Responding to Suspected Illegal Acts CAG Brussels March 2012

Recap of October 2011 IESBA Meeting Responding to Suspected Illegal Acts Recap of October 2011 IESBA Meeting Task Force Proposal in October IESBA Meeting for all categories of professional accountant: Report internally and escalate if response not appropriate Requirement to disclose to appropriate authority if entity has not appropriately addressed the matter and, in the judgment of the professional accountant it is in the public interest to disclose to an authority Matters reportable to an appropriate authority are those that (i) affect financial reporting or (ii) are within the expertise of the professional accountant In determining whether disclosure is in the public interest the professional accountant shall consider “whether a reasonable and informed third party, weighing all the specific facts and circumstances, would be likely to conclude that the suspected illegal act is of such consequence that disclosure would be in the public interest”

Recap of October 2011 IESBA Meeting Responding to Suspected Illegal Acts Recap of October 2011 IESBA Meeting General support expressed for the approach adopted However, the Board unable to reach a consensus on “requirement” versus “right” to disclose Task Force was asked to develop wording to convey a “robust right” Points to mention: Majority of CAG supported a requirement for all categories Discussion centered on requirement. We did not get round to serious discussion on other areas of the Code although some points were made. Note that further changes have been made to existing sections of the Code.

Presented at IESBA February Meeting Responding to Suspected Illegal Acts Presented at IESBA February Meeting Requirement with an exemption for extraordinary circumstances (Agenda Paper D-2) Robust right (Agenda Paper D-3) Majority Task Force position (Agenda Paper D-4): Auditor (also performing NAS) – Requirement to disclose to an appropriate authority with exemption for extraordinary circumstances Professional Accountant performing non-audit services to non-audit client – Robust right to disclose to an appropriate authority Professional Accountant in Business – Robust right to disclose to an appropriate authority Points to mention: Majority of CAG supported a requirement for all categories Discussion centered on requirement. We did not get round to serious discussion on other areas of the Code although some points were made. Note that further changes have been made to existing sections of the Code.

Majority Position Agreed in February Board Meeting Responding to Suspected Illegal Acts Majority Position Agreed in February Board Meeting Auditor or other professional accountant performing non-audit services to an audit client: Escalate in the organization If not appropriately addressed and in the public interest, requirement to disclose to a competent authority In exceptional circumstances not required to disclose “if a reasonable and informed third party would conclude that the probable threats to the safety of the professional accountant or other individuals are sufficiently severe to outweigh the benefits of disclosure”. Points to mention: Majority of CAG supported a requirement for all categories Discussion centered on requirement. We did not get round to serious discussion on other areas of the Code although some points were made. Note that further changes have been made to existing sections of the Code.

Majority Position Agreed in February Board Meeting Responding to Suspected Illegal Acts Majority Position Agreed in February Board Meeting Professional accountant performing non-audit services to a non-audit client: Escalate in the organization or disclose to the external auditor if unable to escalate If not appropriately addressed and in the public interest, requirement to disclose to the external auditor Right to disclose to competent authority, if relating to subject matter of the engagement Right is expected to be exercised In exceptional circumstances not required to disclose “if a reasonable and informed third party would conclude that the probable threats to the safety of the professional accountant or other individuals are sufficiently severe to outweigh the benefits of disclosure” Points to mention: Majority of CAG supported a requirement for all categories Discussion centered on requirement. We did not get round to serious discussion on other areas of the Code although some points were made. Note that further changes have been made to existing sections of the Code.

Majority Position Agreed in February Board Meeting Responding to Suspected Illegal Acts Majority Position Agreed in February Board Meeting Professional accountant in business: Escalate in the organization or use established internal ethics mechanisms (e.g. hot-line) or disclose to the external auditor If not appropriately addressed and in the public interest, requirement to disclose to the external auditor If continues to be not appropriately addressed the professional accountant has a right to disclose to competent authority if the matter relates to; Financial reporting Falls within expertise of the professional accountant Right is expected to be exercised In exceptional circumstances not required to disclose “if a reasonable and informed third party would conclude that the probable threats to the safety of the professional accountant or other individuals are sufficiently severe to outweigh the benefits of disclosure” Points to mention: Majority of CAG supported a requirement for all categories Discussion centered on requirement. We did not get round to serious discussion on other areas of the Code although some points were made. Note that further changes have been made to existing sections of the Code.

Majority Position Agreed in February Board Meeting Responding to Suspected Illegal Acts Majority Position Agreed in February Board Meeting Other changes agreed: Additional guidance on determining what is in the public interest: Consider “the substance of the matter, the number of people that will be potentially affected …and the extent to which such people could be potentially affected” Additional guidance on “competent authority”: A competent authority is “one with responsibility for such a matter. In many instances, that authority will have the ability to investigate and take corrective action to safeguard the public interest” Points to mention: Majority of CAG supported a requirement for all categories Discussion centered on requirement. We did not get round to serious discussion on other areas of the Code although some points were made. Note that further changes have been made to existing sections of the Code.

Proposed changes to existing sections of Code Responding to Suspected Illegal Acts Proposed changes to existing sections of Code Disclosure to external auditor is not a breach of confidentiality (140.4) Responding to unethical behavior (section 210): Use safeguards to reduce to acceptable level or resign Reference to ethics policies and whistle-blowing procedures (300.5) Inclusion of example of behavior that impairs integrity (300.6) Responsibility to discuss unethical behavior within organization and escalate (300.15) Not discussed in October meeting due to time.

Responding to Suspected Illegal Acts Discussion Not discussed in October meeting due to time.