1. Page 1 Long Association Task Force Marisa Orbea, Task Force Chair IESBA Meeting January 12-14, 2015 London, England

2. Page 2 ED issued August 4, 2014 77 responses received by December 31, 2014 Looking at the responses in two parts Significant issues on which TF requires directional feedback in January 2015 Remaining issues on which TF will seek feedback in April 2015 Background Long Association

3. Page 3 General support –General provisions (Qs 1-3) –Time on period remaining at seven years (Q4) –If cooling-off extended to five years, provisions to apply to all PIES (Q 6) –Cooling-off for KAP and EQCR remaining at two years (Q7) Overview of Responses (1) Long Association

4. Page 4 General support –Considering whether a KAP should serve for seven years 290.150C (Q9) –Long Association of audit team members other than KAPs 290.150D (Q9) –Concurrence with TCWG regarding 290.152 (Q12) –Corresponding changes to Section 291 (Q13) Overview of Responses (2) Long Association

5. Page 5 Mixed support –Limited consultation by EP with audit team when cooling-off (Q10) –Additional restrictions on activities when cooling-off (Q11) General lack of support –Extending the EP’s cooling-off period to 5 years (Q5) –EP cooling-off for five years if served time as EP during 7-year period as KAP (Q8) Overview of Responses (3) Long Association

6. Page 6 Impact on SMPs Impact on audit quality Lack of empirical evidence for change Interaction with local requirements Moving away from a principles-based approach Complexity of application General Themes (1) Long Association

7. Page 7 Need for there to be confidence in the independence of auditors, including perceived independence Public Interest –Board should act, and be seen to be acting in the public interest General Themes (2) Long Association

8. Page 8 1. Do IESBA members have any views on general themes? 2. Do IESBA members have any views on: –The interaction with local requirements, which may differ but be equally robust –Whether the Code can provide for local differences? General Themes - Questions Long Association

9. Page 9 The Rotation of KAPs on the Audit of PIEs

10. Page 10 ED proposed no change to seven-year time-on period all KAPs on PIEs Most of those who commented supported no change: –Supported rationale in ED –No evidence of need for change Those who did not support suggested reduction to five years Length of Time-On all KAPs Long Association

11. Page 11 3. Do IESBA members have any views on respondents’ comments and suggestions? 4. Do IESBA members continue to support the proposal that there be no change to the seven-year time-on period for KAPs with respect to the audit of a PIE? Length of Time-on all KAPs- Questions Long Association

12. Page 12 ED proposed increase in cooling-off period from two to five years Many agree that two years is too short Reasons for lack of support included –Lack of empirical evidence –Complexity in overlaying the provisions with local laws –Adverse effect on SMPs and increase in costs –Reduction in expertise, competition, de facto rotation Length of Cooling-Off EP Long Association

13. Page 13 A few respondents commented that no change needed Many agreed on an increase because two years is not enough Many respondents suggested an increase from two to three years Some respondents asked for a principles based approach A respondent suggested that TCWG be involved in review Respondents’ Alternative Suggestions Long Association

14. Page 14 EM asked respondents whether they agreed with cooling-off remaining at two years for other KAPs including EQCR Most respondents supported: –No evidence of need for change –EQCR doesn’t have same influence as EP Some respondents did not support: –Five years is in the public interest –Board should take into account EU changes – now three years in EU A few comments EQCR/EP to cool-off for same time period Length of Cooling-Off Other KAPs including EQCR Long Association

15. Page 15 5. Do IESBA members have any views on, and reactions to respondents comments and suggestions ? 6. Do IESBA members still support the ED proposals that: –EP on PIE audit to cool-off for five years after seven years service? –Other KAPs and EQCR continue to be required to cool-off for two years after seven years service ? 7. If not what alternatives would IESBA members support? 8. Other suggestions IESBA members think Board should adopt? Length of Cooling-Off Period - Questions Long Association

16. Page 16 ED proposed five-year cooling-off period for EP should apply to audit of all PIEs Three quarters of respondents supported application to all PIEs –PIEs are, by their nature, of public interest –No previous distinction between listed/PIE Those who did not support: –Differing definition of PIEs across jurisdictions –Only listed entities as they generally have more restrictive provisions –Principles based approach should apply Longer Cooling-Off for all PIEs Long Association

17. Page 17 9. Do IESBA members have views on respondents’ comments? Do IESBA members continue to support ED proposal that no distinction be made in the application of the proposals between listed and unlisted PIEs? 10. If not, do IESBA members support any views from ED respondents? Longer Cooling-Off for Listeds/all PIEs - Questions Long Association

18. Page 18 ED proposed a KAP who served as EP at any time during seven-year period of service should be required to cool-off for five years. Two-thirds of respondents did not support: –Too restrictive, inappropriate, inconsistent, unclear –Adverse effect on SMPs Those who supported commented: –Any other provisions would be too complicated –Provide application guidance EP for only Part of the 7-year Time-On Period Long Association

19. Page 19 Respondents’ alternative suggestions: –More appropriate to use conceptual framework and allow discretion –Approach should be more proportionate using a sliding scale –Using a “trigger” point such as serving a majority of the time i.e. more than three years out of seven EP for only Part of the 7-year Time-On Period (2) Long Association

20. Page 20 11. IESBA members are asked for views on respondents’ comments. Do IESBA members still support ED proposal that a KAP who served as a EP at any time during the seven-year period of service be required to cool-off for a period of five years? 12. If not, do they support any views expressed by ED respondents? EP for Part of 7-year Time-On Period- Questions Long Association

21. Page 21 Rotation requirements should apply to key partners involved in audits of major operating subsidiaries of a PIE, including where partner becomes EP for PIE or vice versa Clarification of meaning/calculation of time-on No distinction in rotation requirement for group audits EQCR rotation provisions allow self-review threat Look at non-partner involvement of staff “growing up” on the audit Other Related Comments – Rotation of KAPs on PIEs Long Association

22. Page 22 13. Do IESBA members have any views on the other related comments from respondents? Other Related Comments - Question Long Association

23. Page 23 Other Matters –Suggestion from regulatory respondent that professional skepticism may warrant dedicated section in the Code and be included in future project on audit quality –IESBA members are asked for views and whether the matter should be addressed in conjunction with IAASB Project Timetable –Will depend on Board’s views on respondents’ responses Other Matters/Project Timetable Long Association

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