Quality Management at the Engagement Level Proposed Draft ISA 220 (Revised) Megan Zietsman, Task Force Chair IAASB Meeting, New York, USA Agenda Item 6 June 20, 2018

Clarifying the engagement partner’s (EP’s) role and responsibilities Proposed Revisions to ISA 220 – Addressing Key Matters of Public Interest Addressing and encouraging appropriate exercise of professional skepticism Clarifying the engagement partner’s (EP’s) role and responsibilities Reliance on firm or network firm quality management processes and procedures Addressing audit delivery models Other matters: Required understanding for accepting or continuing an engagement (e.g., access issues); Interaction of firm quality management with managing quality at the engagement level; and Ongoing two-way communication.

Proposed Revisions to ISA 220 – EP’s Responsibility for Quality Sufficient and appropriate involvement throughout the engagement LEADERSHIP RESPONSIBILITY EP is responsible for achieving quality at the engagement level DIRECTION, SUPERVISION, AND REVIEWS EP is responsible for nature, timing, and extent, in view of engagement circumstances STANDBACK EP shall be satisfied that involvement has been sufficient and appropriate to provide basis for taking overall responsibility

Proposed Revisions to ISA 220 – Scalability Revisions to requirements proposed that emphasize a “tailored approach” to quality management at the engagement level that is responsive to the nature and circumstances of the audit engagement (Engagement Resources, Direction, Supervision and Review, and Taking Overall Responsibility for Achieving Quality) Application material proposed that recognizes considerations specific to smaller practitioners in relation to: How the firm’s responses to quality risks, including policies or procedures, may be less formal in a smaller firm, and consequently, the risks this may pose; and Some sections of the ISA may not be relevant if the audit is carried out entirely by the EP

Proposed ISA 220 (Revised)—Introduction and Objective Section Paragraph(s) Application Material Introduction 1–4B A0–A2F Objective 6 None Key Changes from December 2017 IAASB Meeting: Revised intro paras, highlighted the importance of applying professional judgment and professional skepticism in achieving quality at the engagement level. Matters for IAASB Consideration The IAASB is asked to share its views on whether the revised introductory paragraphs 1−4B have been clarified based on Board feedback? The IAASB is asked to share its views on the objective (see paragraph 6 of Agenda Item 6–A).

Proposed ISA 220 (Revised)—Definitions Proposed ISA 220 (Revised) – Agenda Item 6–A Paragraph(s) 7 Application Material A2G–A2L Key Changes from December 2017 IAASB Meeting: Proposed revisions to the definitions of EP and engagement team. Matters for IAASB Consideration The IAASB is asked: Whether it agrees with the recommendations of the Task Force in connection with the definition of EP and engagement team in paragraphs 7(a) and 7(d) in Agenda Item 6–A, respectively, and the related application material at A2G–A2J; and Whether there are any unintended consequences that should be considered. Whether there are views about the other definitions and related application material.

Proposed ISA 220 (Revised) – Agenda Item 6–A Proposed ISA 220 (Revised)—Leadership Responsibilities for Achieving Quality on Audits Proposed ISA 220 (Revised) – Agenda Item 6–A Paragraph(s) 8–8B Application Material A3A–A3J Key Changes from December 2017 IAASB Meeting: Elevation of 8A and 8B. Emphasize the EP’s responsibility for creating an environment that emphasizes the firm’s cultural values and behaviors, and for management of quality and acknowledge the EP’s sufficient and appropriate involvement in the audit engagement is the basis for the EP determining the appropriateness of the judgments and conclusions. AM to focus on impediments to professional skepticism. Matter for IAASB Consideration What are the IAASB views on paragraphs 8–8B and the related application material at A3A–A3J in Agenda Item 6–A?

