Proposed ISQM 2 Imran Vanker, EQ Review Task Force Chair IAASB Meeting, New York Agenda Items 4-A and 4-D December 11, 2018

Suggestion to include discussion and a question in the EM SMPC Proposed ISQM 1 Extract (Agenda Item 4-D) – Engagements Subject to EQ Review Paragraph References for IAASB Discussion Requirements: 40(e) Application material: A102 – A109 IESBA Question about “significant public interest” vs. use of PIE in IESBA Code Suggestion to include discussion and a question in the EM SMPC Concern about requiring an EQR for entities the firm determines are of SPI; may be open to challenge by regulators

Proposed ISQM 2 (Agenda Item 4-A) – Introduction and Authority Paragraph References for IAASB Discussion Paragraphs 1 – 8 Off-line Board comments – no significant comments Authority (para. 8) Approach agreed with Interim Technical Director and Managing Director – Professional Standards Addresses Board comments in September to keep an Authority section in each QM standard, but consider ways to streamline or reduce the detailed paragraphs Detailed AM on Authority and Preface in ISQM 1 (paragraphs A5 – A5C)

Proposed ISQM 2 (Agenda Item 4-A) – Objective Paragraph References for IAASB Discussion Paragraph 10 Objective is outcome-based (see paras. 11-13 in Agenda Item 4) Offline Board comments – significant points raised Intent of “obtain” from the EQ reviewer an objective evaluation – reporting to firm? No reference to firm requirements for appointment and eligibility Omission of an objective for the EQ reviewer SMPC also commented on omission of an objective for the EQ reviewer

Proposed ISQM 2 (Agenda Item 4-A) – Definitions Paragraph References for IAASB Discussion Paragraph 11 and Application Material paragraph A1 Offline Board comments – significant points raised Engagement quality review – question about deletion of extant reference to “formulating the auditor’s report” Engagement quality reviewer – placement of “suitably qualified” and clarity that the reviewer could be external to the firm

Off-line Board comments – no significant comments Proposed ISQM 2 (Agenda Item 4-A) – Applying and Complying with Relevant Requirements Paragraph References for IAASB Discussion Requirements: 12 – 14 Off-line Board comments – no significant comments

Proposed ISQM 2 (Agenda Item 4-A) – Appointment and Eligibility Paragraph References for IAASB Discussion Requirements: 15 – 18 Application material: A2 – A21 IESBA – discussions on objectivity of EQ reviewer and cooling-off period Question about whether para. A6 creates a de facto requirement IFIAR and IOSCO – importance of stature and seniority of the EQ reviewer Offline Board comments – significant points raised Reference to cooling-off period in the standard Interaction of paras. A5 and A15 (IESBA had similar comments and suggestions) Structure of section (firm P or P vs. requirements for EQ reviewer and assistants) Objectivity of the individual

Proposed ISQM 2 (Agenda Item 4-A) – Performance of the EQ Review Paragraph References for IAASB Discussion Requirements: 19 – 21 Application material: A22 – A34 Offline Board comments – significant points raised Structure of para. 21 – EQ reviewer first needs to address any concerns about significant judgments before determining that the requirements of the ISQM have been met and the engagement report can be dated Who are the appropriate individuals in the firm to be notified if the EQ reviewer has concerns? Responsibility for making sure that the work of assistants is appropriate (EQ reviewer retains overall responsibility)

Proposed ISQM 2 (Agenda Item 4-A) – Documentation of the EQ Review Paragraph References for IAASB Discussion Requirements: 22 – 24 Application material: A35 – A37 Offline Board comments – significant points raised Requirement for EQ reviewer to prepare documentation vs. determining that sufficient documentation of the EQ review is prepared Concern about review of “other documentation” required by the firm’s policies or procedures (para. 24(e)) SMPC raised point on the firm requirement to establish policies or procedures (para. 22)

Explanatory Memorandum Matters identified for inclusion in the EM: Allocation of requirements between proposed ISQM 1 and proposed ISQM 2 Engagements for which an engagement quality review is required, including entities that are of significant public interest Objective of ISQM 2 Eligibility criteria for the engagement quality reviewer, including: Performance and documentation of the engagement quality review Are there are other important matters that should be addressed in the EM for proposed ISQM 2?