1. Structure of the Code – Phase 2 TF Comments and Proposals
Don Thomson, Task Force Chair
IESBA Meeting
New York, USA
June 19-21, 2017

2. How Project Serves the Public Interest
Agenda Item 3 – Structure of the Code
How Project Serves the Public Interest
Enhance understandability and improve usability, facilitating
Compliance and enforcement
Adoption
Effective implementation and consistent application

3. Key Features of the Restructuring
Agenda Item 3 – Structure of the Code
Key Features of the Restructuring
Enhanced understandability, improved usability
Serving the public interest, responsive to stakeholders
Requirements distinguished from guidance
Increased prominence of principles and the conceptual framework
Increased clarity of responsibility
IAASB ISQC 1 Task Force considering further clarification
Increased clarity of language, improving readability

4. Other Features of Restructuring
Agenda Item 3 – Structure of the Code
Other Features of Restructuring
New title to emphasize key features
Guide to the Code
More self-contained sections
Careful to avoid inadvertent changes in meaning
Careful to avoid any weakening of the Code
Various matters outside scope noted for Board attention

5. Agenda Item 3 – Structure of the Code
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
January 2017 – Exposure Draft (Phase 2) issued
May 2017 – Comment period ended

6. Respondents to Structure ED-2
Agenda Item 3 – Structure of the Code
Respondents to Structure ED-2
Category
Number
Regulators and Oversight Authorities 3
National Standards Setters 2
Firms 9
IFAC Member Bodies & Other Prof. Orgs. 24
Total (some responses reflect group input) 38

7. Objectives of Agenda Item
Agenda Item 3 – Structure of the Code
Objectives of Agenda Item
To consider highlights of comments on Structure ED-2
To provide an opportunity for initial input on responses (additional opportunity will be available in September)

8. Overview of Comments Received
Agenda Item 3 – Structure of the Code
Overview of Comments Received
Widespread support for the Phase 2 proposals
Some comments that could or should further improve the Code
Many helpful wording suggestions to increase consistency and avoid possible inadvertent changes in meaning
Some comments related to Phase 1 decisions
Some comments related to matters outside scope of the project
Referred to another task force or the Board, as appropriate
Effective date – some accepted; others prefer all at one date

9. Phase 2 – Highlights of Comments
Agenda Item 3 – Structure of the Code
Phase 2 – Highlights of Comments
Some noted drafting inconsistencies between the Parts
NOCLAR and S.540 – some question Code's clarity if FAQs
S.540 – some suggest aligning effective date (for LA TF)
S.600 – subsection introductions repetitive, lengthen Code
S.600 –“firm” not always accompanied by “network firm”
S.600 – question “may” vs. “might” re likelihood of threats
Wording suggestions will be addressed in September

10. Phase 2 – Highlights of Comments TF Comments and Proposals
Agenda Item 3 – Structure of the Code
Phase 2 – Highlights of Comments TF Comments and Proposals
Consistency and clarity being reviewed
Some differences attributable to extant Code and Close-offs
FAQ material supplements the Code
S.600 subsection introductions provide context
Network firm references reviewed for appropriateness
“May” and “might” re likelihood of threats being reviewed

11. Phase 1 – Clarity of Requirements
Agenda Item 3 – Structure of the Code
Phase 1 – Clarity of Requirements
Sections cannot be read in isolation
Introductions lengthen the Code and are not requirements
The Code appears more rules-based
Create a more explicit link to clear ethical outcomes
Emphasize that compliance with specific requirements is not necessarily compliance with the overarching requirements
Some requirements explicitly reference application material

12. Phase 1 – Clarity of Requirements TF Comments and Proposals
Agenda Item 3 – Structure of the Code
Phase 1 – Clarity of Requirements TF Comments and Proposals
Require knowledge and understanding of section and Part 1
Guide paragraphs 6-8 explain linkage
Public trust as an outcome noted as a matter for board
Introduction reminds users of Part 1 requirements
Considering streamlining introduction
Restructuring distinguishes, doesn’t add, requirements
Considering amendment of “R”s explicitly referencing “A”s

13. Phase 1 – Clarity of Responsibility
Agenda Item 3 – Structure of the Code
Phase 1 – Clarity of Responsibility
Some believe further work is needed to clarify responsibility
In S.120, consider an explanation of the approach taken to deal with responsibility (i.e., as set out in 400.4)
Some concern that senior management's responsibility for an ethical mind-set is not mentioned in the Code
Recognize that some requirements apply to individuals

14. Phase 1 – Clarity of Responsibility TF Comments and Proposals
Agenda Item 3 – Structure of the Code
Phase 1 – Clarity of Responsibility TF Comments and Proposals
Responsibility for independence addressed in ISQC1/ISAs
IAASB considering further clarifying responsibility
ISQC1 requires firm leadership responsibilities
Senior management of a firm providing assurance services subject to ISQC1; might not be a PA subject to Code
Code explains approach in paragraph 400.4
Required to know and understand S.400 for independence
S.120 not intended to replicate S.400

15. Agenda Item 3 – Structure of the Code
Phase 1 – Other Matters
Consider scalability
Consider headings, sub-headings and numbering
Some concern with disproportionate outcomes and ethical conflict resolution (100.3 A2 and A1-A2)
Some concern with simply stating in that the term audit applies equally to review, and Part 4A applies to both
Consider including the requirement to be independent in S.120 and avoid repeating the independence definition

16. Phase 1 – Other Matters TF Comments and Proposals
Agenda Item 3 – Structure of the Code
Phase 1 – Other Matters TF Comments and Proposals
Scalability will be facilitated by enhanced electronic Code
Headings and subheadings to be reviewed
Numbering in accordance with agreed-in-principle format
Disproportionate outcomes and ethical conflict resolution to be discussed with regulatory respondent
“Audit” applies to reviews succinct, agreed – discuss clarity
“R” to be independent in Independence Standards (S.400)

17. Matters Outside Project Scope
Agenda Item 3 – Structure of the Code
Matters Outside Project Scope
Matters previously to the Board
The public interest
Users’ trust in PAs a related issue raised by regulatory respondent
Documentation
Alignment of terminology and coordination of other matters across standards-setting boards
Alignment of proposed S.900 with ISAE 3000

18. Matters Outside Project Scope
Agenda Item 3 – Structure of the Code
Matters Outside Project Scope
New matters noted for IESBA Consideration
Consider revising the definition of engagement period and the requirements of R400.31
Consider revising the standards for close family, making them the same as those for immediate family
Some sections have no specific requirements
Consider whether any exceptions weaken requirements
For PIEs, consider whether independence standards for other assurance engagements should be the same as for audits

19. Agenda Item 3 – Structure of the Code
Next Steps
September – wording, including changes in meaning
December – approve restructured Code
After approval – develop electronic enhancements and tools
Early consideration of implementation issues encouraged