1. IFAC Code of Ethics Relevance to SMPs Abuja, Nigeria October 13, 2008 Prof. Dr. Jens Poll Deputy Chair IFAC SMP Committee Partner RöverBrönner & Moore Stephens Berlin, Germany

2. Proposed Revised Section 290/291 New Code of Ethics effective June 30, 2006New Code of Ethics effective June 30, 2006 Revision of Section 290 issued July 2006, effective December 31, 2008 (Network definition 290.14-290.26)Revision of Section 290 issued July 2006, effective December 31, 2008 (Network definition 290.14-290.26) Revision of Section 290/291 (“Independence I”): Exposure Draft December 2006 (approved by the board in the unclarified version)Revision of Section 290/291 (“Independence I”): Exposure Draft December 2006 (approved by the board in the unclarified version) Revision of Section 290/291 (“Independence II”): Exposure Draft July 2007, Re-Exposure Draft May 2008 (board will decide on the December 2008 meeting of the board)Revision of Section 290/291 (“Independence II”): Exposure Draft July 2007, Re-Exposure Draft May 2008 (board will decide on the December 2008 meeting of the board) Revision of Code of Ethics (“Clarity”): Exposure Draft July 2008 (comment period October 15, 2008)Revision of Code of Ethics (“Clarity”): Exposure Draft July 2008 (comment period October 15, 2008)

3. Proposed Revised Section 290/291 Public InterestPublic Interest Improving the Code of Ethics to strengthen the independenceImproving the Code of Ethics to strengthen the independence Wong Report identified concern as to relevancy and appropriateness of international standards of accounting, auditing and ethics to SMEs and SMPsWong Report identified concern as to relevancy and appropriateness of international standards of accounting, auditing and ethics to SMEs and SMPs Overregulation for SMPsOverregulation for SMPs

4. Proposed Revised Section 290/291 ResearchResearch How best to serve the public interest in the revision of the CodeHow best to serve the public interest in the revision of the Code ApplicabilityApplicability Providing an optimal solution for larger firms and engagementsProviding an optimal solution for larger firms and engagements SMP input in to the drafting processSMP input in to the drafting process

5. Proposed Revised Section 290/291 Conceptual FrameworkConceptual Framework Idea of principle-based CodeIdea of principle-based Code Cost-BenefitCost-Benefit Compliance costsCompliance costs Public interest perspectivePublic interest perspective Differential approach (e.g. safeguards) Differential approach (e.g. safeguards)

6. Proposed Revised Section 290/291 Some Concerns are picked upSome Concerns are picked up –Absolute prohibitions vs. safeguard approach –Stricter independence rules for Entities of Significant Public Interest

7. Proposed Revised Section 290/291 TimetableTimetable High degree of urgencyHigh degree of urgency Driven by regulators for large listed companiesDriven by regulators for large listed companies Entities of Significant Public Interest (ESPI)Entities of Significant Public Interest (ESPI) Fundamental differences between ESPI and other entitiesFundamental differences between ESPI and other entities But: The principles are relevant for all Audits and Auditors (independence in mind, independence in appearance)But: The principles are relevant for all Audits and Auditors (independence in mind, independence in appearance)

8. Proposed Revised Section 290/291 Independence of Appearance and in MindIndependence of Appearance and in Mind Auditor must be independent in mind on all auditsAuditor must be independent in mind on all audits Independence in appearance differ on the special circumstances; in a SME- environment fewer shareholders, more closely connected, direct access to the auditorIndependence in appearance differ on the special circumstances; in a SME- environment fewer shareholders, more closely connected, direct access to the auditor Identification of threats in a more direct wayIdentification of threats in a more direct way

9. Proposed Revised Section 290/291 Independence and Audit QualityIndependence and Audit Quality Clarification very much needed and welcomedClarification very much needed and welcomed Specific IssuesSpecific Issues Tax Services: Extension of differential rulesTax Services: Extension of differential rules Mandatory Partner RotationMandatory Partner Rotation Cooling-OffCooling-Off Provision of Non-Assurance ServicesProvision of Non-Assurance Services Valuation ServicesValuation Services

10. Proposed Revised Section 290/291 Specific Issues (contd.)Specific Issues (contd.) IT System ServicesIT System Services MDPsMDPs Compensation and Evaluation PoliciesCompensation and Evaluation Policies Experts DefinitionExperts Definition Network DefinitionNetwork Definition No further relevant changes to be expectedNo further relevant changes to be expected The clarified Code (including Independence I + II should become effective December 15, 2010)The clarified Code (including Independence I + II should become effective December 15, 2010)

11. Thank You! www.ifac.org/smp Contact Details: Jens Poll j.poll@roeverbroenner.de