1. Structure of the Code – Phase 1
Don Thomson, Task Force Chair
IESBA Meeting
New York, USA
June 27-29, 2016

2. The Public Interest Enhance understandability Improve usability
Agenda Item 2-A
The Public Interest
Enhance understandability
Facilitate compliance & enforcement
Improve usability
Facilitate adoption
Effective implementation
Consistent application

3. Background January 2013 – Working Group began research
April 2014 – Project approved
November 2014 – Consultation Paper issued
December 2015 – Exposure Draft (Phase 1) issued
April – Comment period ended

4. Respondents to Structure ED 1
Agenda Item 2-A, paragraph 2
Respondents to Structure ED 1
Category
Number
Regulators and Oversight Authorities 6
National Standards Setters 2
Firms 10
Public Sector Organizations 1
Preparers
IFAC Member Bodies & Other Prof. Orgns. 29
Individuals
Total (including some collective input) 50

5. Agenda Items 2 and 2-A, paragraph 6
Objectives today
Highlight certain structural matters on which input was received & obtain the IESBA's views on the Task Force's preliminary proposals
(These proposals are preliminary as the Task Force intends to reflect further on respondents' comments, particularly comments received after the due date and after the in-person Task Force meeting)
(The Task Force will in September discuss with the IESBA proposed revisions to the text addressing these structural matters, changes to avoid possible inadvertent changes in meaning, & other wording)

6. Overview of input received
Agenda Item 2-A, paragraphs 3-6
Overview of input received
Widespread support for the project & its key features
Many helpful wording suggestions, including suggestions to avoid possible inadvertent changes in meaning
Many support the proposed timetable but some favor a longer time-frame for completion & final review
When the Phase 2 Structure ED is issued, the Task Force proposes making available a complete proposed restructured Code including final phase 1 agreed in principle & phase 2 for Structure & Safeguards

7. Fundamental Principles
Agenda Item 2-A, paragraphs 8-10
Fundamental Principles
Emphasize compliance with the fundamental principles in addition to emphasizing the conceptual framework, specific requirements and application material
Task Force's preliminary proposals
Raise the profile of the fundamental principles in introductory material throughout the Code, reminding users of the overall objective (compliance) and not simply the process
Reflect further on the repetition of the requirement to apply the conceptual framework; delete the repetitive banner

8. Agenda Item 2-A, paragraphs 8 and 11
Independence
In the independence sections, emphasize the requirement to be independent in addition to emphasizing application of the conceptual framework
Task Force's preliminary proposals
Raise the profile of the requirement to be independent in introductory material throughout the independence sections, reminding users of the overall objective (independence) and not simply the process

9. Agenda Item 2-A, paragraphs 8 and 12-14
Independence Linkage
Don't describe independence as "a measure of objectivity"
Extant independence definition better-describes linkage
Task Force's preliminary proposals
Delete the "measure of objectivity" statement
Remove discussion of independence from the objectivity sub-section
Repeat the definition of independence in the conceptual framework section, highlighting the linkage to objectivity and integrity, as well as providing a platform to mention professional skepticism in Part A

10. Conceptual Framework - Independence
Agenda Item 2-A, paragraphs 8 and 15
Conceptual Framework - Independence
Section 120, The Conceptual Framework, does not clearly communicate its applicability to independence
Task Force's preliminary proposals
Establish a requirement in s.120 that the framework be applied to threats to compliance with independence standards as well as threats to compliance with the fundamental principles when performing an engagement requiring independence

11. Framework & Specific Requirements
Agenda Item 2-A, paragraphs 8 and 16-17
Framework & Specific Requirements
Some confusion about the interaction between the conceptual framework & specific requirements
Task Force to consider the need for further clarification
Overarching requirement to comply with the fundamental principles and, when appropriate, to be independent
Requirement to apply the conceptual framework to address threats
Requirement to comply with specific requirements and application material – roadmap from s.120 to sections with these specifics

12. Exceptions to Requirements
Agenda Item 2-A, paragraphs 18-20
Exceptions to Requirements
Permitted exceptions don't include "shall"
Locate exceptions in or adjacent to requirements
Task Force's preliminary proposal
Locate exceptions as close to the related requirements as possible
With this linkage, reasonable to use "may" to convey permission

