Professional Skepticism – Longer-Term Initiative Richard Fleck, Task Force Chair IESBA Meeting Livingstone, Zambia December 4-8, 2017

Professional Skepticism Objectives To consider the Task Force proposed approach for progressing the longer-term professional skepticism initiative.

Professional Skepticism Background An outgrowth of the short-term PS project May 2017 ED “Proposed Application Material Related to Professional Skepticism and Professional Judgment” Pressure from some stakeholders as to how the Code should address PS beyond audit and other assurance engagements

Recap of Initiatives to Date Professional Skepticism Recap of Initiatives to Date Given the pressure from stakeholders, the TF believed that the IESBA should address whether PS – or something like it – should be required of all PAs when performing professional activities Considered PS as defined by IAASB, along with “critical mindset” Professional Skepticism Critical Mindset Would not be appropriate for general application to all PAs, given IAASB definition Different “levels” might be necessary to be proportionate Too close to PS A subset of objectivity, professional competence and due care, or professional judgment

Determining an Approach Professional Skepticism Determining an Approach PS has become a “catch all” jargon term Discussed and agreed on overarching stakeholder expectations – Being a PA means… Delivering higher level work product than would be delivered by a non-PA Expectation that independent judgment and informed thought are applied to satisfy reliability of information Actively demonstrating compliance with the fundamental principles

Task Force Thoughts on the Approach Professional Skepticism Task Force Thoughts on the Approach Leave PS as currently defined and understood (i.e., leave the definition of PS to IAASB No development of a “new” definition of PS, or a new concept Stakeholders and the profession need a better understanding of what it means to be a PA, and comply with the fundamental principles Addresses the behavioral characteristics expected of a PA

Characteristics of a PA – Linked to the FPs Professional Skepticism Characteristics of a PA – Linked to the FPs Characteristic Relationship to Fundamental Principles Obtaining and understanding the information necessary for reliable judgments Professional Competence and Due Care Making informed challenges of views developed by others Being sensitive to the integrity of Information Integrity Withholding judgment pending thoughtful consideration of all relevant information Being alert to potential bias or other impediments to the proper exercise of professional judgment Objectivity Ability and willingness of the PAs to stand their ground

Matters for IESBA Consideration Professional Skepticism Matters for IESBA Consideration Does the Board agree with the TF’s views on Determining and Approach (slide 5)? Are there: Other outcomes Other overarching stakeholder expectations in addition to those on slide 5? Does the Board agree with the TF’s proposed approach on slide 6? Does the Board agree with the characteristics of a PA as listed on slide 7?

Task Force’s Suggested Approach (1 of 2) Professional Skepticism Task Force’s Suggested Approach (1 of 2) Link the characteristics to “acting in the public interest” – adding a sentence to paragraph 100.1, draft as follows: Acting in the public interest in based on a commitment to (1) produce reliable, high-quality, objective outcomes, and (2) act in a manner that will preserve the public’s trust in the profession. Introduce additional application material that develops the understanding of particular fundamental principles, and how compliance with them can be achieved

Task Force’s Suggested Approach (2 of 2) Professional Skepticism Task Force’s Suggested Approach (2 of 2) Raise the profile of biases/influences/threats (paragraph 18) and provide support to PAs in overcoming them. Develop a consultation paper to include open questions and to establish the level of agreement or disagreement with the proposed approach, and ask for additional input Consider rebranding the project to: Leveraging the Fundamental Principles to Act in the Public Interest

Professional Skepticism Proposed Way Forward Ask the IAASB and IAESB whether anything in the proposed approach conflicts with their remits or would be inconsistent with their standards Develop the consultation paper seeking input from stakeholders on the proposed approach Present the draft consultation paper for consideration at the March 2018 meeting

Matters for IESBA Consideration Professional Skepticism Matters for IESBA Consideration Does the Board support the proposed approach? Does the Board support the proposed change to the title of this project?