1. Professional Skepticism
Richard Fleck, IESBA PSWG Representative
IESBA Meeting
September 26-30, 2016

2. Objectives of Session
To receive feedback on the responses to the ITC in relation to professional skepticism (PS)
To discuss the PSWG’s preliminary recommendations, and to solicit the IESBA’s views on these actions
To note a strawman that articulates how the concept of PS could be enhanced in the Code
To consider the merit and feasibility of a short-term initiative to enhance the application of PS in the restructured Code

3. Overview of Feedback to Date – IESBA
Interactions between PS and the fundamental principles (FPs) and independence should be clarified
Drivers and impediments to PS and to the compliance with the FPs are the same
Relevant “information” underpinning ethical decisions should be assessed with adequate PS
Code should emphasize PS in much the same way as it does auditor independence
Code should address how the concept of PS applies to PAIBs

4. Overview of Activities to Date
IESBA June 2016 PS discussion
July 2016 PSWG meeting
Development of PS Strawman to facilitate discussions about how the Code might approach PS
Input received/to be received on PS strawman at:
Sept 2016 Joint IESBA/IAASB CAG and IAASB meetings
Sept 2016 IAESB CAG and November 2016 IAESB meeting
Sept 2016 PAIB meeting

5. Recap of How PS is Addressed in Standards
PS is defined in IAASB’s standards
Applies to PAs who perform audits and other assurance engagements only
Code only refers to PS as part of the description of independence
Independence applies to audits and other assurance engagements only
IAESB standards refer to the concept of PS as defined in the IAASB’s standards
Applies to all PAs, including those who prepare financial statements
June 2016 IESBA meeting materials addressed how the concept of PS is addressed in the IAASB, IESBA and IAESB extant standards

6. IESBA PS Strawman
Description
Linkage between PS and the FPs [and independence]
Understanding when PS is applicable
Considerations for applying PS
Documentation

7. Views Expressed Some PSWG Members About the PS Strawman
Prejudges a longer-term discussion about whether the concept of PS should apply to all PAs, and whether the IAASB definition of PS should be changed
Inclusion of certain material (gray paragraphs) should either be deferred and explored as part of a longer-term project, or omitted
More thorough analysis of the implications for non-assurance engagements, and further discussion among the three SSBs and their respective CAGs needed

8. Feedback from CAG Discussion
Strong support for joint and coordinated initiative on PS
General support for IESBA to explore whether PS can be emphasized in the Code both in ST and LT – but concerns raised about unintended consequences
Points raised by some CAG Representatives
There is a link between PS and the FPs
PS is an attitude and public expects all PAs to have it
No specific input provided on text of Strawman

9. Feedback from IAASB Discussion
Focus was on enhancing PS in audit/assurance context
Concern at PS applying to all PAs
More time is needed for further analysis about the potential unintended consequences for non-audit and assurance
Concern that extending PS to all PAs risk diluting its meaning in the context of audits and assurance
One IAASB member thought that PS can be applied differently depending on the service that the PA provides

10. Reconciling Different Challenges
SSBs have different challenges
IAASB: ISA 540 and exploring how to better evidence PS
IESBA: Restructured Code and responding to regulatory concerns
IAESB: Implementation of education standards and demonstrating relevance
SSBs have different areas of focus
IESBA and IESBA: Enhance ethics and education for all PAs
IAASB: Enhancing audit quality
Boards face different timing challenges

11. Options for IESBA to Consider
Do nothing further (i.e., retain the extant PS references)
Do nothing now, but consider a LT project on PS
Undertake a ST measure to emphasize PS in the restructured Code combined with a LT project on PS
For example, develop limited wording to describe the interaction between PS and how auditors and assurance practitioners should comply with the Code
(i.e., linkage between PS and the FPs/ independence)

12. Next Steps
IESBA Sub-group teleconference
October 9-10 PSWG meeting in Washington
IESBA December 2016 meeting

13. Matters for IESBA Consideration
IESBA members are asked for views about whether to:
Retain the extant PS references in the Code, and do nothing further
Do nothing now, but consider a separate PS project at a future date
In combination, (i) Undertake a ST measure to emphasize PS in the restructured Code and (ii) Consider a longer term PS project as part of future work program