Page 1 | Proprietary and Copyrighted Information AICPA/IESBA Convergence Lisa Snyder, CPA, CGMA Director, AICPA Professional Ethics IESBA Meeting London January 12-14, 20 15

Page 2 | Proprietary and Copyrighted Information U.S. Regulators/Standard-Setters AICPA/IESBA Convergence American Institute of CPAs (AICPA) State boards of accountancy –55 states/jurisdictions –Oversee CPA license Public Company Accounting Oversight Board (PCAOB) Securities and Exchange Commission (SEC) Government Accountability Office (GAO) –Incorporated CF for Independence (2011) Banking Regulators (FDIC) Department of Labor (DOL)

Page 3 | Proprietary and Copyrighted Information AICPA AICPA/IESBA Convergence AICPA –Voluntary membership organization –400,000 members Includes members in business, public practice, government, education –AICPA bylaws require members comply with AICPA Code of Professional Conduct Failure to comply may result in disciplinary action

Page 4 | Proprietary and Copyrighted Information AICPA PEEC AICPA/IESBA Convergence AICPA Professional Ethics Executive Committee (PEEC) –Establishes independence & ethics standards for CPA profession AICPA Code of Professional Conduct Non-listed entities only Revisions to AICPA Code require full due process –Rule changes require vote by membership –Interpretations of rules require exposure to membership –All standard-setting discussions held in open meetings

Page 5 | Proprietary and Copyrighted Information AICPA PEEC AICPA/IESBA Convergence PEEC Composition (20 members) –12 members public practice (Big 4, Large, SMP) –3 public members (non-CPAs/non-AICPA members) –4 members from state boards of accountancy –1 member in business PEEC Task Forces –“Convergence task forces” to consider new/revised IESBA standards

Page 6 | Proprietary and Copyrighted Information Convergence Efforts AICPA/IESBA Convergence Recognition of IESBA Code for Audits of Group F/S and Network Firms Incorporation of Conceptual Frameworks Network Firms Ethical Conflict (Resolution) Conflicts of Interest Definition of Those Charged With Governance Confidential Info Obtained From Employment Activities Management Responsibilities Breaches of Independence

Page 7 | Proprietary and Copyrighted Information Convergence Challenges AICPA/IESBA Convergence Members must comply with AICPA Code and state board rules AICPA and NASBA initiative to promote revised AICPA Code –17 states adopt extant Code / 23 states have own rules / 15 states adopt portion State rules changes often require legislative action Convergence with U.S. standard-setters/regulators SEC/PCAOB set rules for listed entities –AICPA has no authority to set standards for listed entities/PIEs Code revisions require due process/membership “support” Compliance with U.S. laws (e.g., federal anti-trust laws) U.S. litigious environment

Page 8 | Proprietary and Copyrighted Information Revised AICPA Code (Codification Project) AICPA/IESBA Convergence Revised/Codified AICPA Code effective Dec. 15, 2014 Similar drafting conventions as IESBA used Use “should/must” instead of “shall” Incorporates Conceptual Framework (CF) approach –Significant move towards convergence with IESBA –Each topic identifies relevant threats and safeguards –Two new CFs for members in public practice and business CFs only used when no guidance in Code exists or guidance refers member to CF to evaluate threats

Page 9 | Proprietary and Copyrighted Information Revised AICPA Code (Codification Project) AICPA/IESBA Convergence Revised Code Structure –Preface Principles Defined terms, Application of Code New/revised, pending and deleted standards for past year –Part 1: Members in public practice (includes independence) –Part 2: Members in business –Part 3: All Other Members

Page 10 | Proprietary and Copyrighted Information AICPA Code vs. IESBA Code AICPA/IESBA Convergence AICPA Code “substantially equivalent” to IESBA Code –Would lead to the same result Requires compliance with rules vs. principles Most independence requirements apply to all audit/assurance clients –No separate section (Section 291) for “other assurance engagements” Do not address listed entities/PIEs Some AICPA rules more restrictive Contains additional topics / more detailed guidance on certain topics Excludes certain topics or topic only identified as threat in AICPA CF

