Professional Skepticism and Professional Judgment Richard Fleck, Task Force Chair IESBA Meeting New York September 19-22, 2017

Objectives To consider the significant issues raised by respondents to ED related Task Force responses Task Force’s proposed revisions in Agenda Item 7-B Clean version included in compilation in Agenda Item 2-C

Recap of Proposals in ED New AM to describe linkage b/w FPs and PS in the context of audits, reviews and other assurance engagements Focus on how compliance with FPs support exercise of PS Illustrative examples using three FPs with focus on f/s audits only New AM to emphasize importance of PAs understanding facts and circumstances to exercise professional judgment when applying the CF to comply with FPs

Overview of ED Responses Category of Respondent Number of Respondents Regulators and Oversight Authorities 2 National Standard Setters Public Sector Organizations 1 Firms 9 IFAC Member Bodies 22 Other Professional Organizations 6 Total 42

Feedback on ED and Task Force Proposals Professional Skepticism Feedback on ED and Task Force Proposals Support from majority of respondents, some believe that IESBA should focus on LT PS project PS guidance not necessary because it states what is implicit in Code Drafting suggestions provided to clarify the description of linkage and to improve examples Several revisions made to clarify how each FP example supports PS in a f/s audit

Professional Skepticism Feedback from CAG General support from CAG Necessary to explain that AM did not discuss the role of PS in supporting FPs because that would involve extending PS to all PAs Need to better align Integrity example with “questioning mind” element of PS Continued interest in understanding scope and planned timing for LT PS project

Matter for IESBA Consideration Professional Skepticism Matter for IESBA Consideration IESBA members are asked for views about Task Force’s revised proposals relating to PS

Feedback on ED and Task Force Response Professional Judgment (PJ) Feedback on ED and Task Force Response General support, but some mixed views e.g., Some suggest elevating to a req’t while others believe AM is unnecessary because it states what is already implicit in Code Improvements suggested to Align even more closely to description of PJ in IAASB standards Avoid using the word “sufficient” Revisions address many respondents’ suggestions

Professional Judgment Feedback from CAG General support for proposed revisions and for moving forward Requests for liaising with IAASB to Ensure that proposed text relating to PJ in para. 120.5 A1 is not inconsistent with how PJ is characterized in IAASB’s standards Determine whether proposed text relating to PJ is consistent with, and aligned to new material to emphasize PJ in IAASB’s QC project

Matter for IESBA Consideration Professional Judgment Matter for IESBA Consideration IESBA members are asked for views about Task Force’s revised proposals relating to PJ

Views about Longer Term PS Initiative Feedback on ED Views about Longer Term PS Initiative No question asked, but some took opportunity to comment Of those who commented, substantive majority believed that PS should apply to all PAs Exercise of PS is important for tax and consulting engagements; Code should explain role of PS for those NAS Code should acknowledge that PS enables compliance with FPs Coordination among IAASB, IESBA and IESBA Approach taken by IAESB seems appropriate for the Code Some cautioned against potential unintended consequences

Strong interest from CAG in understanding scope and timing of LT LT PS Initiative Feedback from CAG Strong interest from CAG in understanding scope and timing of LT Continued support for coordination with IAASB and IAESB Some CAG Representatives and PIOB representative reemphasized view that PS should apply to all PAs Others continued to caution against unintended consequences for audit and assurance engagements

Longer Term PS Initiative June 2017 – IESBA considered Task Force proposals for progressing a longer term initiative which involve Analysis of underlying concerns that lead to stakeholder calls for greater exercise of PS Exploration of how to address issues at their root causes, mindful of need to avoid unintended consequence and meet public expectations Task Force to further consider feedback about LT initiative

Longer Term PS Initiative Next Steps PS and PJ guidance Further refinement of proposed texts in light of Board input December 2017 approval anticipated Effective date to be aligned with restructured Code Longer Term PS Initiative Outline of draft CP December 2017? Draft CP March 2018 IEBSA and CAG; IESBA approval June 2018