Convergence with the Code in Canada

1. Convergence with the Code – Canadian Rules of Professional Conduct Colleen Dunning, CPA-CA Partner, KPMG Canada IESBA Meeting London January 12-14, 2015

2. Convergence with the Code Standard Setting – Canada • Each of the 10 provinces and 2 territories have the authority to establish, monitor and enforce ethical standards in their jurisdiction – Rules of Professional Conduct (RPC) • The CPA’s Public Trust Committee establishes and recommends standards for adoption by the provincial institutes – generally harmonized throughout Canada

3. Convergence with the Code Standard Setting – Canada • RPC apply to members of the Provincial Institute (PAIB and PAIPP), students of the institute and firms, as applicable • Standards of practice are enforced by the Institute’s bylaws (e.g. Chartered Professional Accountants Act 2010 and the bylaws of CPA Ontario) • Enforceable by disciplinary sanctions

4. Ethical Standard SettingCanada – Historic Overview 1883 1934 1961 1973 2003 2010 2011 2013 2014 Other proposed changes to converge to 2009 Code exposed (204) ICAO incorporated Bylaws do not address member conduct First Provincial Rules of Professional Conduct Additional rules added, including those on independence AICPA influence Concern shifts to public interest vs moral character Substantial Changes Establishment of core ethical principles Introduction of Council Interpretations New Independence Standard Reflected the updated IESBA Code + SEC requirements for public companies T&S framework + specific prohibitions $10M threshold for reporting issuers Revisions to partner rotation rules – move to a 7/5 model for LAEP and EQCR No changes for other audit partners (7/2) Proposed revisions become effective Some differences remain, including the $10M threshold and SEC-like prohibitions for certain NAS • Task Force reviews potential changes to the independence standard • Recommends changes in 2 phases: • ED: Partner rotation provisions (7/2 vs 5/5) • Convergence with the Code in other areas (consultation paper)

5. Convergence with the Code Standard Setting – Canada • RPC generally address the content of the Code: • Fundamental Principles are the same • RPC do not apply the T&S approach, except in relation to independence (R 204) • Separation of the “Rules” (requirements and prohibitions) from “Interpretations” (guidance) • No separation of Rules applicable to Public Accountants in Business

6. Convergence with the Code Standard Setting – CanadaIndependence • The Independence Task Force of the Public Trust Committee - empowered to recommend harmonized independence standard for Chartered Accountants in Canada • Oversight by the Auditing and Assurance Standards Oversight Council (AASOC) - similar to the PIOB • Securities regulators/CPAB do not set independence standards

7. Convergence with the Code IndependenceLevel of Convergence in Canada – 2003 • Convergence activities began in 2003 – adoption of the systematic, principles-based framework for independence contained in the Code • Specific prohibitions – having regard to current expectations of securities regulators and investor groups • More restrictive than IESBA for listed entities (closer to SEC) • Exception with respect to smaller reporting issuers (<$10M market capitalization and total assets)

8. Convergence with the Code Level of Convergence in Canada – 2014 As against the 2009 Code - Independence: • Maintained stricter rules for reporting issuers (regulators) • Non-audit services (SEC-like prohibitions) • Partner rotation • Maintained the $10M market capitalization and asset thresholds (RI) • Some additional restrictions on loans

9. Convergence with the Code Canadian Market Considerations – Reporting Issuer • A large number of small reporting issuers • Approximately 3,850 reporting issuers in Canada • 48% have market capitalization of <$10M • They represent 0.3% of total market capitalization • Lack of qualified in-house expertise • Service provider options may be limited Source: TSX quoted market value report and TSX Venture quoted market value report December 31, 2009. Reporting issuers are entities that are deemed to be a reporting issuer under the applicable Canadian provincial or territorial securities legislation. The majority of mutual funds are reporting issuers.

10. Independence RPC vs Code (2014)

11. Independence RPC vs Code – Non-Audit Services

12. Independence RPC vs Code – Non-Audit Services

13. Independence RPC vs Code – Non-Audit Services

14. Independence RPC vs Code – Non-Audit Services

15. Independence RPC vs Code

16. Independence RPC vs Code – Safeguards

17. Independence RPC vs Code – Breaches

18. Convergence with the Code Level of Convergence in Canada – 2014 As against the 2009 Code – Other Areas: • Conflict of interest generally consistent as relates to Public Accountants in Public Practice – does not address network firms • Contingent fees are addressed outside of the independence section – have not been converged with the Code (e.g. size test)

19. Convergence with the Code Level of Convergence in Canada – Current Activities • The ITF is considering the impact of the changes to the Code related to breaches • Rule 210 (Conflicts of interest) is currently being reviewed to apply more specifically to PAIB as well as PAIPP • Review is also underway to address contingent fees within Rule 204 in addition to the existing Rule 215 and consider whether to adopt PCAOB-type prohibitions on certain tax services