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Review of Part C Helene Agélii, Task Force Chair IESBA Meeting
New York, USA September 27, 2016 Applicability of Part C to PAPPs Restructuring issues Section 350
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Applicability of Part C to PAPPs
March 2016: Board agrees Part C applicable to PAPPs and addition of “explanatory paragraph” First read of “explanatory paragraph” June 2016: Second read of “explanatory paragraph”
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Applicability of Part C to PAPPs
June 2016 Board feedback: Accountant’s relationship with employing organization Signposting Some members felt that the phrase “pursuant to the accountants employment or ownership relationship with the employing organization, for example a firm” in the explanatory paragraph needed to be reconsidered to better define the PAPPs relationship with his or hers employing organization, especially the case when the PAPP is a partner. TF: Replace “employing organization” with the firm. Retain the words “ownership relationship to also include partners There was also a suggestion that we should include a summary of ethical issues on which a PAPP might referring to guidance in extant Part C could be provided. TF: no signposting instead suggesting to add an example
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Applicability of Part C to PAPPs
R120.X When facing an ethical issue, a professional accountant in public practice shall consider the context within which the issue has occurred. Where the accountant is performing professional activities pursuant to the accountant’s employment or ownership relationship with the firm employing organization, for example a firm, there might be guidance in Part 2 C that is applicable to those circumstances. If so, t The accountant shall comply with consult relevant provisions and comply with them. 120.X A1 For example, where a professional accountant in public practice is faced with pressure from an engagement partner to perform a task without sufficient skills or training, or with unrealistic deadlines, the requirements and application material guidance is set out in Section 260 might be relevant.
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Applicability of Part C to PAPPs
IESBA members are asked for views on the proposed revisions to the ”explanatory paragraph”
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Applicability of Part C to PAPPs
Exposure of explanatory paragraph Obligation added for PAPPs to consider Part C TF: should be exposed Can be exposed in: Structure ED-2; or Part C Phase 2
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Applicability of Part C to PAPPs
Do IESBA members believe that there is a need to expose the ”explanatory paragraph”? If yes, should this paragraph be exposed as part of Structure ED-2 or as part of the Part C Phase 2 ED?
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Proposed Restructuring
Restructured text presented in March and June meetings TF proposals based on: IESBA feedback received in June 2016 Conforming amendments from Safeguards ED-1 (“Gray” paras.) Conforming changes to updated redrafting guidelines
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Proposed Restructuring
IESBA feedback received in June 2016 Clarification of PAIB Focus on role that is being performed by PAPP instead of legal relationship TF: align language with the explanatory paragraph and including a reference to that paragraph Extant paragraph 310.4 TF: Addition of “such” for clarification Functional relationship could narrow the scope
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Proposed Restructuring
Glossary Definition of PAIB Align glossary definition to extant para 300.3 A professional accountant that is an employee d, contractor, partner, director (executive or non-executive) owner-manager or volunteer or engaged in an executive or non-executive capacity operating in such areas as commerce, industry, service, the public sector, education, the not for profit sector, regulatory bodies or professional bodies., or an accountant contracted by such entities. Do IESBA members agree to revised glossary definition?
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Proposed Restructuring
Conforming Safeguards Amendments Addition of example of advocacy threat: “A professional accountant, in order to obtain favorable financing, includes in, or excludes critical information from a prospectus.” Reposition of a familiarity threat to a self-interest threat Do IESBA members agree to include an example of an advocacy threat and the repositioning of a familiarity threat to a self-interest threat?
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Proposed Restructuring
IESBA members are asked for their views about the proposed revisions made to restructure close-off document, in particular the conforming changes arising from safeguards (i.e., the paragraphs shaded in gray) Go through Agenda Item 4-B
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Phase 2 – Sec. 350 - Inducements
June 2016 IESBA views: Bribery and Corruption should not be excluded Guidance should include a “motivation test” Proposed title not broad enough Issue of cultural differences TF presented proposed enhancements to Sec 350 and an initial strawman
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Phase 2 – Sec. 350 - Inducements
IESBA views: Bribery and Corruption Sec. 350 should address Bribery and Corruption Legislation might not exist or inadequate TF response: Strawman not intended to exclude Bribery and Corruption Revised principles-based direction to consider all types of inducements Will explain how it is addressed our proposal in a couple of slides The presentation will follow the structure in the revised strawman
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Structure of Revised Sec. 350
Introduction Acknowledge Bribery and Corruption are significant problems in many jurisdictions and are unacceptable behaviors for all PAs Application and Requirements Requirement to understand laws and regulations and comply with them (consistent with NOCLAR standard) Prominent position in revised standard IESBA are asked for views on TF responses Task force considered whether definitions of bribery and corruption were needed in order for a PA to conclude whether it was illegal and hence covered by legislation. It concluded that, given the range of different types of bribery and corruption, it would be difficult to devise precise definitions that apply globally. In intro, acknowledge these are significant issues in some jurisdictions Will incorporate a requirement to understand laws and regs involving bribery and corruption which is consistent with NOCLAR TF believes that when a PA faces an inducement that is not illegal but clearly a bribe, this would be captured in the revised Section 350 by an overarching requirement that a PA shall not give or receive an inducement that is made with the intention of improperly influencing another individual or entity.
