Safeguards - PowerPoint Presentation

Slide1

Safeguards

Gary Hannaford, Task Force Chair

IESBA Meeting

New York, USA

September 15, 2015Slide2

Project Objective

To review the

clarity, appropriateness and effectiveness of safeguards in Sections 100 and 200 and those safeguards that pertain to NAS in Section 290 of the CodeAgenda Item ObjectiveTo discuss issues and related Task Force (TF) proposals, and to consider a first-read draft of proposed revised provisions in Sections 100 and 200 of the Code as these relate to safeguards

Project and Agenda Item ObjectivesSlide3

January 2015

– Approval

of project proposal March/April 2015 – Initial discussions with IESBA CAG and Board June/ July 2015 – Indicative Board direction provided to TF on key issuesAugust 2015 – TF Chair/ CAG Chairman teleconference

September 2015 – TF Chair/ SMPC Ethics Task Force Chair teleconference and feedback on TF’s proposals from IESBA CAG

TF’s Activities To-DateSlide4

Safeguards: Approach and TimingSlide5

Introduction and Fundamental Principles

Introduction

Fundamental Principles Conceptual FrameworkRequirements and Application Material Reasonable and Informed Third Party Identifying Threats Evaluating ThreatsAddressing Threats Re-evaluation of Threats Outline for Proposed Revisions to the CFSlide6

Alignment to re identifying, assessing and responding to risks of material misstatement

Re-focus PA’s on identifying, evaluating and addressing threats, rather than simply applying safeguards, thereby reducing ambiguities regarding the objective of the CF

More prominent and robust principles-based requirements that continue to require PAs to exercise of professional judgment More guidance to assist PAs consistently apply the CFNew more robust description of safeguards

Clarifying the Conceptual Framework (CF)Slide7

Specific actions or measures

that the PA takes to effectively eliminate identified threats to the fundamental principles or reduce them to an acceptable

level Safeguards, which may be individual or a combination of specific actions or other measures, are effective when they eliminate or reduce the level of the threat to an acceptable level, such that the fundamental principles are not compromised, or are not likely to be compromisedDescription of a SafeguardSlide8

The term “safeguards

” is used

in an inconsistent manner throughout the extant CodeNew description combined with clarified CF is intended to: Enhance the robustness of the Code, by addressing actual and perceived concerns that have been raised relating to PAs application of safeguardsBetter link the concept of safeguards to threats to compliance with the fundamental principles

Rationale for New Description of a SafeguardSlide9

TF is of the view that certain

conditions

or factors may exist in a work environment that are conducive to compliance with the fundamental principles Because they are not specific actions or measures designed to address a specific threat, TF believes that these conditions or factors would not always eliminate or reduce a threat to compliance with the fundamental principles, therefore, they are not safeguardsSignificance of a threat may increase if such conditions or factors are not presentThose conditions or factors support the application of safeguards, and therefore should be considered as part of the PA’s evaluation of threats

Conditions or Factors in a Work Environment Slide10

Acknowledgment

that identification, evaluation and addressing of threats is an iterative process

“Stepping back” is an important part of applying the CF PA re-evaluates threats and safeguards if new information indicates an inconsistency with the PA’s original identification and evaluation More robust guidance to better explain the process of “stepping back” so that it is more closely linked to the reasonable and informed third party testNew Guidance Relating to “Stepping Back”Slide11

A

conceptual person

who possesses suitable skills, knowledge and experience to evaluate the appropriateness of the PA’s conclusions. Evaluation entails weighing all the specific facts and circumstances that the PA knows, or could reasonably be expected to know, at the time, to objectively determine whether the relevant threats to compliance with the fundamental principles will be eliminated or reduced to an acceptable levelReasonable and Informed Third Party Slide12

Streamlined examples of safeguards in Section 200 (See

paras. 200.4–200.8 and 200.5

of Agenda Item 3-B)) Considered examples of policies and procedures in ISCQ 1The terms “material” and “significant” intentionally avoided Because those terms are used in an inconsistent manner throughout the extant Code (in some cases meaning is different from how term is described in the ISAs)

For future TF work relating to NAS

, material in same context as ISAs is acceptable and terms will be retained

Other General Enhancements Relating to SafeguardsSlide13

Proposed revisions to Section

200 to follow the same format, and build on the content of Section 100, with more specific requirements and guidance for PAs in public

practiceTF aims to clarify the linkage between the Sections 100 and 200 of the Code, thereby strengthening the foundational requirements and principles related to compliance with the fundamental principles of the Code (see paragraphs 200.3, 200.4, 200.6, 201.12 and 200.15 of Agenda Item 3-B)Proposed Revisions to Section 200 – Application of the CF Approach by PAs in Public Practice Slide14

TF

believes that

communication with TCWG increases transparency around the identification and evaluation of threats to compliance with the fundamental principles, and the actions or measures taken to eliminate or reduce those threats to an acceptable levelTF plans to consider, as part of its work on NAS, how and whether requirements or guidance in the Code can be strengthened or clarified to encourage PAs and firms, in particular auditors, to communicate with TCWGIssues for Future Consideration by the TF – Required Communications with TCWGSlide15

Consider the clarity, appropriateness and effectiveness of safeguards that pertain to NAS in Section

290

Consider whether the extant Code includes sufficient and appropriate documentation requirements related to safeguardsConsider whether additional guidance is needed in the Code to explain the differences between the evaluation of the significance of the threat and the acceptable level for a PIE and a non-PIETF plans to continue to consider and take into account the challenges faced by the SMPC community as it progresses its work

Other Issues for Future Consideration by the TFSlide16

TF continues

to

closely coordinate its work with the Structure project, but standalone Safeguards ED planned Proposed revisions in extant Code will be in the format and language of draft re-structured codeTF continues to explore options for presenting the changes in the ED so that respondents can easily identify the changes being proposed

Board

approval of

Safeguards ED expected to be concurrent with

Structure project

, at the December 2015 IESBA meeting

Alignment and Coordination with Structure ProjectSlide17