Page 11 | Proprietary and Copyrighted Information Recognition of IESBA Code AICPA/IESBA Convergence Audit of Group Financial Statements –A member of group engagement team will not be in violation of a particular rule if foreign component auditor (FCA) departed from AICPA Code provided FCA’s conduct, at a minimum, complies with IESBA Code –Members of U.S. group engagement team must comply with AICPA Code Network Firms –Independence of firm will not be impaired if another network firm located outside U.S. departed from AICPA Code provided other firm’s conduct, at a minimum, complies with IESBA Code

Page 12 | Proprietary and Copyrighted Information Rules vs. Principles AICPA/IESBA Convergence –AICPA must enforce rules (based on principles) –Most authoritative guidance issued as interpretations of the rules AICPA RulesIESBA Principles Independence Integrity and Objectivity General Standards Compliance with Standards Accounting Principles Confidential Client Information Contingent Fees Acts Discreditable Advertising and Other Forms of Solicitation Commissions & Referral Fees Form of Organization and Name Integrity Objectivity Professional Competence and Due Care Confidentiality Professional Behavior

Page 13 | Proprietary and Copyrighted Information Threats AICPA/IESBA Convergence –AICPA/IESBA Codes cover same threats but some different terms AICPA ThreatsIESBA Threats Self-review threat Advocacy threat Familiarity threat Undue influence threat Self-interest threat Adverse interest threat Management participation threat Self-review threat Advocacy threat Familiarity threat Intimidation threat Self-interest threat

Page 14 | Proprietary and Copyrighted Information AICPA vs. IESBA Code AICPA/IESBA Convergence Examples of AICPA more restrictive requirements –Prohibit loans to audit client even if immaterial –Independence required for client affiliates/related entities for non-PIEs –Documentation requirement for non-assurance services –Prohibit expert witness services and representing client in (tax) court Examples of topics only identified as specific threat in AICPA CF –Fees – Relative Size Non-authoritative guidance also issued; SEC “no action” letter for listed entities –Compensation & Evaluation Policies ( SEC rules for listed entities) –Long association ( SEC rules for listed entities)

Page 15 | Proprietary and Copyrighted Information AICPA vs. IESBA Code AICPA/IESBA Convergence Examples of topics not addressed in AICPA Code –Professional appointments (client/engagement acceptance) Addressed in AICPA QC standards –Second opinions Addressed in AICPA Audit Standards Examples of topics not addressed in IESBA Code –Outsourcing services to third parties –Subordination of judgment –Indemnification and limitation of liability agreements –Investment advisory/management services Network Firms Ethical Conflict (Resolution) Conflicts of Interest Definition of Those Charged With Governance Confidential Info Obtained From Employment Activities Management Responsibilities Breaches of Independence (Exposure Draft)

Page 16 | Proprietary and Copyrighted Information AICPA vs. IESBA Code AICPA/IESBA Convergence Other Differences - Breaches (Independence) –In order to address breach, firm must have established policies/procedures that provide reasonable assurance independence is obtained (i.e., must comply with QC standards) –If breach results in significant threat such that engagement team’s integrity, objectivity and professional skepticism are compromised, no actions can be taken to satisfactorily address breach –Rebuttable presumption that no actions could satisfactorily address the breach when lead engagement partner/individual in position to influence engagement: Committed the breach; or Knows of a breach and fails to ensure breach is promptly communicated/known by an appropriate individual within the firm

Page 17 | Proprietary and Copyrighted Information SEC/PCAOB Rules More Restrictive AICPA/IESBA Convergence Non-audit Services: –Bookkeeping –Financial information systems design/ implementation –Appraisal, actuarial and valuation services –Internal audit services; –Human resources; –Audit committee pre-approval Partner rotation Cooling-off requirement (for employment at audit client) Tax Services for Persons in FROR (PCAOB)

Page 18 | Proprietary and Copyrighted Information AICPA/IESBA Convergence Questions