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Role and Mindset

Role and Mindset. IESBA CAG Meeting New York March 4, 2019. Richard Fleck, IESBA Deputy Chair & Task Force Chair. Overview of the Session. Report-back and update on recent activities Discuss issues, TF proposals and rationale and seek CAG input: New Introduction to the Code

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Role and Mindset

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  1. Role and Mindset IESBA CAG Meeting New York March 4, 2019 Richard Fleck, IESBA Deputy Chair & Task Force Chair

  2. Overview of the Session • Report-back and update on recent activities • Discuss issues, TF proposals and rationale and seek CAG input: • New Introduction to the Code • Revisions to Sections 100, 110 and 120 of the Code • Next steps

  3. Activities Since September 2018 CAG Meeting

  4. Report-back – September 2018 CAG Meeting • Any questions on the report-back? • Representatives are asked to note the report-back

  5. Key Proposed Changes to the Code

  6. Coordination with SSBs Teleconference with Chairs of IAASB PS Sub-Working Group and IAESB PS Task Force on 28 February. Substantive comments from Chairs include: New Introduction to the Code • Support from IAASB PS SWG Chair Objectivity • IAASB SWG will consider whether proposed revised description of objectivity impacts the way the term is used in IAASB literature • IAASB approached reliance on technology (para 110.1 A1 (b)(iv)) from the perspective of bias (e.g. over-confidence bias). Agreed that there should be further discussion between Chairs of both Board’s Technology TFs Resolve • It should be clarified that the concept involves a commitment to do the right thing

  7. Coordination with SSBs Questioning mindset and critical analysis • IAASB PS SWG Chair queried if “questioning mindset” and “critical analysis” are too close to the terms used in the definition of “professional skepticism”; also prefers “questioning mind” • IAESB PS TF Chair suggested “critical assessment” (as used in the definition of “professional skepticism”) should be used. Rationale is that the outputs expected from critical assessment and critical analysis are different • IAASB PS SWG to consider whether relationship between professional judgment and questioning mindset in the proposed text aligns with the relationship between professional judgement and professional skepticism in ISA 220 (Revised) ED Bias • Support from both Chairs for the approach taken and for the number and description of those listed. • Comments on ISA 220 (Revised) ED due in June 2019. IAASB will share feedback to the material on “bias”. Organizational culture • Support from IAASB PS SWG Chair for the organizational culture and ‘tone at the top’ to be included in the proposed text

  8. New Introduction to the Code The Introduction: • Aims to remind and exhort PAs about importance of their role and function in society, their responsibility to act in the public interest and how the Code can help • Is positioned as an Introduction because: • Material more effective if non-technical language is used - hence Part 1 is not suitable • The Guide to the Code serves a different purpose and also not suitable location The TF considered the Board’s question – “Does compliance with the Code means a PA has acted in the public interest?”and concluded thatalthough the Board does not have the requisite authority to determine this issue: • It would be helpful if the Code could provide some assurance to PAs similar to the IASB on the effect of compliance with IFRS, and so • Para 3 aims to support the proposition that compliance with the Code provides prima facie evidence that a PA has acted in the public interest.

  9. Introduction to the Code Questions: • Does the CAG agree that the proposed text should be placed in the Introduction? The alternative would be for the text to be redrafted in more formal/technical language and placed in Part 1 of the Code. • Does the CAG agree that compliance with the Code is prima facie evidence that a PA has acted in the public interest

  10. Revisions to Section 100 The revisions to Section 100: • Clarify: • the provisions of the Code that set out the behaviors and approach expected of PAs and support their responsibility to act in the public interest • Applicability of the Code: • Individuals who are members of IFAC member body • Firm responsibility over individuals who provide professional services to comply with the Code • Highlight the central role of FPs and CF in the Code The TF considered, but rejected, the inclusion of a Requirement that a professional accountant should act in the public interest (e.g., “R100.1 - A professional accountant shall act in the public interest when undertaking a professional activity.”) Questions: • Does the CAG support the proposed text in paragraphs 100.1A1 – 100.2.A2?

