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Conflicts of Interest

Conflicts of Interest . Peter Hughes IESBA December 2012 New York, USA . Conflicts of Interest. Timeline. Project approved October 2009 ED issued December 2011 IESBA June 2012: First read of Section 220 post exposure CAG September 2012

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Conflicts of Interest

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  1. Conflicts of Interest Peter Hughes IESBA December 2012 New York, USA

  2. Conflicts of Interest Timeline • Project approved October 2009 • ED issued December 2011 • IESBA June 2012: First read of Section 220 post exposure • CAG September 2012 • IESBA December 2012: Final standard presented for approval

  3. Conflicts of Interest Objective of Project • To provide more comprehensive guidance on identifying, evaluating and managing conflicts of interest • To address issues both for professional accountants in public practice and in business in a broadly similar way • To recognize, however, the particular considerations for professional accountants in public practice where conflicts might be created by relationships of other members of the accountant’s firm

  4. Conflicts of Interest Description & examples of a conflict of interest • June IESBA supported revised description to provide a clearer linkage between the subject of a professional service and the existence of a conflicting interest or relationship, and revised examples. • September CAG supported revised description but raised connection between Conflicts and Independence: • When the professional service is an assurance service the professional accountant in public practice shall also comply with the independence requirements of Sections 290 and 291 as appropriate. • Examples added, amended and re-ordered.

  5. Conflicts of Interest Third party test • June IESBA and September CAG supported third party test. • Wording of third party test aligned with 100.7 • Subjective nature of third party test raised by respondents • Task Force draws attention to requests from some respondents to clarify meaning of third party test. Q&A to provide some help?

  6. Conflicts of Interest “Reason to believe” threshold for network firms • June IESBA in general supported “knows or has reason to believe” threshold. • September CAG: comparison made with threshold in 290 & 291 and suggested strengthening • 290/291 are limited to interests and relationships with the audit/assurance client itself, while 220 applies more broadly to any interests and relationships when performing any service for any client • Changes made: Linked more clearly to identification process for networks with separate paragraph in 220.7; and strengthening with “having made enquiries as appropriate”

  7. Conflicts of Interest Disclosure and Consent • June IESBA and September CAG proposed greater clarity on disclosure and consent • Changes made to clarify types of disclosure and consent: • General disclosure (e.g. standard T&Cs) and general consent • Specific disclosure and explicit consent • Implied consent clarified with a description • Ultimate test of conflicts involving self interest is “shall not allow a conflict of interest to compromise professional or business judgment” • It is generally necessary to disclose and obtain consent if safeguards have reduced the threats to an acceptable level

  8. Conflicts of Interest Disclosure and Consent: Documentation • September CAG proposed documentation of safeguards and consent should be stronger • Task Force is of the view that documentation does not change the facts and is a judgment for the accountant. Specific disclosure and explicit consent are automatically documented. Documentation is encouraged for verbal and implied consent but should not be mandated by the Code

  9. Conflicts of Interest When consent cannot be obtained • Respondents, June IESBA and CAG generally supportive • Change made for IESBA comment: • The provision was clarified so that it would not apply where implied or general consent has already been obtained by adding “making specific disclosure for the purpose of obtaining explicit consent” to 220.13

  10. Conflicts of Interest Other issues raised at CAG • Professional Judgment: The professional accountant shall determine whether the significance of the conflict of interest is such that specific disclosure and explicit consent is necessary. • External notification of a Conflict: This includes matters notified by external parties, for example clients or potential clients. • Confidentiality: the professional accountant in public practice shall remain alert to the fundamental principle of confidentiality. Moved from 220.10 to 220.4 to provide greater emphasis.

  11. Conflicts of Interest Other changes • Paragraph regarding when to discontinue or terminate (220.5) was given greater prominence in response to CAG comments in particular. • New paragraph (220.11) added to clarify the need to decline or discontinue where consent is refused or withdrawn.

  12. Conflicts of Interest Sections 310, 320, 340 • Almost all respondents supportive of Section 310 in ED, including third party test. • No comments made at CAG • Task Force aligned Section 310 with Section 220 as far as possible. • Respondents again noted subjectivity of third party test. • Almost all respondents supportive of conforming changes to Sections 320 and 340. • Some editorial changes made to Sections 320 & 340.

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