1. Non-assurance Services
Richard Fleck, IESBA Deputy and Working Group Chair
IESBA Meeting
New York
September 17-20, 2018

2. Receive a report-back on roundtables in relation to NAS
Objective
Receive a report-back on roundtables in relation to NAS
Discuss WG’s assessments and proposals
Update on preliminary benchmarking observations
Approve possible project proposal, including timeline

3. Activities Since June 2018 Meeting
Two roundtables
Tokyo (July 12) and Melbourne (July 16)
WG meeting in New York
Prepare and finalize a project proposal
Comment letter from SMPC
IESBA CAG meeting

4. General Reactions from SMPC
SMPC generally supportive of project proposal
Supportive of a principle-based approach for global Code
Believe that regulators and NSSs should be allowed the flexibility to tailor NAS provisions based on national circumstances
Do not support deletion of the exemptions → unintended consequences to SMPs (i.e., exclusion from tendering)
Concerned that extending NAS provisions to audits of SMEs would cause unnecessary costs and complications

5. General Reactions from CAG (1)
Strong support to initiate an NAS project proposal, including decisions to:
Retain principles-based approach
Emphasize role of, and auditor communications with TCWG
Suggestions to emphasize linkages to:
Fees
Business Model

6. General Reactions from CAG (2)
Cautions about understandability of “trivial and inconsequential”
Consider also prohibiting NAS that create advocacy and self- interest threats
Agreement that clarification is needed about which NAS are prohibited, but also important to be clear about which types of NAS are permissible NAS
Regulatory perspective to help with enforceability
Consider situations in which management might not be competent to assume responsibility

7. Topics Discussed at Roundtables
General Policy Objective
Materiality
PIE and non-PIE provisions
Unconditional NAS prohibitions (i.e., “black list”)
New and emerging services
Auditor communication with TCWG
Disclosure and other matters

8. General Policy Objective
Feedback from RT Participants
General Policy Objective
Ideal to achieve global harmonization of NAS provisions, but is that aim practical?
Common high-quality NAS provisions at global level is helpful
Calls for clearer and more explicit prohibitions
Divergent views about how to achieve right balance
Concept of “black list” has challenges
Important to continue to link NAS prohibitions to CF because it explains rationale for why the prohibitions exist

9. Feedback from RT Participants
Materiality (1)
Views expressed included:
General recognition that term is unclear
Concern that it is subject to misuse or abuse
If concept is retained, consider whether different terminology might be more appropriate
Consider whether to use other terms like “acceptable” and “trivial and inconsequential”

10. Feedback from RT Participants
Materiality (2)
If term is withdrawn, consider whether there should be more guidance in the Code on how breaches, particularly immaterial breaches, should be handled
Calls for more guidance
Too early to tell if para A1 of Code is helpful
Suggestions for a more explicit link to concept of RITP

11. PIE and non-PIE Provisions
Feedback from RT Participants
PIE and non-PIE Provisions
Doubt about whether PIE and non-PIE continues to be appropriate approach for Code
Important to consider needs of SMEs and SMPs
Increasing trends for alternate funding sources
Different descriptions/definitions of PIE contribute to complexity
Typically PIEs = listed; decrease in number of listed entities in many jurisdictions
Concern that SMPs may not have resources to implement PIE provisions and may opt out of providing audits

12. Communication with TCWG, Disclosure/ Other
Feedback from RT Participants
Communication with TCWG, Disclosure/ Other
Strong support for increased transparency about NAS and NAS fees
Support for requiring auditors to obtain NAS preapproval from TCWG
Auditor will still need to assert for own view on compliance with independence
Little or no support for fee caps
Not for IESBA to require disclosure of NAS information by companies to stakeholders

13. New and Emerging Services
Feedback from RT Participants
New and Emerging Services
Fundamental principles and general provisions in CF continue to be relevant, but more guidance is needed
PAs need help to understand ethical implications of new services, including the types of threats they create
Response should be timely
Advancing technologies are blurring the lines b/w professional services and business relationships
Are there other types of NAS that should be dealt with in Code?

