Technology

1. Technology IESBA CAG Meeting New York, USA September 9, 2019 Patricia Mulvaney, IESBA Member Technology Working Group Chair

2. Objectives of the Session • To briefly recap Phase I activities to date • To present the TWG’s preliminary findings and recommendations • To receive input from CAG Representatives to • Inform TWG activities for Q4 2019 • Assist TWG in finalizing its Phase 1 Report

3. Recap of Phase 1 Activities to Date

4. Preliminary Findings and Recommendations Key Findings

5. Preliminary Findings and Recommendations Key Findings

6. Preliminary Findings and Observations Critical Role of Ethics and Professional Judgment • Trust and ethics gaining higher profile in conversations about technology • Ethical issues associated with newer technologies can impact public confidence when not addressed timely and appropriately • PAs already have a strong appreciation of the importance of public trust  • Opportunity for PAs to have a broader societal role in promoting ethical behavior

7. Critical Role of Ethics and PJ Promoting ethical behavior • Current Code: • PAIBs to encourage and promote ethics-based cultures in their organizations, taking into account their position and seniority within those organizations • Role and Mindset ED: • Proposals include language noting wide-ranging impact of the profession in society; revisions to fundament principle (FP) of professional behavior, and; new application material (AM) on importance of organizational culture TWG Preliminary Recommendation • New AM in the Code to highlight broader societal role in promoting ethical behavior

8. Critical Role of Ethics and PJ Criticality of Professional Judgment • Machines performing more tasks including complex analysis • Machines improving accuracy and cost of predictions • Risk of bias in data sets and algorithms • Risk of over-reliance on technology • Intelligence Augmentation used to mitigate risk (i.e., humans at the center of decision-making process rather than humans being replaced by machines • Importance of and need for professional judgment remains - if not increases - as technologies evolve

9. Critical Role of Ethics and PJ Criticality of Professional Judgment • Current Code • The exercise of professional judgment is clearly set out as central to the application of the conceptual framework (CF) • Role and Mindset ED • Proposed changes include references to impact of technology (e.g., automation bias) TWG PreliminaryRecommendations • No further revisions to the Code re: professional judgment  • Publish non-authoritative material emphasizing relevance and importance of professional judgment

10. Preliminary Findings and Recommendations Key Findings

11. Preliminary Findings and Observations Complexities of the Professional Environment Concurrent  Risks • Impact of technology on  business operations • Challenging regulatory requirements  • Evolving professional standards • Lack of time, money or other resources to learn/keep up with pace of change • Potential for being overwhelmed or intimidated by combination of above 

12. Preliminary Findings and Observations Complexities of the Professional Environment • TWG considered whether all potential threats encountered by PAs fall within the five threat categories set out in the Code • TWG developed the view that concurrent risks associated with complex professional environments could reasonably fall within both self-interest threat and intimation threat TWG PreliminaryRecommendations • Add “Many of the …" at the beginning of paragraph 120.6 A3 • Insert a reference to technology in the description of intimidation threat •  Add appropriate reference to technology in Sections 200 and 300 of the Code

13. Preliminary Findings and Recommendations Key Findings

14. Suitability of the FPs Common AI Ethics Principles

15. Preliminary Findings and Observations Suitability of the Fundamental Principles The TWG observed: The inter-related and pervasive nature of technology There are a number of common principles in AI ethics frameworks relevant to the FPs Technology cuts across all FPs and CP

16. Common AI Ethics Principles Fairness AI Ethics FPs AI Principle in the context of PA Ethical Behavior • A PA's work product should not be produced with or result in unfair bias or discrimination, and should not lead to intended users being deceived when it's used

17. Common AI Ethics Principles Fairness AI Ethics FPs • Current Code • A PA must act fairly, be impartial and act without bias (Integrity, Objectivity) • A PA must include, consider and have the competence to understand all relevant known information in making decisions (PC&DC, professional judgment) • Acting unfairly can impact the good reputation of the profession (Professional Behavior) TWG Preliminary Recommendation • No further revisions to Code regarding concept of fairness 

18. Common AI Ethics Principles Transparency and Explainability AI Ethics FPs AI Principle in the context of PA Ethical Behavior • PAs need to be transparent about, and be able to explain, how decisions are reached, the processes applied, and how the information the PA relied on has been derived

