Long Association Task Force

1. Long Association Task Force Marisa Orbea, Task Force Chair IESBA Meeting September 16-18, 2013 Sydney, Australia

2. Long Association Background • Summary of research • Key issues • Structural changes affecting the profession • General principles in paragraph 290.150 • Rotation requirements that currently apply to PIEs • Exceptions to the rotation requirements • Requirements for non-PIEs

3. Long Association Structural changes • Mandatory firm rotation and mandatory tendering debates • European Commission Green Paper • UK FRC Corporate Governance Code • U.S House of Representatives vote in favor of prohibiting PCAOB requiring mandatory firm rotation

4. Long Association Paragraph 290.150 • Research Findings • Familiarity vs. audit quality • Self Interest • Other safeguards • TF Considerations • Revision of framework • Enhancement of 290.150

5. Long Association Paragraph 290.150 • TF Proposals • Strengthen framework in 290.150 • Clearer introductory paragraph • Factors to consider when evaluating significance of potential threats • Examples of safeguards • If rotation is applied as a safeguard, other factors to be considered

6. Long Association Involvement of Those Charged with Governance • Research Findings • Majority believe that TCWG should not have a decision making role • TF Considerations • TF agree that TCWG should not have a decision making role • Consultation when exceptions sought • Concerns over independence of auditor • TF Proposals • TCWG involvement in rotation decision is not a safeguard

7. Long Association Rotation Requirements for PIE Audits • Who should be subject to rotation • Duration of “time on” period • Duration of “cooling off” period • Permissible activities during “cooling off” period

8. Long Association Who Should be Subject to Rotation • Lead Audit Engagement Partner • Quality Control Review Partner • Other partners assigned to the audit engagement • Managerial staff assigned to the audit engagement • Junior staff assigned to the audit engagement

9. Long Association Duration of “Time On” Period • Research Findings • No clear preference - five and seven-year most common • TF Considerations • Familiarity vs. Audit Quality • Reduce vs. Maintain • Longer / shorter “time on” for certain PIEs • TF Proposals • Familiarity vs. Audit Quality – correct balance

10. Long Association Duration of “Cooling off” Period • Research Findings • Two-year most common • TF Considerations • Perception concern • Increase vs. Maintain • TF Proposals • Considering no decrease in “time on” – split views on whether to increase two-year “cooling off” • Consider also whether all KAPs vs. LAEP

11. Long Association Permissible Activities During “Cooling Off” Period • Research Findings • Responses split • TF Considerations • Exclusion from Engagement Team • Ability to impact audit outcome • TF Proposals • Additional guidance

12. Long Association Exceptions to Rotation • Research Findings • Current exception requirements appropriate • TF Considerations • Audit quality vs. familiarity • IOSCO letter • TF Proposals • No further exception paragraphs • Amend 290.154

13. Long Association Mandatory Rotation for Non-PIE Audits • Research Findings • Majority against mandatory rotation • TF Considerations • No evidence for mandatory rotation • Audit of financial institutions • TF Proposals • Improve guidance - 290.150