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Non-assurance Services

Discussion on NAS proposals, roundtable feedback, and global harmonization. Addressing regulatory perspectives and challenges. Ensuring ethical implications are considered.

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Non-assurance Services

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  1. Non-assurance Services IESBA Meeting New York September 17-20, 2018 Richard Fleck, IESBA Deputy and Working Group Chair

  2. Objective • Receive a report-back on roundtables in relation to NAS • Discuss WG’s assessments and proposals • Update on preliminary benchmarking observations • Approve possible project proposal, including timeline

  3. Activities Since June 2018 Meeting • Two roundtables • Tokyo (July 12) and Melbourne (July 16) • WG meeting in New York • Prepare and finalize a project proposal • Comment letter from SMPC • IESBA CAG meeting

  4. General Reactions from SMPC • SMPC generally supportive of project proposal • Supportive of a principle-based approach for global Code • Believe that regulators and NSSs should be allowed the flexibility to tailor NAS provisions based on national circumstances • Do not support deletion of the exemptions → unintended consequences to SMPs (i.e., exclusion from tendering) • Concerned that extending NAS provisions to audits of SMEs would cause unnecessary costs and complications

  5. General Reactions from CAG (1) • Strong support to initiate an NAS project proposal, including decisions to: • Retain principles-based approach • Emphasize role of, and auditor communications with TCWG • Suggestions to emphasize linkages to: • Fees • Business Model

  6. General Reactions from CAG (2) • Cautions about understandability of “trivial and inconsequential” • Consider also prohibiting NAS that create advocacy and self-interest threats • Agreement that clarification is needed about which NAS are prohibited, but also important to be clear about which types of NAS are permissible NAS • Regulatory perspective to help with enforceability • Consider situations in which management might not be competent to assume responsibility

  7. Topics Discussed at Roundtables • General Policy Objective • Materiality • PIE and non-PIE provisions • Unconditional NAS prohibitions(i.e., “black list”) • New and emerging services • Auditor communication with TCWG • Disclosure and other matters

  8. Feedback from RT Participants General Policy Objective • Ideal to achieve global harmonization of NAS provisions, but is that aim practical? • Common high-quality NAS provisions at global level is helpful • Calls for clearer and more explicit prohibitions • Divergent views about how to achieve right balance • Concept of “black list” has challenges • Important to continue to link NAS prohibitions to CF because it explains rationale for why the prohibitions exist

  9. Feedback from RT Participants Materiality (1) • Views expressed included: • General recognition that term is unclear • Concern that it is subject to misuse or abuse • If concept is retained, consider whether different terminology might be more appropriate • Consider whether to use other terms like “acceptable” and “trivial and inconsequential”

  10. Feedback from RT Participants Materiality (2) • If term is withdrawn, consider whether there should be more guidance in the Code on how breaches, particularly immaterial breaches, should be handled • Calls for more guidance • Too early to tell if para. 600.5 A1 of Code is helpful • Suggestions for a more explicit link to concept of RITP

  11. Feedback from RT Participants PIE and non-PIE Provisions • Doubt about whether PIE and non-PIE continues to be appropriate approach for Code • Important to consider needs of SMEs and SMPs • Increasing trends for alternate funding sources • Different descriptions/definitions of PIE contribute to complexity • Typically PIEs = listed; decrease in number of listed entities in many jurisdictions • Concern that SMPs may not have resources to implement PIE provisions and may opt out of providing audits

  12. Feedback from RT Participants Communication with TCWG, Disclosure/ Other • Strong support for increased transparency about NAS and NAS fees • Support for requiring auditors to obtain NAS preapproval from TCWG • Auditor will still need to assert for own view on compliance with independence • Little or no support for fee caps • Not for IESBA to require disclosure of NAS information by companies to stakeholders

  13. Feedback from RT Participants New and Emerging Services • Fundamental principles and general provisions in CF continue to be relevant, but more guidance is needed • PAs need help to understand ethical implications of new services, including the types of threats they create • Response should be timely • Advancing technologies are blurring the lines b/w professional services and business relationships • Are there other types of NAS that should be dealt with in Code?

  14. Views about Feedback on Roundtables

  15. WG Assessments and Proposals Matters not be Pursued • “Blacklist” in the Code; • Disclosure of NAS Provided by audited entities • NAS Fee Cap • Firms’ Business Models Matters for Consideration • Self-review threat/ Materiality/ PIE vs non-PIE • New and Emerging Services • Communication with TCWG • NAS Disclosure Requirements

  16. WG Assessment and Proposals Self-review Treat, Materiality, PIE vs non-PIE • Is the current approach to self-review threats in the Code appropriate? • Should the Code prohibit all NAS that create self-review threats? • Should the concept of materialitybe retained? • Should the distinction between PIE and non-PIE provisions in the Code should be retained?

  17. WG Assessments and Proposals New and Emerging Services • Are there are other types of NAS, including new and emerging services that should be explicitly included in the Code? • Review general NAS provisions in the Code to ensure that they remain appropriate • Ensure a mechanism to provide timely guidance (e.g., staff publications, Q&A)

  18. WG Assessment and Proposals Achieving Transparency About NAS Confidentiality? What to disclose? NAS fees? Where to disclose it?

  19. WG Assessment and Proposals Communication with TCWG • Consider whether, and if so how to establish req’ts in the Code for auditor communications with TCWG about NAS • Duplicate in what’s already in IAASB’s ISA 260 (Revised) or add a reference? • Should such req’ts apply to listed entities or PIEs? • IAASB-IESBA applicability alignment needed • IESBA’s remit does not extend to TCWG

  20. Input from the Fees Working Group • Options relating to ratio of NAS fees to audit fees issues • Require firms to assess the cumulative effect of providing multiple NAS to audit clients • Consider the role of disclosure of fee-related information • Communication with TCWG about NAS/ pre-approval of NAS • Require firms to re-evaluate threats to independence when ratio of NAS/ audit fees reach a particular threshold • Establish caps on ratio of NAS/ audit fees (PIEs vs non-PIEs)?

  21. Preliminary Benchmarking • Code and the EU Regulation • Code and SEC/ PCAOB • Code, EU, SEC/PCAOB • All acknowledge that providing NAS to audit clients might create “threats” to independence • All include prohibitions for similar types of NAS, but different approaches used (e.g. materiality, self-review, threats and safeguards)

  22. Preliminary Benchmarking IESBA Code vs EU Regulation IESBA Code • Focus only NAS prohibitions that apply to PIEs • Most NAS prohibitions have materiality as a qualifier • Includes contextual information about each type of NAS EU Regulation • Focus on EU Regulation only, which applies to PIEs only • Absolute prohibitions • Materiality consideration allowed for Member States, not firms IESBA

  23. Preliminary Benchmarking Code Versus SEC/PCAOB • Focus on certain types of NAS • Accounting and bookkeeping, tax, administrative, valuation, loaned staff, internal audit, IT, legal, recruiting • Different approach • Self-review threats, materiality, significant, safeguards in Code vs. “not subject to audit” in SEC/ PCAOB • Different lexicon • Firm and network firm, non-assurance, divisions and related entities in Code vs. Accounting firm, non-audit, and affiliate of the entity in SEC/ PCAOB

  24. Proposed Timeline

  25. Matters for Considerations • Do IESBA members agree with the WG’s assessments and proposals? • Do IESBA members believe that all NAS matters for consideration are appropriately dealt in the Project Proposal? • Are there any other matters that IESBA members believe should be dealt with in a NAS project?

  26. Project Proposal • Do IESBA members agree to approve the NAS Project Proposal?

  27. The Ethics Board www.ethicsboard.org

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