect and does not require any revision

Issue 1 - Clarity and Scope of Requirement (Circumstances) One matter that requires Board’s deliberations: Whether Applicability provisions require a PAPP to directly apply Part C when performing professional services for clients or to client relationship Section 220: Preparation and presentation of information for outside organization Section 270: Pressure on a professional accountant from an external individual or organization Sections apply under proposed text TF Proposal

Issue 1 - Clarity and Scope of Requirement (Individual PAPPs) Comment Whether individuals who are not PAs are covered by applicability paragraphs Proposal IESBA agreed in June that scope of applicability paragraphs should be restricted to those PAPPs who are individuals

Issue 1 – Clarity and Scope of Requirement (Contractor) Comment: Contractor relationship was not explicitly dealt with in ED and therefore not clear if such relationship is within scope Sept Board Meeting 3 options for consideration Proposal TF agrees that PAs working as contractors of a firm should comply with Part C

Issue 1 – Clarity and Scope of Requirement (Applicability of Extant Part B to PAIBs) In June, Board asked Task Force to consider whether ED should also clarify applicability of Part B provisions to PAIBs Proposal TF does not recommend revisions and believes that doing so Is outside the scope of project Requires more analysis

Issue 1 - Clarity and Scope of Requirement (Revised Requirement R120 When facing dealing with an ethical issue, a the PA shall consider the context within in which the issue has occurred arisen or might arise. Where an individual who is a PAPP is performing professional activities pursuant to the accountant’s employment, contractor or ownership relationship with the firm, the individual shall comply with the there might be requirements and application material provisions in Part 2 that are also applicable to those these circumstances. If so, the professional accountant in public practice shall comply with the relevant provisions

Issue 2 – Illustrative Examples ED contains a specific example of a situation where a PAPP might face where Part C would be applicable Comments suggest a need for further enhancement 4 Situations Conflict of interest Preparing or presenting information Inducements Pressure Proposal Specific example is replaced with four examples relating to four situations

Issue 3 – Location of Guidance Material General support for proposed location of Applicability paragraphs in Sections 120 and 300. Proposal IESBA agreed in June to remove application material in Section 120 Other guidance material also updated

Issue 4 – Structure Related Matters Structure of Parts 2 and 3 Some respondents questioned whether Parts 2 and 3 should be retitled to take focus off from PAs role New titles may reduce prominence of PAIB provisions Definitions of PAPP and PAIB Some respondents believe that potential gaps in definitions create confusion about how Part C should apply to PAPPs TF believes changes to definitions are out of scope

Applicability – Matters for CAG Consideration CAG Representatives are asked for views about TF’s responses to respondents comments, and whether they agree with the proposed revisions to ED