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Structure of Revised Sec. 350
Examples of Inducements Gifts, hospitality, entertainment, etc. Some forms could be illegal (bribery); Others might not be illegal but could still be unethical IESBA asked for their views on the extent of examples within the revised Section 350 and the Task Force’s proposed examples Inducements can appear in many different forms, for example: gifts, hospitality, entertainment, facilitation payments and political donations. They can also occur in many different situations, ranging from minor gifts between individuals to major deals between private entities and governments. An inducement can also refer to preferential treatment and inappropriate appeals to friendship and loyalty. Some forms of inducements could be illegal, such as bribery. Others might not be defined as illegal but could still be unethical and result in a breach of the fundamental principles.
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Structure of Revised Sec. 350
Assess intent of Inducement Intention to improperly influence behavior Consider how inducement will be perceived by others Identify and evaluate threats Trivial and inconsequential inducements not a threat to compliance with FPs The third party test List of factors provided to evaluate threats CAG views In considering intent, must consider how inducement perceived by others (third party test) Even if decide intention is not to improperly influence behavior, must still evaluate threats and apply safeguards, if necessary Most common threats are self-interest, familiarity and intimidation threats. Where inducements are offered or accepted that are clearly trivial and inconsequential, the PA can generally conclude that any threats to compliance with the fundamental principles are at an acceptable level. The existence and significance of any threat will depend on various factors, including the following: The value, frequency and nature of the inducement. Guidance should note that inducements accepted or offered on a regular basis, especially to or from the same party, could result in the PA becoming less mindful to the fact that such inducements, in totality, could create a threat. The occasion that has given rise to the inducements, such as a religious holiday or wedding. Whether the acceptance of the inducements can be directly associated with the conduct of business. Whether the inducements is specific to an individual or available to a broader group. The broader group might be internal to the employing organization or external to the employing organization, such as other customers or vendors. The roles and positions of the individuals offering and being offered the inducements. The significance or materiality of the inducements to the individual(s) offering and being offered the inducements. Policies and procedures of the employing organization of the individual offering or receiving the inducements.
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Structure of Revised Sec. 350
Address threats - safeguards provided to reduce threats to acceptable level Register in log Consult with senior management or TCWG Recuse from business-related decisions to individual/org Secondary reviews If cannot reduce threat to acceptable level, PA shall not offer or accept inducement Below are examples of actions that in certain circumstances might be safeguards in addressing threats: Registering the inducements in a log. Consulting with senior management of the employing organization, those charged with governance or employing organizational policy, when an inducements is offered. Consulting with a senior colleague or professional organization on the inducements. Recusing from making any business-related decisions relating to the individual or organization, such as a customer or vendor, to whom the PA offered or accepted the inducements. Secondary reviews of any work performed or decisions made by the PA with respect to the individual or organization from which the PA accepted or offered the inducements. ALSO: giving away to charity
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Section 350 Cultural Differences CAG views
Consider cultural differences in the section The consequences of refusing a gift CAG views Consider cultural differences but not being to granular – a lot of discussions but still believes that specific consideration to cultural differences is really difficult. There’s a balance not to approve of lower standards or use it as a cover. Tried various examples and feel confident that the general guidance should be sufficient The offence of not accepting a gift: referral to local standards or reliance on local regulators; would be difficult to define
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Phase 2 – Sec. 350 - Inducements
Revised Title / Scope “Inducements” not ideal “Gifts and Hospitality” could narrow scope “Inducements” should be considered neutral TF: “Gifts, Hospitality and Other Inducements” CAG views
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Phase 2 – Sec. 350 - Inducements
IESBA are asked for their views on: Proposed requirements Related TF proposals
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The Way Forward First read of proposed revisions: Dec 2016 IESBA meeting Second read with intention of obtaining approval for exposure: March 2017 IESBA meeting
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