Alignment of Part 4B with ISAE 3000 Liesbet Haustermans, IESBA Member Task Force Chair IESBA Meeting New York, USA March, 2019

Objectives of the Project To review Part 4B of the revised and restructured Code for any revisions needed to align with the revised ISAE 3000 No intention to re-open any discussion or to challenge the concepts of ISAE 3000 (Revised)

Objectives of the Session To update the IESBA on developments since the first read of the draft Exposure Draft in December 2018 To complete a second read of the draft Exposure Draft (Agenda item 3-C) To approve the Exposure Draft for publication

Developments since the September meeting of IESBA The TF met in New York on 5th and 6th December to address the issues raised by IESBA members at the Board meeting. The TF also discussed and agreed a draft of the Explanatory Memorandum to accompany the Exposure Draft The TF provided the revised draft Exposure Draft to the IAASB representatives in January

Key changes proposed in the draft Exposure Draft since December Revised definition of Assurance Client Revisions made to paragraph 900.14 A2 to describe more clearly the circumstances in which the firm needs to be independent of the measurer or evaluator Definition included in the Glossary of ‘attestation engagements’ and ‘direct engagements’

Revised Definition of Assurance Client TF has accepted that it may be confusing to define ‘assurance client’ in terms of entities or individuals and proposes to return to defining ‘assurance client’ as a ‘party’. This would include individuals in circumstances where individuals rather than an entity are the responsible party Revised definition: ‘The responsible party (entity or individuals) and also, in an attestation engagement, the entity or individuals responsible party taking responsibility for the subject matter information (who might be the same as the responsible party)’

Matters for consideration Do IESBA members believe that the definition of Assurance Client is clear and appropriate for use in Part 4B?

Revisions made to 900.14 A2 Some Board members commented in December that paragraph 900.14 A2 was insufficiently clear as to the conditions when independence would be required of the measurer or evaluator The TF does not intend that the professional accountant need be independent of a party, eg a contractor, who does not take responsibility for the outcome of the measurement or evaluation The TF proposes revisions to the paragraph to clarify that independence is triggered where the measurer or evaluator takes responsibility for the outcome of the measurement or evaluation, consistent with the revised definition of assurance client

Proposed revised text of paragraph 900.14 A2 The roles of the parties involved in an assurance engagement might differ and affect the application of the independence provisions in this Part. In the majority of attestation engagements, the responsible party and the party responsible taking responsibility for the subject matter information are the same. This includes those circumstances where the responsible party involves another party to measure or evaluate the underlying subject matter against the criteria (the measurer or evaluator) to assist in the preparation of the subject matter information. In this case the responsible party is responsible for the subject matter information and is the assurance client where the responsible party takes responsibility for the subject matter information as well as the underlying subject matter. However, the responsible party or the engaging party might appoint another party to prepare the subject matter information on the basis that this party is to be responsible take responsibility for the subject matter information. In this circumstance, the responsible party and the party responsible for the subject matter information are both assurance clients for the purposes of this Part.

Matters for consideration Do IESBA members have any comments on the proposed revised text of paragraph 900.14 A2?

Other proposed revisions to the draft Exposure Draft – 1 - Paragraphs 940.3 A3 and 940.3 A4 In the extant Code reference is made to the ‘individual[s] who are the responsible party’ in the last bullet of paragraph 940.3 A3 and paragraph 940.3 A4 The TF proposes, in accordance with the amended independence requirements and for greater clarity, that this should be amended to read the ‘individual[s] who are responsible for the underlying subject matter and, in an attestation engagement, for the subject matter information’ The TF proposes also to retain the reference to key management in 940.3 A3 which is in the extant Code

Other proposed revisions to the draft Exposure Draft – 2 - Definition of Assurance Engagement The NAS TF has requested further clarification in the definition of assurance engagement of the types of assurance engagement that are covered by the definition with reference to the IAASB Standards that apply To respond to this request and as a departure from the proposal presented to the Board in December, the TF proposes to revert to the wording of the extant Code by listing the three categories of Assurance Standards which apply to the types of assurance engagements defined in the Glossary (drawn from paragraph 1 of the Assurance Framework)

Evaluation of objectivity Some Board members questioned in December whether it is sufficiently clear in Part 4B that the firm needs to evaluate the firm’s objectivity in the particular circumstances of the engagement, in addition to applying the requirements for independence.

TF response on the issue of objectivity The TF notes that a great deal of thought was given to the need to apply the fundamental principles, including objectivity, at the time when Part 4A and Part 4B were developed as part of the Restructuring of the Code Project In particular, paragraph 900.5 addresses this issue in the same way as paragraph 400.5 with respect to audit and review engagements The TF believes, therefore, that the matter raised is already addressed in Part 4B and does not propose any revisions to Part 4B

Advance comments from Board members - 1 900.16 A1 – Suggestion to amend last paragraph to provide more certainty, eg to read: ‘If the firm determines that the threat created by any such interest or relationship with a particular responsible party would be trivial and inconsequential, it might is not be necessary to apply all of the provisions of this section to that party.’ Three Board members queried the convention for referring to ‘client’ rather than ’assurance client’. The convention is to abbreviate to ‘client’ when it refers back to ‘assurance client’ already defined, either earlier in the same paragraph or in an immediately preceding paragraph. In all cases queried, the treatment in Part 4B exactly mirrors the equivalent paragraph in Part 4A

Advance comments from Board members - 2 Add definition of Subject Matter Information: ‘The outcome of the measurement or evaluation of the underlying subject matter against the criteria, that is, the information that results from applying the criteria to the underlying subject matter.’ Can then amend paragraph 900.7 to delete the embedded definition of subject matter information: ‘In an assurance engagement, the firm aims to obtain sufficient appropriate evidence in order to express a conclusion designed to enhance the degree of confidence of the intended users other than the responsible party about the subject matter information (that is, the outcome of the measurement or evaluation of an underlying subject matter against criteria). ISAE 3000 describes the elements and objectives of an assurance engagement conducted under that Standard and the Assurance Framework provides a general description of assurance engagements.’ If adding definition of Subject Matter Information, should also add definition of Underlying Subject Matter: ‘The phenomenon that is measured or evaluated by applying criteria.’

Advance comments from Board members - 3 Amend definition of Responsible Party to read: ‘In an attestation engagement or direct assurance engagement, the party responsible for the underlying subject matter’ Delete definition of ‘measurer or evaluator’ as this is used only once in the text and is defined in the text (900.14 A2)

Matters for consideration Do members have any comments on the matters discussed, including on the proposed changes arising from the advance comments received from Board members? Do members wish to propose any other revisions to the draft Exposure Draft?

Proposed Timeline and Effective Date Ken to advise Indicative Timing Milestone March 2019 Discussion of draft Exposure Draft with IESBA CAG Second read and approval of draft Exposure Draft by IESBA April 2019 Publication of Exposure Draft September 2019 Consideration of responses by IESBA First read of proposed revised Part 4B December 2019 Approval of revised Part 4B of the Code (to become effective in June 2021)