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Structure of the Code Don Thomson, Task Force Chair IESBA Meeting

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1 Structure of the Code Don Thomson, Task Force Chair IESBA Meeting
Structure Phase 2 - Summary of ED Comments, Issues and Task Force Proposals Agenda Item 2-A Structure of the Code Don Thomson, Task Force Chair IESBA Meeting New York, USA September 19-22, 2017

2 Structure Phase 2 - Summary of ED Comments, Issues and Task Force Proposals
Agenda Item 2-A Session Objectives Discuss highlights of Structure ED-2 input and proposals Revisions to the proposed text Issues to be addressed in the Basis for Conclusions Provide an update on the project Obtain the Board’s views on any outstanding matters

3 Overview of Respondents
Structure Phase 2 - Summary of ED Comments, Issues and Task Force Proposals Structure - Background Agenda Item 2-A Overview of Respondents Category Number Regulators and Oversight Authorities 3 National Standards Setters 2 Firms 9 IFAC Member Bodies 23 Other Professional Organizations Total (including collective responses) 40 - Some responses reflect group input

4 Highlights of Issues Raised
Structure Phase 2 - Summary of ED Comments, Issues and Task Force Proposals Agenda Item 2-A Structure – I, Highlights of Issues Raised Highlights of Issues Raised Widespread support for the Phase 2 proposals Some comments related to Phase 1 decisions Some comments related to matters outside project scope Referred to another task force or the Board, as appropriate Many helpful wording suggestions Particulars of significant issues follow

5 Highlights of September 2017 CAG Input
Structure Phase 2 - Summary of ED Comments, Issues and Task Force Proposals Agenda Item 2-A Structure – I, Highlights of Issues Raised Highlights of September 2017 CAG Input CAG continues to support the restructuring proposals Discussed breadth of constituencies of respondents Collective input, with CP, ED-1, ED-2, general outreach Discussed testing in advance of effective date Encouragement of early consideration of text Discussed effective date No concerns noted

6 Overarching Requirements
Structure Phase 2 - Summary of ED Comments, Issues and Task Force Proposals Agenda Item 2-A Structure – III, Issues Resulting in Revisions to Proposed Texts Overarching Requirements Regulatory respondent’s comment Include required ethical outcome in each section Task force proposal Additional explanation in Guide paragraphs 1, 6 and 7 to emphasize principles establishing ethical behavior and Code’s ethical outcomes Add to list of matters for future Board attention

7 Introductory Paragraphs - Repetition
Structure Phase 2 - Summary of ED Comments, Issues and Task Force Proposals Agenda Item 2-A Structure – III, Issues Resulting in Revisions to Proposed Texts Introductory Paragraphs - Repetition Respondents’ comments Introductions might be ignored, are repetitive, lengthen Code Wording should be clearer and more consistent Add material on importance of independence to audits in S.120 Remove description of independence in S.120 Advance input Introductions include more than reminders

8 Introductory Paragraphs - Repetition
Structure – III, Issues Resulting in Revisions to Proposed Texts Introductory Paragraphs - Repetition Task Force deliberations Repetition increases prominence of overarching requirements Inappropriate to add independence “R” in S120 A A2 address independence issues Task Force proposals Limited refinements to introductions Expanding Guide’s explanation of introductions

9 Descriptions of “May” vs “Might”
Structure Phase 2 - Summary of ED Comments, Issues and Task Force Proposals Agenda Item 2-A Structure – III, Issues Resulting in Revisions to Proposed Texts Descriptions of “May” vs “Might” Respondents’ comments IESBA “may” ”might” distinction introduced as part of the restructured Code, and ISAs do not have a similar distinction Difference between words might get lost in translation Task Force proposals Further refinements to the Glossary descriptions of the words Distinction noted for Board and liaison with IAASB

10 Use of “Firm” and “Network Firm”
Structure Phase 2 - Summary of ED Comments, Issues and Task Force Proposals Agenda Item 2-A Structure – III, Issues Resulting in Revisions to Proposed Texts Use of “Firm” and “Network Firm” Extant Code 290.3: “ ‘firm’ includes ‘network firm’ except where otherwise stated” Agreed in principle to distinguish firms and network firms Respondents’ comments Network firm not always mentioned Task Force Proposal Reviewed text and added “or network firm” in certain places

11 Use of “Firm” and “Network Firm”
Structure Phase 2 - Summary of ED Comments, Issues and Task Force Proposals Agenda Item 2-A Structure – Appendix 1, Revisions Beyond Editorial in Nature, and Agenda Item 2-B Use of “Firm” and “Network Firm” Advance input from Board members Discussed further references to network firms Task Force proposal 400.4, consistent with ISQC 1, after “others subject to independence requirements,” add “(including network firm personnel)” 600.3, addition of reference to “network firm”

12 Headings and Numbering Issues
Structure Phase 2 - Summary of ED Comments, Issues and Task Force Proposals Agenda Item 2-A Structure – III, Issues Resulting in Revisions to Proposed Texts Headings and Numbering Issues Respondents’ comments Various comments on numbering, headings and subheadings Task Force Proposal Various minor refinements reflected in proposed text

13 Clarity of Responsibility
Structure Phase 2 - Summary of ED Comments, Issues and Task Force Proposals Agenda Item 2-A Structure – IV, Issues to be Addressed in Basis for Conclusions Documents Clarity of Responsibility Respondents’ comments re and 900.3 Firm senior management has an overarching responsibility to ensure appropriate mindset and culture Some paragraphs only apply to individuals Task Force deliberations and proposals Senior management leadership responsibility in ISQC 1 Reference to individuals in and 900.3, and plan to include issue in Basis for Conclusions