  11. Revisions to Section 110 - Objectivity The revisions to section 110: • Reframe the description to be more affirmative in nature; this is consistent with how other FPs are described • Add “Perception, emotion or imagination” as a factor that can compromise the exercise of professional judgment • Expand “undue influence of others” to “Undue influence of, or reliance on, individuals, organizations or other factors (including technology)” • Add an example of how reliance on technology may affect objectivity (para. 112.1 A1) Questions: • Does the CAG support the revised description of “Objectivity”? • Does the CAG think it would be helpful if new application material is added to explain more than just the potential influence of technology? E.g., “Perception, emotion or imagination”

  12. Revisions to Section 110 Resolve • There was general support from the Board to develop new application material about the need for confidence/ strength of character as an enabler of compliance with FPs • In light of some Board members’ concern about the use of the words “courage” and “moral courage”, the TF agreed to use the term “resolve” to highlight the importance of having the determination to act appropriately • The proposed text is placed under Subsection 111 (Integrity) because the concept is closely aligned with acting with integrity Questions: • Does the CAG agree with the concept of “resolve”? Should an alternative term (e.g. courage, strength of character) be used? • Does the CAG agree that the proposed text should form part of the material on integrity under Subsection 111?

  13. Revisions to Section 120 Revisions to Section 120 – Questioning Mindset It is important for a PA to have the right mindset when applying the CF • TF took note of the clear view from stakeholders that professional skepticism is a term of art in audit and assurance standards • In the 2018 consultation paper “Professional Skepticism – Meeting Public Expectation”, the term “impartial and diligent mindset” was used to articulate the mindset expected of PAs Upon consideration, the TF is of the view that having a “questioning mindset” is important for a PA when exercising professional judgment • A questioning mindset would require a PA to assess the circumstances and information at hand to determine if any critical analysis is necessary TF is of the view that “questioning mindset” and “critical analysis” does not interfere with the use of “professional skepticism” in the ISAs. This is clarified in paragraph 120.5 A5

  14. Revisions to Section 120 Revisions to Section 120 – Questioning Mindset Questions: Does the CAG: • Support the approach taken by the TF? • Agree that “questioning mindset” should be included as a requirement in combination with the exercise of professional judgment in paragraph R120.5? • Agree with the material relating to “questioning mindset” and “critical analysis” in paragraph 120.5 A3?

  15. Revisions to Section 120 Bias Unconscious bias can cloud a person’s judgement and impair a PA’s exercise of professional judgment • The revisions introduced new application material (paragraphs 120.12 A1 to 120.12 A3) to highlight the importance of being aware of one’s bias When developing the proposed text, the TF has taken into consideration the new material on bias in IAASB’s ISA 220 (Revised) Exposure Draft to ensure there is no undue inconsistency Questions: • Does the CAG support the approach taken to the inclusion of bias in Section 120?

  16. Revisions to Section 120 Bias – List of Examples The proposed text includes seven (7) examples of bias: • Anchoring bias • Availability bias • Confirmation bias • Groupthink • Overconfidence bias (2 options) • Representation bias; and • Selective perception Questions: • Does the CAG agree that it would be helpful to include in the Code examples of the different types of bias that may arise? An alternative is to discuss the types of unconscious bias in a staff publication or other types of non-authoritative material. • Does the CAG agree with the descriptions of different types of bias in paragraph 120.12 A2?

  17. Revisions to Section 120 Organizational Culture • Although the Board questioned why organizational culture (and not other enablers) was regarded as requiring additional application material, the TF maintained its view that having the right organizational culture and tone at the top is of such importance in promoting ethical behavior by PAs that it should be included. • The proposed text highlights the importance of having • The right culture at the organizational level; and • Support from leaders and managers through implementation of appropriate education and training programs, performance criteria, management processes, and consequences when ethical principles are not upheld • The proposed text has taken into consideration the relevant material in ISQM 1 ED Questions: • Does the CAG agree that the text on organizational culture should be added to the Code to remind PAs of its potential impact on the application of the conceptual framework?

  18. Next Steps • Seek Board input at its March 2018 Board meeting • Seek input from Forum of Firms and NSS in April and May 2019 respectively • Present revised proposals to Board in June 2019 (including a review of other parts of the Code)

  19. The Ethics Board www.ethicsboard.org

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