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Agenda Item 6 IAASB-IESBA Coordination Update Sylvie Soulier, IESBA Coordination Liaison Member IESBA Board Meeting December 3-6 2019 New York Page 1 | Proprietary and Copyrighted Information Objectives To receive an update on recent IAASB-IESBA coordination activities

To receive a briefing on final proposals of the IAASBs Agreed-upon Procedures (AUP) TF To consider proposed changes to Section 120 of the Code to address the EQR To share views on, or reactions to preliminary proposals from IAASBs: ISA 220 TF on the definition of engagement team and ISA 600 TF on independence of component auditors in a group audit context

Page 2 | Proprietary and Copyrighted Information Acting on Coordination Q4 Activities Teleconferences and email exchanges at TG/WG level o Quality Management 2 Task Force: Oct & Nov 2019 o ISA 220 Task Force: Oct & Nov 2019 o ISA 600 Task Force: Oct & Nov 2019 o ISRS 4400 Task Force: Oct & Nov 2019 o Fees Task Force: Oct & Nov 2019 o SPI/PIE Initiative: Oct & Nov 2019 Page 3 | Proprietary and Copyrighted Information Page 4 | Proprietary and Copyrighted Information ISRS 4400: Agreed-upon Procedures Independence matters discussed

Independence (Pre condition) o Views from Respondents to ED-4400 Significant majority agreed that there should not be a precondition for the practitioner to be independent when performing an AUP engagement (even though the practitioner is required to be objective). Independence (Disclosure) o Views from Respondents to ED-4400 Majority agreed with the enhanced transparency regarding the practitioners independence. However, many respondents disagreed with the requirement to state that the practitioner is not independent when there is no requirement for the practitioner to be independent. These respondents suggested that, as long the practitioner is not required to be independent, a simple statement that the practitioner is not required to be independent is sufficient. Page 5 | Proprietary and Copyrighted Information

Independence (Disclosure): TF Proposed Views Is the practitioner required to be independent, or has the practitioner agreed in the terms of engagement, to comply with independence requirements? Yes No Practitioner has not determined compliance with independence requirements Not Applicable Statement that there are no independence requirements with which the practitioner is required to comply. Practitioner has determined compliance with independence

requirements Statement that the practitioner has Not Applicable complied with the relevant independence requirements and a statement identifying the relevant independence requirements. The IAASB anticipates approving the AUP standard at the December 2019 IAASB meeting Page 6 | Proprietary and Copyrighted Information Independence (Disclosure): TF Proposed Views The Agreed-Upon Procedures Report 30. The agreed-upon procedures report shall be in writing and shall include: (Ref: Para. A36B) (j) With respect to independence: (i) If the practitioner is not required to be independent and has not otherwise agreed in the terms of engagement to comply with independence requirements, a statement that there are no independence requirements with which the practitioner is required to comply; or

(ii) If the practitioner is required to be independent or has agreed in the terms of engagement to comply with independence requirements, a statement that the practitioner has complied with the relevant independence requirements. The statement shall identify the relevant independence requirements; Page 7 | Proprietary and Copyrighted Information Matters for IESBA Consideration IESBA members are asked if they have any additional comments with the IAASB Task Forces proposed changes to ISRS 4400 (Revised) Page 8 | Proprietary and Copyrighted Information

ISQM 2: Questions included in Exposure Draft Q4(a) What are your views on the need for the guidance in proposed ISQM 2 regarding a cooling-off period for that individual before being able to act as the engagement quality reviewer? Q4(b) If you support such guidance, do you agree that it should be located in proposed ISQM 2 as opposed to the IESBA Code? Page 9 | Proprietary and Copyrighted Information IAASB ISQM 2 Task Force Recommendation Agenda Item 6-B Proposed Application Material on EQR Objectivity Conceptual Framework approach of identifying and evaluating threats

At a minimum refer to the identification of self-review and familiarity threats to objectivity created by an EP moving directly into the EQR role Explicit Cooling-Off Period Whether or not to have a requirement for a specified cooling-off period and whether such a requirement or guidance should be in the Code or ISQM 2; and Whether the scope should include listed entities, public interest entities (PIEs), all audited entities, or even more broadly all entities subject to an assurance engagement, for which an EQ review is required or for which the firm determines an EQ review is an appropriate response to assessed quality risks Page 10 | Proprietary and Copyrighted Information IESBA Representatives: Feedback ISQM 2 TF Proposed Application Material on EQR Objectivity

