Fees Initiative Chishala Kateka, Working Group Chair IESBA Meeting Madrid, Spain March 14–17, 2016

Objectives for IESBA Session Agenda Item 5 Approve a Terms of Reference (ToR) for a Working Group (WG) charged with fact finding regarding the initiative on fee-related matters Agree the scope of, and approach to, a call for academic research on the topic of fees The IESBA is asked to consider items in Agenda 5-A and 5-B and approve a) The ToRs and b) The scope, approach to the call for academic research.

WG Objectives Agenda Item 5-A Section B To identify whether there is a relationship between fees and threats to auditor independence and to the fundamental principles Are there reasonable perceptions that such threats exist? Is need for further enhancements or clarifications to the Code? Report findings and recommendations to the IESBA IESBA to determine whether to pursue a project on the topic of fees and if so, the scope and focus of such a project Two amendments that have been made to this objective Reference to Auditor Independence. This is because Auditor Independence is not one of the fundamental principles and hence the need to be mentioned specifically. The need to recognize that ‘reasonable perceptions’ that threats to Independence and fundamental principles, do exist. The W/G believe that the inclusion of these two amendments address concerns such as Marisa’s and others raised by the Board at the last Board meeting.

WG Objectives – Areas of Focus Agenda Item 5-A Section B Level of audit fees for particular audit engagements Relative size of fees (fee dependency) Are there self-interest or intimidation threats created as a result of the significance of the client to the partner, office or the firm? To what extent is partner(s) remuneration dependent upon fees from a particular client? Ratio of non-audit services fees to audit fees paid by an audit client Threats to the fundamental principle of Professional Competence and Due Care

Matter for IESBA Consideration IESBA members are asked for their views about the WG objectives, including the planned areas of focus in Agenda Item 5-A, Section B

Planned Approach Agenda Item 5-B Section C Understand the nature and extent of relevant fee-specific rules and regulations at jurisdiction levels, with a focus on G20 countries Analyze ethical rules and regulations and determining whether there are gaps in the IESBA Code with respect to the fee provisions Obtain relevant empirical evidence for each area of focus through State of the art summary of academic research publicly available to date Consider various stakeholder perspectives (firms and TCWG) Determine whether there is a need for more in-depth academic research State of the art summary of academic research is typically at a higher level Could be 6-8 pages Can be done in 6-8 months Could involve a presentation to the IESBA and a detailed proposal that scopes and provides the pricing for a more detailed academic synthesis Based on ii) above depending on findings, the WG and IESBA will consider whether there is need to commission A more detailed synthesis of academic research Typically 20-30 pages and involves in-depth analysis of existing research Work is typically performed in 12-18 month period Original academic research. Custom targeted research Time frame is dependent on the researcher and the topic (requires at least 24 months) Stakeholder perspectives will be obtained through: An analysis of regulatory inspection findings and other publicly available and relevant info (expected to be covered as part of academic summary) An outreach to key stakeholders, particularly audit firms and TCWG to obtain their perspectives on the topic. Outreach to firms will include asking them whether they have established and implemented specific processes to address ‘fee specific’ process to address actual or perceived threats. I will ask the Board regarding their comments on this.

Matter for IESBA Consideration IESBA members are asked for their views about the WG’s planned approach for fact-finding as described in Agenda Item 5-A, Section C

Proposed Timeline and Deliverables Agenda Item 5-A Section F Today Planned IESBA approval of ToR Agree to the scope of, and approach for academic research September 2016 Present results of fact-finding WG’s G20 study Summary of academic research Outreach findings Determine whether to undertake further academic research December 2017 Consider outputs aimed at further understanding specific issues Present discussion paper with the WG’s final proposals Ongoing outreach to key stakeholders, in particular firms and TCWG Comments on the timeline please.

Matter for IESBA Consideration IESBA members are asked for their views about the planned timeline and deliverables (See Agenda Item 5-A, Section F)