14 Navigability of Provisions in the Code
Structure – IV, Issues to be Addressed in Basis for Conclusions Documents Navigability of Provisions in the Code Respondents’ comments Advocate a “building block approach,” with a core for all PAs and additional materials for broader accountancy disciplines Task Force proposes no further change The revised electronic Code will address the issues raised The Structure Basis for Conclusions to mention the Board’s anticipated future work on electronic enhancements

15 “Audit” to Apply to “Audit and Review”
Structure – IV, Issues to be Addressed in Basis for Conclusions Documents “Audit” to Apply to “Audit and Review” Regulatory respondent’s comment An audit is not a review, so should be distinguished Task Force deliberation and proposal Agreed in principle after extensive outreach, with widespread support for “audit” applying to audit and review engagement No change proposed Highlight in Basis for Conclusions

16 Disproportionate Outcomes (100.3 A2) Conflict Resolution (110.2 A2)
Structure – IV, Issues to be Addressed in Basis for Conclusions Documents Disproportionate Outcomes (100.3 A2) Conflict Resolution (110.2 A2) Regulatory respondent’s comments Paragraphs read together might imply optionality in applying Code Questioned scope of paragraph A2 re conflicts Task Force deliberations and proposals No optionality in application of Code Paragraph A2, like extant Code, not restricted to conflicts Include clarification of both issues in the Basis for Conclusions

17 Revisions to Part 4A, Section 800
Structure Phase 2 - Summary of ED Comments, Issues and Task Force Proposals Agenda Item 2-A Structure – Appendix 1, Revisions Beyond Editorial in Nature and Agenda Item 2-B Revisions to Part 4A, Section 800 800.2, R800.5-R800.9 and R999.5 and R999.6, removal of phrase “excluding this section” 800.3 and R999.3, clarification of link between circumstances and permitted modifications 800.4 A1 and A1, clarification of link between intended users and how they might participate 800.4 A2 and A2, clarification between example and “class of users”

18 Advance Input Re Part 4B, Section 900
Structure Phase 2 - Summary of ED Comments, Issues and Task Force Proposals Agenda Item 2-A Structure – Appendix 1, Revisions Beyond Editorial in Nature, and Agenda Item 2-B Advance Input Re Part 4B, Section 900 R (R400.32) change to AM to R (R400.31) 911.5 A2 (511.5 A2), clarifying that a material loan, even if under normal lending conditions, might still create a threat 922 heading, changed to remove reference to undefined “reporting period”

19 Revisions to AIPT, Guide and Part 3
Structure Phase 2 - Summary of ED Comments, Issues and Task Force Proposals Agenda Item 2-A Structure – Appendix 1, Revisions Beyond Editorial in Nature and Agenda Item 3-D Revisions to AIPT, Guide and Part 3 Guide, paragraph 10, insertion to assist Code users to understand the operation of safeguards Part 3 310.9 A1, insertion of a reference to R120.5 to explain where requirement comes from 320.1, modifications to refer to fundamental principles in general, with reference to fundamental principles included in

20 Revisions to AIPT, Part 4A
Structure Phase 2 - Summary of ED Comments, Issues and Task Force Proposals Agenda Item 2-A Structure – Appendix 1, Revisions Beyond Editorial in Nature and Agenda Item 3-D Revisions to AIPT, Part 4A R400.81, (R900.51, R900.52), adjusted to reflect client’s ability to act to address breach, as in extant Code 410.8 (905.7), deletion of reference to “overdue fees” to avoid duplication Various paragraphs, as specified in issues paper, unnecessary repetition of “R” to apply the CF removed, described as threats instead

21 Revisions to AIPT, Part 4A
Structure Phase 2 - Summary of ED Comments, Issues and Task Force Proposals Agenda Item 2-A Structure – Appendix 1, Revisions Beyond Editorial in Nature and Agenda Item 3-D Revisions to AIPT, Part 4A 523.5 A1, A1 (920.4 A1) revised to specifically identify business relationships between immediate family and audit client management as a threat R524.7(800.10), the extant Code’s use of “Senior or Managing Partner” has been reinstated Consistency review, proposed revisions to reduce repetition and enhance threats language throughout Code

22 Matters for IESBA Consideration
Structure – V, Issues Relating to the Planned Effective Date Matters for IESBA Consideration IESBA members are invited to raise any other significant matters not already raised in this presentation or during the meeting so far

23 Looking Ahead Towards a Restructured IESBA Code
Structure Phase 2 - Summary of ED Comments, Issues and Task Force Proposals Structure – V, Effective Date Agenda Item 2-A Looking Ahead Towards a Restructured IESBA Code

24 Structure – Section V, Issues Relating to the Planned Effective Date
Respondents’ comments re pace, volume and complexity Task Force proposal - encompass inducements; change date Parts 1, 2, 3 and 4B effective Dec. 15, 2019 Part 4A effective for audits of financial statements for periods beginning on or after December 15, 2019 Assurance engagements re subject matter covering a period, Part 4B effective for periods beginning on or after Dec. 15, 2019; otherwise Dec 15, 2019

25 Looking ahead Electronic enhancements and tools – once Code is final
Structure Phase 2 - Summary of ED Comments, Issues and Task Force Proposals Structure – Section VI, Looking Ahead Agenda Item 2-A Looking ahead Electronic enhancements and tools – once Code is final Significant enabler, important to greater ease of use Forward timetable TF will address input from Board and CAG Further consistency review with close coordination between all TFs On course to obtain approval of final restructured Code in December 2017

26 Matter for IESBA Consideration
Structure – VI, Issues Relating to the Planned Effective Date Matter for IESBA Consideration IESBA members are asked for comments on the effective date and looking ahead.

27 Structure Phase 2 - Summary of ED Comments, Issues and Task Force Proposals
Agenda Item 2-A

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