Non-Assurance Services

1. Non-Assurance Services Caroline Gardner IESBA June 2013 New York, USA

2. Non-Assurance Services Recent Developments • EC’s proposed regulation on statutory audits • Audit fees – limitation of provision of NAS to 10% of total audit fees removed • Prohibition of Non-Audit Services • Concept of pure audit firms removed • Adopted list of prohibited NAS comparable to IESBA Code • Audit committee approval of NAS • Audit Report • Reporting of a list of NAS provided by the statutory auditor • Decision not final • Next step is discussion in Parliament and member states

3. Non-Assurance Services Regulatory and Other Feedback • IOSCO Committee 1 Letter • Bookkeeping and Emergency Situations • Remove exemption for providing accounting and bookkeeping services and preparation of tax calculations in emergency or other unusual situations • Internal Audit Services • Consider how external auditors use internal auditors as part of audit • Prohibit auditor from providing internal audit services where there is any self-review threat, not only when management functions are assumed • Further distinction needed on what constitutes “internal audit” and other similar services

4. Non-Assurance Services Regulatory and Other Feedback • FEE Paper - “A Comparison of EC Recommendation on Statutory Auditor’s Independence in the EU and Statutory Audit Directive with the Independence Sections of the IESBA Code of Ethics for Professional Accountants” • Comparison focuses on independence provisions required by the Statutory Audit Directive of May 17, 2006 and provisions recommended by EC in its recommendation of May 16, 2002 • Concludes IESBA Code is more robust with respect to audits of PIEs

5. Non-Assurance Services NAS Surveys • Non-assurance services (NAS) surveys requesting information sent to 26 jurisdictions • Survey requested information for PIEs and non-PIEs • 24 Responses received • Survey inquired whether national ethical requirements are more restrictive than the provisions in the Code • Most jurisdictions had similar provisions • More restrictive provisions usually due to local laws & regulations

6. Non-Assurance Services Survey Responses - Definition of PIEs • Majority of jurisdictions (17) do not define PIEs or have definition that differs from IESBA • Reporting issuer or other entity of significance identified by law or regulator • Common trend among differences include additional language to identify PIEs or specifically note certain PIEs • Many jurisdictions consider listed entities to be PIEs • Task Force notes that decision to re-open definition of PIE is outside scope of project • Planning Committee is considering for future strategy and work plan

7. Non-Assurance Services Survey Responses - Management Responsibility • Most responses report more restrictions concerning “assuming management responsibility” • Due to laws and regulations that do not allow NAS or any assumption of management responsibility • Task Force recommends that management responsibilities be included within scope of project • Examination of the terms “management responsibilities” versus “management activities” • Review of paragraph 290.166

8. Non-Assurance Services Survey Responses - Preparing Accounting Records and Financial Statements • Majority of jurisdictions (17) report more restrictive provisions for accounting and bookkeeping services • Significant number of jurisdictions report rules do not provide for emergency bookkeeping provision for PIEs • Task Force agreed • Term “routine and mechanical” should be further examined for alternative language to provide greater clarity • Examination of “emergency provision” should be included in scope of project.

9. Non-Assurance Services Survey Responses - Valuation Services • Eleven jurisdictions report more restrictive provisions for valuation services • Six report prohibition on all valuation services due to local laws or regulations • Most prohibitions/more restrictive provisions relate to PIEs • Twelve jurisdictions report provisions not more restrictive • Task Force agreed may be a benefit in performing valuation services if threats are at an acceptable level

10. Non-Assurance Services Survey Responses - Taxation Services • Twelve jurisdictions report more restrictive provision for taxation services • Relate to PIEs and are due to local laws and regulations • Additional restrictions vary greatly in nature • Eleven jurisdictions report not more restrictive • Task Force agreed • Knowledge and experience of auditor beneficial in performance of certain taxation services • Code may benefit from restructuring of section to simplify guidance

11. Non-Assurance Services Survey Responses - Internal Audit Services • Thirteen jurisdictions report more restrictive prohibitions for internal audit services • Most did not indicate how rules are more restrictive • In some cases, appears rules prohibit services regardless of materiality or significance due to laws and regulations for PIEs • Ten jurisdictions report provisions are not more restrictive • Task Force noted extant provision issued in July 2009 Code and only became effective January 1, 2011

12. Non-Assurance Services Survey Responses - Areas Not Addressed in the Code • Most responses concerning other services or restrictions relate to restrictions or topics outside scope of NAS • Task Force agreed topics of materiality, exceptions and TCWG pertaining to NAS should be addressed in discussion paper

13. Non-Assurance Services Overall Approach to NAS • Task Force concluded • Conceptual framework approach is appropriate for NAS • Less restrictive provisions for non-PIEs are appropriate • Develop a discussion paper to provide basis for discussion

14. Non-Assurance Services Overall Approach to NAS • Paper would include • Overall approach of the Code concerning NAS • Supplementary approaches to enhance threats and safeguards approach • Services addressed within the provisions • Identification of key stakeholders and expectations • Comparison of expectations of key stakeholders and provisions in Code • Ways in which Task Force will address concerns in relation to potential “expectation gaps” • Potential additional safeguards concerning NAS • Further implementation guidance for SMEs and SMPs and • Discussion of materiality, exceptions and those charged with governance

15. Non-Assurance Services Next Steps • Refine project proposal to address following: • Clarify provisions of management responsibility; • Examine phrase “routine and mechanical” within bookkeeping services; and • Examine “emergency exception” within bookkeeping service

16. Non-Assurance Services Survey Responses - Recommendation on Valuation, Taxation and Internal Audit Services • Surveys did not provide clear cut direction or majority views on how jurisdictions address these services • Provisions addressing these services do not require immediate changes to wording or greater restrictions • Provisions require greater deliberation as to overall approach • Task Force will further consider these services in future meetings

17. Non-Assurance Services Questions?