1. Fees Briefing Paper
Chishala Kateka, IESBA Member and Fees Working Group Chair
IESBA Meeting
March 13-15, 2017

2. Overview of the Session
Receive an update of the WG’s fact finding activities
Provide input on the upcoming stakeholders outreach
Exchange views about next steps

3. Background - Fees Initiative
Responsive to regulatory concerns and PIOB’s call in early to revisit issues on auditor independence from a broader perspective, including fee-related issues
Supported by CAG and other stakeholders
IESBA brought forward its fees related initiatives that was originally scheduled to commence in 2017
WG was established in July 2015

4. Background – Objectives of the WG
Two objectives
Fact finding – Is there is a relationship between fees and threats to compliance with FPs and to independence?
Develop recommendation for IESBA’s consideration

5. Background – Four Areas of Focus
Level of audit fees
Relative size of fees
Ratio of non-audit services fees to audit fees
Firm with significant non-audit service business

6. Background – Non-audit vs non-assurance
“Non-audit services” is used in the terms of reference and the research scope
“Non-assurance services” is the term used widely in the Code
The WG agrees to use “non-assurance services” for forming conclusions about its fact finding activities except when referring to the codes, rules or regulations of others

7. Approach to Fact Finding
Three key fact finding activities:
1. Review of academic research
2. G-20 benchmarking
3. Stakeholders outreach

8. Fact Finding - Review of Academic Research
2. G-20 benchmarking
3. Stakeholders outreach

9. Fact Finding - Review of Academic Research
Based on Prof. Hay’s observations:
Evidence for four areas of focus is generally lacking or mixed except for one aspect
There has been consistent findings that suggest a link between higher non-audit fees charged and threats to independence in appearance.
Overall, research findings did not suggest widespread ethical problems

10. Fact Finding - Review of Academic Research
WG’s view:
Findings in the summary of academic research are generally inconclusive
More information is required to better understand the nature and extent of any fee-related issues

11. Fact Finding - G-20 Benchmarking
1. Review of academic research
2. G-20 benchmarking
3. Stakeholders outreach

12. Fact Finding - G-20 Benchmarking
The WG conducted an overview of the fees provisions in G-20 jurisdictions
The WG has highlighted three jurisdictional measures in the briefing paper:
Pre-approval of services by TCWG
Required auditor communication about fees
Fee cap for provision of non-audit services to audit clients

13. Matters for IESBA Consideration
IESBA members are asked to share their views about:
The WG’s fact finding completed to-date and its observations.
The list of stakeholders in Appendix 2 and the questions to be asked of each stakeholder group.

14. Fact Finding – Stakeholders Outreach
1. Review of academic research
2. G-20 benchmarking
3. Stakeholders outreach

15. Fact Finding – Stakeholders Outreach
The WG intends to send questionnaires to firms, regulators and audit oversight bodies, corporate governance community and investors
The WG is seeking the Board’s input on two aspects:
The list of stakeholders under each category of stakeholders
The questions for each category

16. Fact Finding – Stakeholders Outreach
Stakeholder group:
Firms
Those charged with governance
Audit oversight bodies and regulator
National Standard Setters
Investors

17. Next Steps
WG will distribute questionnaires to stakeholders after incorporating the Board’s comments and changes
WG will review responses and conduct additional follow up discussions, outreach activities and research if appropriate

18. Matters for IESBA Consideration
IESBA members are asked for views about possible next steps, or other actions, if any, that the WG should take to obtain an understanding of whether there is a relationship between fees charged and threats to compliance with the fundamental principles or to independence.