1. Professional Skepticism
Richard Fleck, IESBA WG Chair
IESBA Meeting
New York
March 13-15, 2017

2. Objectives
To consider and approve a project proposal
To consider, with a view to approving for exposure, proposed text to describe linkage between FPs and PS
To consider, with a view to approving for exposure, proposed text to clarify req’t for PAs to exercise PJ when applying the CF

3. Reference to PS in SSBs’ Standards
PS is defined in IAASB’s standards
Applies to PAs who perform audits and other assurance engagements only
Code only refers to PS as part of describing independence
Independence applies to audits and other assurance engagements only
IAESB standards refer to PS definition in the IAASB’s standards
PS applies to all PAs, including PAIBs who prepare financial statements

4. Recap of Feedback to IESBA about PS
Initial WG proposals for PS discussed at Q meetings of PSWG, IESBA CAG, IAASB and IESBA
Two principle concerns:
Concern that extending PS to all PAs would dilute the concept of PS in IAASB’s standards
Concern that to extend PS to all PAs might have unintended consequences

5. IESBA WG Proposals
Input from December 2016 meetings used to redraft PS project proposal and
Refine proposed description of linkage b/w FPs and PS
Propose clarifications to existing req’t to exercise PJ when applying the CF (req’t to apply critical mindset withdrawn)

6. Key Takeaways from March 2017 IESBA CAG
Full support for
PS Project Proposal
Proposed text to describe linkage b/w FPs and PS (120.13)
Proposed clarification to existing req’t and new AM relating to exercising PJ when applying the CF (120.5)
Importance of SSBs’ prioritization of LT initiative to address issues relating to applying “PS” (however described) by all PAs emphasized
PS necessary for all PAs, but level should be higher for auditors
Note to Richard – Indicate that CAG also provided some drafting suggestions that you will cover later in your presentation

7. General Reactions from SMPC
Suggested need for longer term project involving all three SSBs to re-visit notion of PS
Support for decision to focus on PS in context of audit and assurance only and clarifying req’t to exercise PJ
Welcomed withdrawal of req’t to “apply critical mindset” for all PAs
Concerns about timing
Proposed approach for coordination with IAASB and IAESB
Note to Richard – Indicate that SMPC also provided some drafting suggestions that you will cover later in your presentation

8. Linkage between FPs and PS
Broadening description of PS or changing how PS is used in Code (e.g., require for PS for all PAs) requires consideration of complex issues in a coordinated manner by SSBs
In short term, public interest is best served if IESBA focuses its attention on emphasizing PS for audits, reviews and other assurance engagements
Proposed text provides examples to illustrate interaction b/w FPs and PS

9. Advance Feedback – PSWG, CAG and SMPC
Editorial refinements suggested to A1
Comments on A2
Questions about whether use of word “requires” introduces hidden req’ts
Examples in bulleted list should be more audit and assurance specific
Suggestions to clarify description of linkage with respect to integrity, confidentiality and professional behavior
Some material in IAASB’s standards is repeated
Some further alignment needed to the Code’s new drafting conventions

10. Matters for IESBA Consideration
Do IESBA members support:
PS Project proposal in Agenda Item 2-B?
WG’s proposed text to describe linkage b/w FPs and PS in Agenda Item 2-C (Updated)?

11. Clarification – Exercise Professional Judgment
Enhanced CF through Safeguards project
Reflections on feedback received to-date suggest need for clarification to enhanced CF to help PAs better comply with FPs
Proposed clarification will make it explicit that PAs should obtain an understanding of facts and circumstances when exercising PJ

12. Advance Feedback – PSWG CAG and SMPC
Concerns that proposed changes to R120.5(a) might imply additional work effort and more documentation
Confusion about what is meant by “clear understanding”
Comments on A1
Add words “known to the accountant” to align with R120.5 (a)
Drop the words “in all cases” because relevant facts may not always be available
Clarify that examples of matters in list may not be the only ones
Note to Richard – also mention that SMPC questioned the usefulness of proposed clarification to CF and riased concerns about additional work effort and need for more documentation

13. Matters for IESBA Consideration
Do IESBA members support the proposed text to clarify req’t to exercise PJ in Agenda Item 2-D (Updated) ?

14. Way Forward and Interaction with Others
WG advised PSWG of its plan to put forward proposals to IESBA at its March 2017 meeting and has received preliminary comments
Subject to IESBA support for and finalization of proposals
Immediately after meeting: Input of a “fatal flaw nature” to be requested from PSWG, IAASB and IAESB
Mid-April 2017: IESBA to consider significant issues via teleconference (if needed)
Late-April 2017: Planned release of EDs

15. Looking Ahead to Longer Term PS Initiatives (1)
A longer term project will involve considering
Whether and, if so, how to convey to all PAs need to apply “PS”
Whether and, if so, how proportionality might be introduced to address application of “PS” in different circumstances/engagements.

16. Looking Ahead to Longer Term PS Initiatives (2)
A longer term project might also involve considering
Whether material to address bias and other impediments to application of “PS” should be developed
Merits of a non-authoritative publication to explain the expectations of a PA more broadly

17. Update on PSWG Activities (1)
PSWG is planning to issue joint stakeholder communication
To give prominence to SSBs’ work on PS, and highlight role of others
Publication will
Highlight PSWG’s identification of significant issues to-date based on feedback from all three SSBs’ stakeholders
Provide an update on current and planned SSBs’ activities both individually and jointly
Challenges identified to-date by PSWG
Call for action by others in financial reporting supply chain
Richard to indicate that draft outline of this publication was to be presented to the IAASB and IESBA at their March 2017 meetings and to the IAESB at its April 2017 meeting but PSWG has agreed to defer and present near-final draft document at June 2017 meetings of all SSBs

18. Update on PSWG Activities (2)
PSWG agreed on need to explore implications and potential unintended consequences of changes to concept of PS in IAASB’s standards
Varied views among PSWG members about
Scope of PSWG remit and how it compares to traditional WGs
How to prioritize activities in light of different SSBs’ mandates and already fully committed work programs
Timing and extent of involvement needed by others SSBs in progressing individual SSB initiatives

19. Matters for IESBA Consideration
IESBA members are asked for views about the WG’s current thinking?
What other actions should be taken to respond to stakeholder concerns about “PS” in the context of the Code?