19. Common AI Ethics Principles Transparency and Explainability AI Ethics FPs • Current Code  • A PA must have requisite knowledge, and skills, exercise sound judgment and disclose limitations inherent in services/activities (PC&DC) • A PA must maintain an awareness and understanding of relevant technical, professional and business developments (PC&DC) • A PA is subject to confidentiality and, in certain circumstances, disclosure requirements (Confidentiality)

20. Common AI Ethics Principles Transparency and Explainability TWG Preliminary Recommendations • Consider strengthening the fundamental principle of PC&DC to explain a PA’s responsibility to be transparent • Consider strengthening the fundamental principle of Confidentiality to address interaction of appropriate level of disclosure and transparency in the circumstances  • No further revisions to the Code re: explainability

21. Common AI Ethics Principles Accountability AI Ethics FPs AI Principle in the context of PA Ethical Behavior • PAs are responsible and should be held accountable for decisions and actions taken during, and outcomes of, their work  - - notwithstanding reliance on third party outputs generated from technology-based intelligent agents, outsourced business partners and/or subject-matter experts

22. Common AI Ethics Principles Accountability • Current Code  • PAs shall not knowingly be associated with false, misleading or recklessly provided information (Integrity)  • PAs have a responsibility to act diligently, discharging their duties carefully and thoroughly (PC&DC) • Section 220 provides guidance on relying on the work of others but no reference to technology • The Role and Mindset ED • Proposes new material on determination to act appropriately under the FP of integrity in Subsection 111 TWG PreliminaryRecommendations • Consider strengthening FP of Integrity and PC&DC to more directly address “accountability”  • Consider enhancing provisions on relying on works of others in Section 220 by including technology reference

23. Common AI Ethics Principles Privacy/Security AI Ethics FPs AI Principle in the context of PA Ethical Behavior • PAs must ensure that information used in professional activities – whether personal, commercial or otherwise – is kept confidential as well as protected from inappropriate access, disclosure and data breach

24. Common AI Ethics Principles Privacy/Security Additional Considerations • Privacy law and regulation varies by jurisdiction.  • Heightened need to protect privacy and access to confidential information as the acquisition and use of "big data" for commercial and social interest reasons continues to proliferate and accelerate • Risk - and consequences - of cyberattacks and hacking can cause significant reputational, financial and professional harm • Opportunity for PAs to use and promote effective data governance frameworks

25. Common AI Ethics Principles Privacy/Security TWG Preliminary Recommendations • Current Code • Confidentiality has the greatest word count of the five fundamental principles in the Code • Emphasizes maintaining  confidentiality of information and allows for disclosure of information under certain circumstances • Consider strengthening Confidentiality FP to update language, expressly including "protection" and “privacy” terminology • Consider ways to support/promote the relevance and importance of effective data governance practices 

26. Preliminary Findings and Recommendations Key Findings

27. Preliminary Findings and Observations Necessary Competencies and Skills • Digital age driving shift from counting the past to analysis applied to the future • Digital upskilling involves initial learning and keeping current by having a growth mindset  • "Soft" skills also key for digital age success: • problem solving • interpersonal communications • emotional intelligence • collaboration  TWG Preliminary Recommendation • Consider strengthening PC&DC FP by describing “soft” skills/including reference the IESs

28. Preliminary Findings and Recommendations Key Findings

29. Preliminary Findings and Observations Independence • The TWG is continuing its review of whether Parts 4A and 4B of the Code should/could be enhanced with regards to the impact of technology • Matters under consideration include: • Definition of “office” • Definition of “financial interest” in Section 510 • Concepts of “loan or guarantee” or “bank or similar institutions” in Section 511

30. Preliminary Findings and Observations Non-Authoritative Guidance Material

31. Matters for CAG Consideration • Does the preliminary report clearly explain the TWG’s findings and recommendations? • Are there any other substantive matters that should be included or require further discussion in this report? • Are there any other topics for non-authoritative material in addition to those highlighted in the preliminary report that should be considered by the TWG?  • Are there any other comments for the TWG to consider relating to the preliminary report and its work in Q4 2019?

32. Next Steps