IESBA Meeting New York March 11-13, 2019 Role and Mindset Richard Fleck, IESBA Deputy Chair & Task Force Chair IESBA Meeting New York March 11-13, 2019

Overview of the Session Report back from joint chairs teleconference and IESBA CAG Discuss issues, TF proposals and rationale and seek IESBA input: New Introduction to the Code Revisions to Sections 100, 110 and 120 of the Code Next steps

IESBA CAG Meeting on March 4 Report Back Teleconference with Chairs of IAASB PS Sub-Working Group and IAESB PS Task Force on February 28 IESBA CAG Meeting on March 4

Feedback from SSBs New Introduction to the Code Objectivity Resolve Report Back Feedback from SSBs New Introduction to the Code General support from IAASB PS SWG Chair Objectivity IAASB SWG will consider whether proposed revised description of objectivity impacts the way the term is used in IAASB literature IAASB approached reliance on technology (para 110.1 A1 (b)(iv)) from the perspective of bias (e.g. over-confidence bias). Agreed that there should be further discussion between Chairs of both Board’s Technology TFs Resolve It should be clarified that the concept involves a commitment to do the right thing

Feedback from SSBs Questioning mindset and critical analysis Report Back Feedback from SSBs Questioning mindset and critical analysis IAASB PS SWG Chair queried if “questioning mindset” and “critical analysis” are too close to the terms used in the definition of “professional skepticism”; also prefers “questioning mind” IAESB PS TF Chair suggested “critical assessment” (as used in the definition of “professional skepticism”) should be used. Rationale is that the outputs expected from critical assessment and critical analysis are different IAASB PS SWG to consider whether relationship between professional judgment and questioning mindset in the proposed text aligns with the relationship between professional judgement and professional skepticism in ISA 220 (Revised) ED

Feedback from SSBs Bias Organizational culture Report Back Feedback from SSBs Bias Support from both Chairs for the approach taken and for the number and description of those listed. Comments on ISA 220 (Revised) ED due in June 2019. IAASB will share feedback to the material on “bias”. Organizational culture Support from IAASB PS SWG Chair for the organizational culture and ‘tone at the top’ to be included in the proposed text

Feedback from IESBA CAG Report Back Feedback from IESBA CAG New Introduction to the Code Support for the rationale for the proposed material, its location and the shortened version Lengthy discussion on the relationship between compliance with the Code and acting in the public interest: A few queried if compliance with the Code means prima facie evidence of acting in the public interest. Noted that ethics is only one of the pillars to public interest Representatives highlighted the importance of also complying with the spirit of the Code

Feedback from IESBA CAG Report Back Feedback from IESBA CAG Objectivity A few Representatives did not support the addition of “Perception, emotion or imagination” Resolve There was general support for the concept about standing one’s ground and to do the right thing A few did not support the use of the term “Resolve” and noted a potential “translation” issue Questioning Mindset A few suggested a more action-orientated term such as “critical thinking” and “challenging mindset” There was a suggestion not to have “questioning mindset” as a headline under R120.5

Feedback from IESBA CAG Report Back Feedback from IESBA CAG Bias General support from CAG Representatives for the application material Organizational Culture Possible translation issue with the term “devil’s advocate” PIOB observer noted her personal view that the TF should also consider including “management style”

Key Proposed Changes to the Code Introduction to the Code (New) The role of the accountancy profession and the relationship between compliance with the Code and professional accountants acting in the public interest Section 100 Applicability of the Code The linkage between the provisions of the Code on the one hand and behavior and approach expected of professional accountants and responsibility to act in the public interest on the other. Section 110 Revisions to the description of “objectivity” New application material on exercising “resolve” - Subsection 111 A new example of potential reliance on technology affecting the objectivity of a professional accountant under Subsection 112 Section 120 The inclusion of “a questioning mindset” as a requirement in combination with the exercise of professional judgment New application material on having a questioning mindset and the exercise of critical analysis. New application material on bias and organizational culture

New Introduction to the Code The Introduction: Aim is to remind and exhort PAs about importance of their role and function in society, their responsibility to act in the public interest and how the Code can help Is positioned as an Introduction because: Material more effective if non-technical language is used - hence Part 1 is not suitable The Guide to the Code serves a different purpose and also not suitable location The TF considered the Board’s question – “Does compliance with the Code mean that a PA has acted in the public interest?”. Although the TF concluded that the Board does not have the requisite authority to determine this issue, it considered that it would be helpful to if the Code could provide some assurance to Pas, similar to the IASB on the effect of compliance with IFRS, and so it has included the last sentence in the Introduction and paragraph 100.1 A1

Introduction to the Code Questions: Does the IESBA agree that the proposed text should be placed in the Introduction? The alternative would be for the text to be redrafted in more formal/technical language and placed in Part 1 of the Code. Does the IESBA agree with the approach the TF has taken to the relevance of compliance with the Code and the PAs responsibility to act in the public interest ?