Proposed ISA 220 (Revised) – Agenda Item 6–A Proposed ISA 220 (Revised)—Relevant Ethical Requirements, Including Independence Proposed ISA 220 (Revised) – Agenda Item 6–A Paragraph(s) 9–10A Application Material A4–A7 Key Changes from December 2017 IAASB Meeting: Focus on requiring EP to understand relevant ethical requirements and firm’s related policies and procedures and focus on being satisfied they have been addressed prior to dating the auditor’s report. Alignment with ISQC 1. Matter for IAASB Consideration The IAASB is asked for its views on paragraphs 9–10A and A4–A7 of Agenda Item 6– A?

Proposed ISA 220 (Revised) – Agenda Item 6–A Proposed ISA 220 (Revised)—Acceptance and Continuance of Client Relationships and Audit Engagements Proposed ISA 220 (Revised) – Agenda Item 6–A Paragraph(s) 12–13A Application Material A7A–A9 Key Changes from December 2017 IAASB Meeting: Included additional application material that describes how information obtained by the firm through its acceptance and continuance procedures may be relevant in planning and performing the audit engagement. Matter for IAASB Consideration What are the IAASB views on paragraphs 12–13A and the related application material at A7A– A9 in Agenda Item 6–A?

Proposed ISA 220 (Revised)—Engagement Resources Proposed ISA 220 (Revised) – Agenda Item 6–A Paragraph(s) 14–14C Application Material A9A–A12 Key Changes from December 2017 IAASB Meeting: Requiring the EP to take appropriate action when insufficient or inappropriate resources are provided by the firm and within the application material, describing what appropriate actions the EP would take in these circumstances. Focus on project management. Ongoing coordination with DAWG. Matter for IAASB Consideration What are the IAASB views on paragraphs 14–14C and the related application material at A9A– A12 in Agenda Item 6–A?

Proposed ISA 220 (Revised) – Agenda Item 6–A Proposed ISA 220 (Revised)—Engagement Performance – Direction, Supervision, and Review Proposed ISA 220 (Revised) – Agenda Item 6–A Paragraph(s) 15–17C Application Material A12A–A19E Key Changes from December 2017 IAASB Meeting: Clarified which audit documentation needs to be reviewed by the EP, taking into account what the engagement quality control reviewer will be required to review and related to areas involving significant judgments. Matter for IAASB Consideration What are the IAASB views on paragraphs 15–17C and the related application material at A12A– A19E in Agenda Item 6–A?

Proposed ISA 220 (Revised) – Agenda Item 6–A Proposed ISA 220 (Revised)—Taking Overall Responsibility for Achieving Quality Proposed ISA 220 (Revised) – Agenda Item 6–A Paragraph(s) 23A Application Material A35A–A35B Key Change from December 2017 IAASB Meeting: Linked the stand back (“taking overall responsibility for achieving quality”) with the EP’s involvement throughout the audit. Matter for IAASB Consideration What views does the IAASB have on paragraph 23A and A35A–A35B?

Proposed ISA 220 (Revised)—Other Sections Paragraph(s) Application Material Consultation 18 A21–A22 Engagement Quality Control Review 19 A23–A25A Differences of Opinion 22–22A A32A–A32B Monitoring and Remediation 23 A33–A35 Keys Change from December 2017 IAASB Meeting: Limited amendments, primarily changes to align with ISQC 1 Matter for IAASB Consideration Does the IAASB have views on paragraphs 18–23 and A21–A35?

Proposed ISA 220 (Revised)—Documentation Proposed ISA 220 (Revised) – Agenda Item 6–A Paragraph(s) 24 Application Material A35C–A36 Key Change from December 2017 IAASB Meeting: Limited amendments, including requiring audit documentation to include how the results of conclusions from consultations were implemented. Matter for IAASB Consideration Does the IAASB have views on paragraph 24 and A35C–A36?

Proposed ISA 220 (Revised)—Other Matters Discussed by the Task Force Circumstances When an Individual Other Than the EP Signs the Auditor’s Report, Instead of, or in Addition to the EP Matter for IAASB Consideration Does the IAASB support the view held by a majority of the Task Force that national law or regulation is the proper place for requirements on: Who signs the auditor’s report in that jurisdiction; and Such individual’s responsibilities. If not, does the IAASB believe that a project should be considered to explore this issue further?