Code does not have a dedicated EQR section Propose adding application material at the end of Section 120 to describe: the different types of threat that may be created when an individual is appointed EQR immediately after having served on the audit engagement team, the factors that are relevant in evaluating the level of such threats, and actions that might

be safeguards to address the threats. This would be entirely consistent with the conceptual framework Page 11 | Proprietary and Copyrighted Information IESBA Representatives: Feedback ISQM 2 TF Explicit Cooling-Off Period IAASB to establish in ISQM 2: whether a cooling-off requirement should be introduced, following the proposed guidance set out in Section 120, and if so, what the minimum cooling-off period and the scope of the requirement should be, and to whom it should apply

The firms policies or procedures established in accordance with paragraph 16(b) shall address threats to objectivity created by an individual being appointed as an engagement quality reviewer after previously serving as the engagement partner. Such policies and procedures shall specify a cooling-off period of two years, or a longer period if required by relevant ethical requirements, before an engagement partner can assume the role of engagement quality reviewer Page 12 | Proprietary and Copyrighted Information Proposed Accelerated Project Timeline Present and obtain formal approval Project Proposal and Exposure Draft December 2019 Effective date Align with (proposed) ISQM 2

CAG Teleconference to brief and obtain views Exposure Draft issued with 60 days comment period December 19th 2019 January 2020 Approval of final standard Deliberations of ED

responses September 2020 June 2020 Page 13 | Proprietary and Copyrighted Information Matters for IESBA Consideration Proposed Application Material on EQR Objectivity Does the IESBA agree with the proposed placement of the new application material in Section 120? Does the IESBA agree with the proposed application material to address the issue of EQR objectivity? Explicit Cooling-Off Period Does the IESBA agree with the above proposal regarding addressing the need for a specific cooling-off period? Page 14 | Proprietary and Copyrighted Information

ISA 220: Question included in Exposure Draft Does ED-220 deal adequately with the modern auditing environment, including the use of different audit delivery models and technology? ED-220 proposed changing the definition of an engagement team: Engagement team All partners and staff performing the audit engagement, and any individuals who perform audit procedures on the engagement, including individuals engaged by the firm or a network firm. who perform audit procedures on the engagement. This The engagement team excludes an auditors external expert engaged by the firm or a network firm. The term engagement team and also excludes individuals within the clients internal audit function who provide direct assistance on an audit engagement when the external auditor complies with the requirements of ISA 610 (Revised 2013). Page 15 | Proprietary and Copyrighted Information Page 15

ISA 220: Q4 included in Exposure Draft What They Heard in Responses to ED-220 on the Engagement Team Definition Consistency with the IESBA code Clarity of the definition Practical implications of the definition Agree Agree but with further comments Needs clarity Disagree Page 16 | Proprietary and Copyrighted Information Page 16 ISA 220 Task Force Recommendation Agenda Item 6-D Definition of Engagement Team ISA 220 Task Force and ISA 600 Task Force agreed to work towards

decoupling the quality management objectives in proposed ISA 220 (Revised) from the independence considerations with respect to the expanded engagement team definition Option 3 Proceed with revised Engagement Team Definition as per ED-220 Deal with QM consideration re Component Auditors in ISA 600 Page 17 | Proprietary and Copyrighted Information Page 17 Matters for IESBA Consideration Views on the ISA 220 Task Forces proposed changes to ED-220 (Revised)

as set out in the appendix of Agenda Item 6-D insofar as they relate to independence Does the IESBA agree with addressing the implications of the revised engagement team definition and the independence considerations pertaining to component auditors as part of a new project linked to coordination with the ISA 600 project? Page 18 | Proprietary and Copyrighted Information Proposed Timeline: Component Auditor Independence Present issues December 2019

Present and obtain formal approval Project Proposal Independence of Component Auditors (ISA 220 and 600) Service Delivery Model (ISA 220) June 2020 March 2020 Effective date Align with (proposed) ISA 600 (Revised) Discussion of Issues

Approval of Exposure Draft Discussion of Issues December 2020 September 2020 Page 19 | Proprietary and Copyrighted Information The Ethics Board www.ethicsboard.org

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