Revisions to Section 100 Questions: The revisions to Section 100: Clarify: the provisions of the Code that set out the behaviors and approach expected of PAs and support their responsibility to act in the public interest Applicability of the Code: Individuals who are members of IFAC member body Firm responsibility over individuals who provide professional services to comply with the Code Highlight the central role of FPs and CF in the Code The TF considered, but rejected, the inclusion of a Requirement that a professional accountant should act in the public interest (e.g., “R100.1 - A professional accountant shall act in the public interest when undertaking a professional activity.”) Questions: Does the IESBA support the proposed text in paragraphs 100.1A1 – 100.2.A2?

Revisions to Section 110 - Objectivity The revisions to section 110: Reframe the description to be more affirmative in nature; this is consistent with how other FPs are described Add “Perception, emotion or imagination” as factors that can compromise the exercise of professional judgment Expand “undue influence of others” to “Undue influence of, or reliance on, individuals, organizations or other factors (including technology)” Add an example of how reliance on technology may affect objectivity (para. 112.1 A1) Questions: Does the IESBA support the revised description of “Objectivity”? Does the IESBA think it would be helpful if new application material is added to explain more than just the potential influence of technology? E.g., “Perception, emotion or imagination”

Resolve Questions: Revisions to Section 110 There was general support from the Board to develop new application material about the need for confidence/ strength of character as an enabler of compliance with FPs In light of some Board members’ concern about the use of the words “courage” and “moral courage”, the TF adopted the term “resolve” to highlight the importance of having the determination to act appropriately The proposed text is placed under Subsection 111 (Integrity) because the concept is closely aligned with acting with integrity Questions: Does the IESBA agree with the concept of “resolve”? Should an alternative term (e.g. courage, strength of character) be used? Does the IESBA agree that the proposed text should form part of the material on integrity under Subsection 111?

Revisions to Section 120 – Questioning Mindset It is important for a PA to have the right mindset when applying the CF TF took note of the clear view from stakeholders that professional skepticism is a term of art in audit and assurance standards In the 2018 consultation paper “Professional Skepticism – Meeting Public Expectation”, the term “impartial and diligent mindset” was used to articulate the mindset expected of PAs Upon consideration, the TF is of the view that having a “questioning mindset” is important for a PA when exercising professional judgment A questioning mindset would require a PA to assess the circumstances and information at hand to determine if any critical analysis is necessary TF is of the view that the terms “questioning mindset” and “critical analysis” do not conflict with the use of “professional skepticism” in the ISAs. This is clarified in paragraph 120.5 A5

Revisions to Section 120 – Questioning Mindset Questions: Does the IESBA: Support the approach taken by the TF? Agree that “questioning mindset” should be included as a requirement in combination with the exercise of professional judgment in paragraph R120.5? Agree with the material relating to “questioning mindset” and “critical analysis” in paragraph 120.5 A3?

Bias Questions: Revisions to Section 120 Unconscious bias can cloud a person’s judgement and impair a PA’s exercise of professional judgment The revisions introduce new application material (paragraphs 120.12 A1 to 120.12 A3) to highlight the importance of being aware of the different types of bias that an individual may have – albeit unconsciously When developing the proposed text, the TF has taken into consideration the new material on bias in IAASB’s ISA 220 (Revised) Exposure Draft to ensure there is no undue inconsistency Questions: Does the IESBA support the approach taken to the inclusion of bias in Section 120?

Revisions to Section 120 Bias – List of Examples The proposed text includes seven (7) examples of bias: Anchoring bias Availability bias Confirmation bias Groupthink Overconfidence bias (2 options) Representation bias; and Selective perception Questions: Does the IESBA agree that it would be helpful to include in the Code examples of the different types of bias that may arise? Should this be supported by a staff publication or other types of non-authoritative material? Does the IESBA agree with the descriptions of different types of bias in paragraph 120.12 A2?

Organizational Culture Revisions to Section 120 Organizational Culture Although the Board questioned why organizational culture (and not other enablers) was regarded as requiring additional application material, the TF concluded that having the right organizational culture and tone at the top is of such importance in promoting ethical behavior by PAs that it should be included. The proposed text highlights the importance of having The right culture at the organizational level; and Support from leaders and managers through implementation of appropriate education and training programs, performance criteria, management processes, and consequences when ethical principles are not upheld The proposed text has taken into consideration the relevant material in ISQM 1 ED Questions: Does the IESBA agree that the text on organizational culture should be added to Section 120 to remind PAs of its potential impact on the application of the conceptual framework?

Next Steps Seek input from Forum of Firms and NSS in April and May 2019 respectively Present revised proposals to Board in June 2019 including a review of other parts of the Code

The Ethics Board www.ethicsboard.org