IAASB-IESBA Coordination Sylvie Soulier, IAASB-IESBA Coordination Liaison IESBA Meeting, New York September 17-20, 2018

Objective To receive an update on the status of IAASB-IESBA coordination activities in relation to QC and AUP projects To provide ethics and independence related input on proposed texts To discuss an approach and timing for the IESBA’s consideration of conforming or consequential amendments arising from changes to the IAASB’s standards

General Guidelines for Session Discussions limited to matters of relevance to ethics and independence Matters flagged in Agenda Item 8 have been discussed with IAASB TF Chairs and Staff For most, resolution reached at TF level, however the outcome of some discussions not yet reflected in text IESBA Board input on QC texts to be considered by IAASB TFs at their October meetings Approval anticipated at December 2018 IAASB meetings

Suggestions to help achieve consistency Nature of Comments Clarifications about how to interpret Code, in particular in light of the enhancements to the conceptual framework Suggestions to help achieve consistency Descriptions and definitions New material that might create confusion or inconsistent application of Code Drafting suggestions to improve overall tone and presentation of ethics and independence matters

Structure of Proposed Revisions to QC Req’ts Change in terminology to align with spirit of ISQC 1 The word “control” is dropped in “EQC review” and “EQC reviewer” New terms are “EQ review” and “EQ reviewer” Extant Proposal ISQC 1 – Firm responsibilities ISQC 2 – EQ Reviewer responsibilities ISA 220 – Engagement-level responsibilities (for EP & EQ Reviewer) ISA 220 – EP & Engagement Team responsibilities

Components of Proposed ISQC 1 (Revised) “The system of quality management is dynamic, iterative and highly integrated and does not operate in a linear manner.” Paragraph 6 of proposed ISQC1 (Revised)

Components Broken Down (paras. 6-9A) Governance and leadership The environment in which the other components of the system of quality management operate The firm’s risk assessment process The monitoring and remediation process Process to apply a risk-based approach to managing quality Process to evaluate the design, implementation and operation of the system Resources Information and communication Necessary to support the operation of the other components Relevant ethical requirements Acceptance and continuance Engagement performance Subject-matter specific topics relevant to a firm’s system of quality management

Discussions Topics in for ISQC 1 (1) Responsibilities for ethics and independence (paras. 21, A10; 26, A14 to A22, 36-37, A55-A61) Views about provisions related to service providers (paras. 66- 67 and A174-179) Considerations about firm’s ability to fulfill relevant ethical requirements in relation to the use of resources in A175 Views about common descriptions/ definitions Firm Relevant ethical req’ts  System of quality management

Discussions Topics for ISQC 1 (2) Merits and drawbacks of having material in IAASB’s QC standards that is also discussed in the Code New application material in para. A55A re how firms might adopt more restrictive policies in relation to inducements and NAS Acceptance and continuance of client relationships (para. 38-39 and A62-A72 versus Section 320 Network firms (para. 60-65 and A165-173 versus Section 400)

Discussion about Agenda Item 8-A

Proposed ISQC 2 Questions about objectivity of EQRs, in particular when previously functioned as EP Are principles-based provisions in Code sufficient? Should Code specify a “cooling off period” for EPs stepping into an EQR role? Are specific examples needed to assist EQRs identify threats to their objectivity?

Overview of Proposed ISQC 2

Objectivity (including “Cooling-off” Period) Objectivity is one of the eligibility criteria for the EQ reviewer Individuals who recently served as EP on an engagement may face threats to their objectivity as an EQ reviewer IAASB and IESBA established a joint working group (JWG) to coordinate how this issue, and other issues that affect both Boards, are addressed Agenda Item 8-B summarizes issues and JWG recommendations Appendix includes proposed changes to the Code, ISQC 1 and ISQC 2 Views sought on suggested examples for inclusion in Section 300 Page 13

Discussion about Agenda Item 8-B

Other Matters Relating to ISQC 2 Views sought on: ISQC 2 Task Force’s proposal to include a req’t in para. 43(e)(i) of ISQC 1 for firms to establish policies and procedures addressing EQ reviews regarding the scope of engagements …performed for all audits of f/s of listed entities and of other entities that are of significant public interest Any other ethics and independence matters in Agenda Item 8-C Section on relevant ethical requirements in para. 20(d)(i)) Page 15

Discussion about Agenda Item 8-C

Proposed Revisions to ISA 220 Addressing and encouraging appropriate exercise of PJ and PS in audit context Clarifying EP’s role and responsibilities Interaction with or dependence on firm or network quality management processes and procedures Addressing audit delivery models and component auditors Other matters: Required understanding for accepting or continuing an engagement (e.g., access issues); Interaction of firm quality management with managing quality at the engagement level; and Ongoing two-way communication.

Discussion Topics Relating to ISA 220 Provisions relating to relevant ethical requirements in paras. 9-10A and A4-A4F Clarifications about independence responsibilities for component auditors in paras. A2JA and A19D At Sept 12, 2018 meeting, IAASB TF Chair and Staff agreed to defer for consideration in ISA 600 project

Discussion about Agenda Item 8-D

Proposed ISRS 4400 (Revised) IAASB to consider for approval for exposure in Sept 2018 All matters discussed and resolutions reflected in drafts No change to independence position in extant Discussion Topics include: Compliance with relevant ethical requirements for AUP engagements New reporting req’ts relating to provide transparency about independence

Discussion about Agenda Item 8-E

What’s Next? Approach for considering conforming or consequential amendments to Code Due process, necessary to obtain public input Resources and prioritization Timing (before or after IAASB’s finalization of standards)

The Ethics Board www.ethicsboard.org