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Long Association Task Force

Long Association Task Force. Marisa Orbea, Task Force Chair IESBA Meeting April 7-9, 2014 Toronto, Canada . Long Association. Background. F rom Sept. and Dec. 2013 meetings, IESBA agreed: Monitor regulatory developments re: mandatory tendering and rotation legislation

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Long Association Task Force

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  1. Long Association Task Force Marisa Orbea, Task Force Chair IESBA Meeting April 7-9, 2014 Toronto, Canada

  2. Long Association Background • From Sept. and Dec. 2013 meetings, IESBA agreed: • Monitor regulatory developments re: mandatory tendering and rotation legislation • Strengthen overall framework of 290.150 • Maintain 7 yr. time-on period. Reconsider 2 yr. cooling-off period • Mandatory rotation not required for non-PIEs or non-KAPs on PIEs

  3. Long Association Background • IESBA requested TF to consider: • Longer cooling-off for Key Audit Partners (KAPs) on PIEs • Nature of permissible roles during cooling-off • How to consider time served on audit prior to becoming a KAP • Adding additional guidance in general framework for non-KAPs • Providing guidance on communication with those charged with governance (TCWG) on rotation issues

  4. Long Association Length of Cooling-Off Period • TF proposal in Dec. 2013 IESBA meeting - 3yr. cooling-off (combined with additional restrictions on permissible activities): • Varied response from IESBA members • Informal poll: • 5 yr. cooling-off for Lead and/or Engagement partners. 2 or 3 yr. cooling-off for other-KAPs – 9 IESBA members • 3 yr. cooling-off for all KAPs – 7 IESBA members • TF requested to consider bifurcation of cooling-off period

  5. Long Association Length of Cooling-Off Period • TF considered: • Reason to change cooling-off period: • Perception concern • Any change must be substantive • Benefits of change must be balanced against cost of implementation • Familiarity concerns specific to Lead, Engagement and Other KAPs • All PIEs vs Listed Companies • Additional consequences to bifurcation

  6. Long Association Length of Cooling – Off Period • All CAG Representatives that expressed a view: • indicated a preference for a uniform cooling-off period • Confirmed that a cooling-off period of greater than two years was preferable • Did not indicate a view on the ideal cooling-off period • TF recommendation: • Bifurcation preferable option

  7. Long Association Permissible Roles during Cooling-Off • Conditions proposed at Dec.2013 IESBA meeting: • Cannot influence the audit outcome • Limited contact with engagement team and client • Differing views received from IESBA members • Should some restrictions be relaxed if a 5 yr. cooling-off is proposed?

  8. Long Association Permissible Roles during Cooling-Off • TF Considered: • Whether certain roles could be performed after a period (e.g. 2 years) without creating significant threat • Balance addressing perception concern vs. practical problems relating to rotation and access to resources • After 2 years cooling-off could allow: • Consult on technical and industry specific matters not previously considered • Other services, provide not directly influencing audit outcome

  9. Long Association Permissible Roles during Cooling-Off • CAG Comments: • Agree that a rotated partner should not be able to directly influence the outcome • Doubt over the practicality of no interaction • A Representative expressed a view that permissible activities should not be relaxed with a 5 yr. rotation period • TF Recommendation: • Maintain proposed restrictions • If 5 yr. cooling-off option preferred, allow certain limited activities after 2 years

  10. Long Association Strengthening of Overall Framework • Dec 2013 proposals: • Familiarity essential to audit quality • How familiarity and self interest threats created • Factors to consider when evaluating threats • Factors – individually and in combination • Examples of safeguards – at engagement level and generally • Guidance on rotation as a safeguard

  11. Long Association Strengthening of Overall Framework • Board Responses • Reconsider positioning of first sentence • Clarify how threats and factors contribute to the significance of the threat • Consider references to “senior management” • Consider alignment of 1 year cooling-off period to suggested 3 year cooling-off period for PIEs

  12. Long Association Strengthening of Overall Framework • CAG Comments: • Guidance on rotation as a safeguard appeared confusing • Cooling-off period of more than 1 year could be more appropriate • Is cooling-off period needed at all? • TF Recommendation: • If rotation deemed appropriate safeguard – requires a min. cooling-off period • TF continues to recommend 1 year cooling-off

  13. Long Association Involvement of TCWG • Dec 2013 proposals: • Consider additional guidance in the context of the Code as a whole • Role of TCWG relating to exception provisions • TF Recommendation: • Requirement in para 290.152/154 to obtain concurrence from TCWG

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