14. Views about Feedback on Roundtables

15. WG Assessments and Proposals
Matters for Consideration
Self-review threat/ Materiality/ PIE vs non-PIE
New and Emerging Services
Communication with TCWG
NAS Disclosure Requirements
Matters not be Pursued
“Blacklist” in the Code;
Disclosure of NAS Provided by audited entities
NAS Fee Cap
Firms’ Business Models

16. Self-review Treat, Materiality, PIE vs non-PIE
WG Assessment and Proposals
Self-review Treat, Materiality, PIE vs non-PIE
Is the current approach to self-review threats in the Code appropriate?
Should the Code prohibit all NAS that create self-review threats?
Should the concept of materiality be retained?
Should the distinction between PIE and non-PIE provisions in the Code should be retained?

17. New and Emerging Services
WG Assessments and Proposals
New and Emerging Services
Are there are other types of NAS, including new and emerging services that should be explicitly included in the Code?
Review general NAS provisions in the Code to ensure that they remain appropriate
Ensure a mechanism to provide timely guidance (e.g., staff publications, Q&A)

18. Achieving Transparency About NAS
WG Assessment and Proposals
Achieving Transparency About NAS
Establish NAS disclosure req’ts at global level
Jurisdictions to determine how best to respond to transparency issues
Confidentiality?
What to disclose? NAS fees?
Where to disclose it?

19. Communication with TCWG
WG Assessment and Proposals
Communication with TCWG
Consider whether, and if so how to establish req’ts in the Code for auditor communications with TCWG about NAS
Duplicate in what’s already in IAASB’s ISA 260 (Revised) or add a reference?
Should such req’ts apply to listed entities or PIEs?
IAASB-IESBA applicability alignment needed
IESBA’s remit does not extend to TCWG

20. Input from the Fees Working Group
Options relating to ratio of NAS fees to audit fees issues
Require firms to assess the cumulative effect of providing multiple NAS to audit clients
Consider the role of disclosure of fee-related information
Communication with TCWG about NAS/ pre-approval of NAS
Require firms to re-evaluate threats to independence when ratio of NAS/ audit fees reach a particular threshold
Establish caps on ratio of NAS/ audit fees (PIEs vs non-PIEs)?

21. Preliminary Benchmarking
Code and the EU Regulation
Code and SEC/ PCAOB
Code, EU, SEC/PCAOB
All acknowledge that providing NAS to audit clients might create “threats” to independence
All include prohibitions for similar types of NAS, but different approaches used (e.g. materiality, self-review, threats and safeguards)

22. IESBA Code vs EU Regulation
Preliminary Benchmarking
IESBA Code vs EU Regulation
IESBA Code
Focus only NAS prohibitions that apply to PIEs
Most NAS prohibitions have materiality as a qualifier
Includes contextual information about each type of NAS
EU Regulation
Focus on EU Regulation only, which applies to PIEs only
Absolute prohibitions
Materiality consideration allowed for Member States, not firms
Assuming management responsibility
Taking part in management or decision making
Bookkeeping
Corporate finance services
Providing general counsel
Corporate finance advice
General Counsel
IESBA

23. Preliminary Benchmarking
Code Versus SEC/PCAOB
Focus on certain types of NAS
Accounting and bookkeeping, tax, administrative, valuation, loaned staff, internal audit, IT, legal, recruiting
Different approach
Self-review threats, materiality, significant, safeguards in Code vs. “not subject to audit” in SEC/ PCAOB
Different lexicon
Firm and network firm, non-assurance, divisions and related entities in Code vs. Accounting firm, non-audit, and affiliate of the entity in SEC/ PCAOB

24. Proposed Timeline Approve project proposal? IESBA discussion of issues
Indicative Timing
Milestone
September 2018
Approve project proposal?
December 2018
IESBA discussion of issues
March 2019
CAG and IESBA discussion of issues
May/ June 2019
NSS Discussion
IESBA: First read of ED/ CP
September 2019
CAG and IESBA: Approve ED/ CP for exposure

25. Matters for Considerations
Do IESBA members agree with the WG’s assessments and proposals?
Do IESBA members believe that all NAS matters for consideration are appropriately dealt in the Project Proposal?
Are there any other matters that IESBA members believe should be dealt with in a NAS project?

26. Project Proposal
Do IESBA members agree to approve the NAS Project Proposal?

27. The Ethics Board