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Page 1 Non-Assurance Services Caroline Gardner IESBA June 2013 New York, USA.

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1 Page 1 Non-Assurance Services Caroline Gardner IESBA June 2013 New York, USA

2 Page 2 EC’s proposed regulation on statutory audits –Audit fees – limitation of provision of NAS to 10% of total audit fees removed –Prohibition of Non-Audit Services Concept of pure audit firms removed Adopted list of prohibited NAS comparable to IESBA Code Audit committee approval of NAS –Audit Report Reporting of a list of NAS provided by the statutory auditor Decision not final –Next step is discussion in Parliament and member states Recent Developments Non-Assurance Services

3 Page 3 IOSCO Committee 1 Letter –Bookkeeping and Emergency Situations Remove exemption for providing accounting and bookkeeping services and preparation of tax calculations in emergency or other unusual situations –Internal Audit Services Consider how external auditors use internal auditors as part of audit Prohibit auditor from providing internal audit services where there is any self- review threat, not only when management functions are assumed Further distinction needed on what constitutes “internal audit” and other similar services Regulatory and Other Feedback Non-Assurance Services

4 Page 4 FEE Paper - “A Comparison of EC Recommendation on Statutory Auditor’s Independence in the EU and Statutory Audit Directive with the Independence Sections of the IESBA Code of Ethics for Professional Accountants” –Comparison focuses on independence provisions required by the Statutory Audit Directive of May 17, 2006 and provisions recommended by EC in its recommendation of May 16, 2002 –Concludes IESBA Code is more robust with respect to audits of PIEs Regulatory and Other Feedback Non-Assurance Services

5 Page 5 Non-assurance services (NAS) surveys requesting information sent to 26 jurisdictions –Survey requested information for PIEs and non-PIEs –24 Responses received –Survey inquired whether national ethical requirements are more restrictive than the provisions in the Code Most jurisdictions had similar provisions More restrictive provisions usually due to local laws & regulations NAS Surveys Non-Assurance Services

6 Page 6 Majority of jurisdictions (17) do not define PIEs or have definition that differs from IESBA –Reporting issuer or other entity of significance identified by law or regulator –Common trend among differences include additional language to identify PIEs or specifically note certain PIEs –Many jurisdictions consider listed entities to be PIEs Task Force notes that decision to re-open definition of PIE is outside scope of project –Planning Committee is considering for future strategy and work plan Survey Responses - Definition of PIEs Non-Assurance Services

7 Page 7 Most responses report more restrictions concerning “assuming management responsibility” –Due to laws and regulations that do not allow NAS or any assumption of management responsibility Task Force recommends that management responsibilities be included within scope of project –Examination of the terms “management responsibilities” versus “management activities” –Review of paragraph 290.166 Survey Responses - Management Responsibility Non-Assurance Services

8 Page 8 Majority of jurisdictions (17) report more restrictive provisions for accounting and bookkeeping services Significant number of jurisdictions report rules do not provide for emergency bookkeeping provision for PIEs Task Force agreed –Term “routine and mechanical” should be further examined for alternative language to provide greater clarity –Examination of “emergency provision” should be included in scope of project. Survey Responses - Preparing Accounting Records and Financial Statements Non-Assurance Services

9 Page 9 Eleven jurisdictions report more restrictive provisions for valuation services –Six report prohibition on all valuation services due to local laws or regulations Most prohibitions/more restrictive provisions relate to PIEs Twelve jurisdictions report provisions not more restrictive Task Force agreed may be a benefit in performing valuation services if threats are at an acceptable level Survey Responses - Valuation Services Non-Assurance Services

10 Page 10 Twelve jurisdictions report more restrictive provision for taxation services –Relate to PIEs and are due to local laws and regulations –Additional restrictions vary greatly in nature Eleven jurisdictions report not more restrictive Task Force agreed –Knowledge and experience of auditor beneficial in performance of certain taxation services –Code may benefit from restructuring of section to simplify guidance Survey Responses - Taxation Services Non-Assurance Services

11 Page 11 Thirteen jurisdictions report more restrictive prohibitions for internal audit services –Most did not indicate how rules are more restrictive –In some cases, appears rules prohibit services regardless of materiality or significance due to laws and regulations for PIEs Ten jurisdictions report provisions are not more restrictive Task Force noted extant provision issued in July 2009 Code and only became effective January 1, 2011 Survey Responses - Internal Audit Services Non-Assurance Services

12 Page 12 Most responses concerning other services or restrictions relate to restrictions or topics outside scope of NAS Task Force agreed topics of materiality, exceptions and TCWG pertaining to NAS should be addressed in discussion paper Survey Responses - Areas Not Addressed in the Code Non-Assurance Services

13 Page 13 Task Force concluded –Conceptual framework approach is appropriate for NAS –Less restrictive provisions for non-PIEs are appropriate –Develop a discussion paper to provide basis for discussion Overall Approach to NAS Non-Assurance Services

14 Page 14 Paper would include –Overall approach of the Code concerning NAS –Supplementary approaches to enhance threats and safeguards approach –Services addressed within the provisions –Identification of key stakeholders and expectations –Comparison of expectations of key stakeholders and provisions in Code –Ways in which Task Force will address concerns in relation to potential “expectation gaps” –Potential additional safeguards concerning NAS –Further implementation guidance for SMEs and SMPs and –Discussion of materiality, exceptions and those charged with governance Overall Approach to NAS Non-Assurance Services

15 Page 15 Refine project proposal to address following: –Clarify provisions of management responsibility; –Examine phrase “routine and mechanical” within bookkeeping services; and –Examine “emergency exception” within bookkeeping service Next Steps Non-Assurance Services

16 Page 16 Surveys did not provide clear cut direction or majority views on how jurisdictions address these services Provisions addressing these services do not require immediate changes to wording or greater restrictions –Provisions require greater deliberation as to overall approach Task Force will further consider these services in future meetings Survey Responses - Recommendation on Valuation, Taxation and Internal Audit Services Non-Assurance Services

17 Page 17 Questions? Non-Assurance Services


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