13. Disproportionate Outcomes
Agenda Item 2-A, paragraphs and 26
Disproportionate Outcomes
Encourage consultation if circumstances in which result of applying requirement disproportionate or not in public interest
Discussion belongs in the Code, not the Guide
Don't group with ethical conflict resolution
Implied PA could decide not to apply specific provisions
Task Force's preliminary proposal
Return material to the Code; mindful to avoid changes in meaning

14. Ethical Conflict Resolution
Agenda Item 2-A, paragraphs 21 and 24-26
Ethical Conflict Resolution
Discussion belongs in the Code, not the Guide
ED 1 proposals unduly shortened & altered material
Task Force's preliminary proposal
Return material to the Code; mindful to avoid changes in meaning

15. Responsibility for Compliance
Agenda Item 2-A, paragraphs 27-31
Responsibility for Compliance
Firms & PAs within firms each have responsibilities
ISQC 1 requires firms' policies & procedures to provide reasonable assurance that independence maintained
Support for further consideration by IAASB's ISQC 1 WG
Many not all supported "firm" for ease of reference (400.7)
Task Force proposes (but will continue to reflect)
Retain "firm", raise its profile in s.400, & include reference in s.120

16. Term "Audit" Used to Include Reviews
Agenda Item 2-A, paragraphs 32-33
Term "Audit" Used to Include Reviews
Many not all supported "audit" for ease of reference
Alternate suggestion: "equally applies to review"
Profile should be raised – not merely a footnote
Some favored distinguishing reviews for greater clarity
Task Force proposes
Continue to deal with both in one section referring to audits
Reflect further on "includes" versus "equally applies to" reviews

17. Distinction of Firms & Network Firms
Agenda Item 2-A, paragraphs 34-35
Distinction of Firms & Network Firms
Widespread support for distinguishing network firms
Some concerns expressed about changes in meaning
Task Force proposes
Continue to refer separately to network firms
Address inadvertent changes in meaning

18. Agenda Item 2-A, paragraphs 36-37
The Title
Some favor Code; others standards
"Standards" more accepted for independence
Several concerned about combining Code & Standards
Task Force proposes
International Code of Ethics for Professional Accountants
including International Independence Standards

19. Non-authoritative Guidance
Agenda Item 2-A, paragraphs 38-41
Non-authoritative Guidance
Widespread support for the Guide, but not in Code
Non-authoritative guidance has undue weight if mentioned
Application material should be in Code, not Guide
See discussion of disproportionate outcomes & ethical conflict resolution
Task Force proposes
Guide to be published with, but not part of, Code
"Non-authoritative guidance" reference to be removed from Guide

20. Navigability, including Numbering
Agenda Item 2-A, paragraphs 42-51
Agenda Item D
Navigability, including Numbering
Parts – raise profile of principles & independence
Numbering – some found it clear, adequate, more navigable
Alternatives, but no general consensus or clearly better alternative
Requirements – many suggested bold for visibility
Task Force proposes
Parts – names, not A/B/C; remove "introduction" from title of Part A
Numbering – unchanged (except drop R & A if bold)
Requirements – prefer bold, but recognize Board's past concern

21. Agenda Item 2-A, paragraphs 52-53
Glossary
Locate Glossary at the front of the Code
Eliminate duplication from Glossary & body of Code
The Task Force proposes
Include the Glossary at the beginning of the Code
Immediately bring the reader’s attention to the definitions
Don't remove duplication of important terms in the body of Code
Some warrant discussion in the body of the Code

22. Changes in Meaning & Other Wording
Agenda Item 2-A, paragraphs 54-57
Changes in Meaning & Other Wording
Helpful input – revising text; discuss in September
Public interest – comply with fundamental principles or …
Avoid change in meaning; topic noted for Board attention
Most accept “may” and “might”; some usage questioned
Retain approach; will propose some amendments
Most accept "professional accountant" then “accountant”
Some confused because not defined; but standard grammar

23. Agenda Item 2-A, paragraphs 58-63
Next Steps
September – wording, including changes in meaning
December – Phase 2 with complete restructured Code including agreement-in-principle on Phase 1
Early consideration of implementation issues encouraged
Matters for Board attention – input on out of scope matters
Electronic enhancements and tools – once Code is final