Promoting the Role and Mindset Expected of Professional Accountants Richard Fleck, IESBA Deputy Chair & Task Force Chair IESBA Meeting New York, USA December 3-5, 2018

Objectives Report on recent activities Provide input to preliminary draft of new Introduction to the Code and revisions to s100 Provide input and suggestions to: TF’s current thinking on other concepts High level plan to achieve actual behavioral changes Next steps

Activities Since Sept 2018 IESBA Meeting Joint SSB WG/TF Chair Teleconference Upcoming meeting with PAIBC Chair

Indicative Timeline by Scope Project Scope Dec 18 Mar 19 June 19 Sept 19 Pre. Draft 1st Read 2nd Read Describe role, mindset and behavioral characteristics expected of PAs, overarching objective Linkage with FPs and CF Threats from bias, pressure and other impediments   Other parts of the Code to reinforce mindset and behavioral characteristics Linkage with PS Any other matters relevant to the project objective

OVERVIEW OF KEY REVISIONS Preliminary Draft Role of Accountancy Profession including overarching objective Professional Accountants in a broad sense Role of the Code New Introduction to the Code Firm and organizational culture Professional judgment Scope and compliance with FP and CF Revisions to Section 100, Part 1 OVERVIEW OF KEY REVISIONS

Key Comments from IFAC SMPC Introduction to the Code Suggested that para 1 did not sufficiently recognize the unique expertise of PAs on highly technical matters as a significant factor in deciding the involvement of the Profession Queried if the responsibility of PAs to act in the public interest in para 4 is appropriate for all activities Questioned the need to include information about oath/affirmation Section 100 Suggested that new material should not be added if it is self-explanatory or sufficiently dealt with by other requirements (e.g., IAASB’s ISQM 1) Queried if moving the material on professional judgment in Section 120 would weaken the overall structure of the CF Noted the view that the compliance issue may only be one of perception and suggested that perhaps more can be done by PAOs in ensuring PAs are behaving ethically

Introduction to the Code Section Preliminary Draft Introduction to the Code Section In developing material on role, mindset and behavioral characteristics expected of PAs at the beginning of the Code, the Task Force considered: Roundtable discussions of an overarching statement Introductory material of other national ethics code as well as national oaths The 2001 version which contained material on the role of the Code, public interest and objectives of profession as well as IESBA’s decision to streamline the extant Code when restructuring the Code The TF concluded: It is more impactful to insert a new Section before Part 1 of the Code to remind PAs of the importance of their work and their role in society as part of a global profession and to motivate them to comply with the Code It is not suitable for an oath or mission statement to be inserted into the Code

Introduction to the Code Section Key Features New Section Positioned after Preface & before Part 1 Treated as part of the Code Uses non-technical language Exhort & Remind Readers The role of the profession in society, the public confidence it receives due to the value of its work because of its expertise and adherence to a set of ethical behavior and its responsibility to act in the public interest. The key elements that differentiate professional accountants (in a broad sense) from other accountants Importance of compliance with the Code in maintaining public confidence Three Parts The role of the Accountancy Profession in serving the public interest Professional Accountants The Code Describe Overarching Objective

Overarching Objective Introduction to the Code Section Overarching Objective Paragraph 5 describes the overarching objective of professional accountants in serving the public interest: “to apply an objective and diligent mindset, together with knowledge, experience and judgment, so that others can have confidence that the professional accountant’s advice or other output is fit for the purpose for which it was provided”

Matters for IESBA Consideration Preliminary Draft Matters for IESBA Consideration Views/reactions to the proposed text including the overarching objective Views on not including oath or mission statement in the Code

Section 100 New application material Organizational culture Preliminary Draft Section 100 New application material Paragraphs 100.1 A1 – 100.2 A1 Organizational culture Importance of organizational culture in ensuring proper ethical behavior Recognized that non-firm organizations are not subject to the Code Will take into consideration IAASB’s proposed ISQM 1 to ensure appropriate alignment Professional judgement New application material in s120 was approved by IESBA in 2017 as a short term measure Repositioned paragraphs 120.5 A1 and A2 to paragraphs 100.1 A5- A7 Revisions aims to highlight the importance of exercise professional judgment in achieving compliance with the fundamental principles and indeed the Code

Matters for IESBA Consideration Preliminary Draft Matters for IESBA Consideration Views/reactions to the proposed text on organizational structure including its location Views/reactions on: Whether the paragraphs 120.5 A1 and A2 should be relocated to paragraph 100 as proposed? The proposed text in paragraphs 100.1 A5 - A7

Future Task Force Discussions Jan 2019 TF meeting to discuss and develop proposals re: linkages of FPs and CF in Sections 110 and 120 with role, mindset and behavioral characteristics expected of PAs in the proposed material Threats to compliance with FPs from bias, pressure and other impediments The TG has developed preliminary thinking and seek the Board’s early reaction on: Courage, Objectivity, Bias, Questioning mindset or similar terms

New AM in Support of the FPs Future TF Discussions New AM in Support of the FPs Courage as enabler: Concept of “moral courage” was previously discussed as part of a presentation by ICAS at the March 2016 IEBSA meeting Propose to refer to “courage” as an enabler to comply with the FPs Propose to include in Section 110, under either “General” or “Integrity” section FP of Objectivity: Propose to rephrase the definition of objectivity to be positive in nature Propose to include additional AM to the principle of objectivity

Other Concepts Elevating the concept of “bias”: Future TF Discussions Other Concepts Elevating the concept of “bias”: Propose to generalize the discussion about bias in either Section 110 or 120 so that the material applies wherever bias occurs – not just in the context of Objectivity Considering whether to develop non-authoritative material on the topic of bias Questioning mindset or similar term: Considering the use of “questioning mindset”, “critical thinking” and/or similar concepts such as “challenging mindset” Considering whether to include in Section 110 or 120 Will ensure alignment with Auditing and Education standards

Matters for IESBA Consideration Preliminary Draft Matters for IESBA Consideration Views/reactions on the TF’s current thinking: Courage Objectivity Bias Questioning mindset or similar terms

Views/suggestions from IESBA? The Bigger Picture Effecting changes in ethical behavior of PAs require more than revisions to the Code Need the right organizational culture, education and strong and consistent messaging TF to develop plan to work with IAESB, member bodies and firms via IFAC Views/suggestions from IESBA?

Next Steps Timing Action Mar 2019 Discussion with CAG; IESBA discussion of draft revisions to ss110 and 120, refined draft Introduction to the Code and s100 May 2019 Discussion with NSS Jun 2019 IESBA first read of draft ED Sep 2019 Discussion draft ED with CAG; IESBA second read and approval of ED

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