IESBA Meeting Tennessee, USA June 17-19, 2019 Role and Mindset Richard Fleck, IESBA Deputy Chair & Task Force Chair IESBA Meeting Tennessee, USA June 17-19, 2019

Overview of the Session Update of Activities since March 2019 Discuss TF proposals: Sections 100, 110 and 120 Consequential changes in Part 2 & Glossary Aim to seek Board approval of proposed text for exposure during the Wednesday session

April May Activities Update Revised draft circulated to Board, IAASB PSSG and IAESB PSTF May PS joint chairs call to discuss substantive comments TF meeting to consider all comments received and develop proposals

Feedback from SSBs and IFAC SMPC The TF’s proposed text has taken into consideration comments from IAASB and IAESB on the earlier draft circulated in late April Key IAASB comments to the proposed text: Whether the use of “critically evaluate… information” is to too close to IAASB’s definition of PS and whether this would extend an assurance work effort with respect to the consideration of information to all activities that PAs undertake Suggestion to align the definition of PJ with that in the IAASB Standards SMPC The relevant comments from SMPC to the proposed text will be addressed at the meeting

Revisions to March 13 Version Section 100 Merged proposed Introduction to the Code with s100 Reframed the concept of “spirit of the Code” Section 110 Revised/added references to tech in light of TWG’s recommendations Added new element to description of professional behavior Key Changes Section 120 Introduced concept of “inquiring mind” Reinserted commonly used terms for types of bias Added reference to ISQM 1 Consequential Changes Revisions to Part 2 Inserted description of PJ in the Glossary

Revisions to March 13 Version Please Note The Revisions and changes mentioned in this slide deck are from Agenda Item 2-A (Mark-up of the March 13 Version)

Revisions to Section 100 Proposed Introduction to the Code Merged parts of text with the material in s100 Public Interest Introduced the phrase “upholding the ethical values upon which the Code is based” to capture the concept of complying with the spirit of the Code To act in the public interest means to both uphold the ethical values upon which the Code is based and comply with the Code Considered how public interest is framed in ED ISQM 1 - “The public interest is served by the consistent performance of quality engagements” - but determined such a formulation is not suitable for the Code Scope of the Code Para. 100.1 A2 and A3 of March 13 version deleted to avoid unintended consequences

Revisions to Section 100 Question: Does the Board agree with the proposed changes to paragraphs 100.1 A1 to 100.1 A3 of the Code?

Revisions to Section 110 Objectivity Revised reference to technology in para. 110.1 A1 (b), R112.1, 120.16 A2 Removed example of reliance on technology in para. 112.1 A1 Professional Competence and Due Care Inserted reference to technology in para. 113.1 A2

Revisions to Section 110 Professional Behavior Professional Judgment Added new element to req’t relating to professional behavior in para. 110.1 A1 (e), R115.1: Give an affirmative element Link public interest with an FP Professional Judgment Added AM that links the exercise of PJ with compliance with the FPs in para. 110.2 A1

Revisions to Section 110 Question: Does the Board agree with the proposed changes to Section 110?

Revisions to Section 120 – Inquiring Mindset Introduced the concept of “inquiring mind” in paragraphs R120.5 – 120.5 A5: Replace “questioning mindset” with “inquiring mind” Replace requirement to “Remain alert for new information and to changes in facts and circumstances” with “Have inquiring mind” Insert new AM to explain the concept of having an inquiring mind

Inquiring Mindset The new material explains the need for PAs to: Revisions to Section 120 Inquiring Mindset The new material explains the need for PAs to: Be inquisitive and curious about information at hand To conduct the necessary investigation in order to reach an informed decision The concept of “inquiring mind”: A way of thinking for all PAs “Mind” denotes a way of thinking whereas “mindset” relates more to a set of attitudes A scalable construct that progresses from being “open and alert” to critical evaluation “Questioning mind” to “inquiring mind” Concluded the new term will further minimize potential confusion with exercise of PS “Remain alert to new info and changes in facts and circumstances” Retained as a point for consideration when determining if future investigation is needed

Inquiring Mindset Question: Revisions to Section 120 Inquiring Mindset Question: Does the Board agree with the proposed introduction of the term “inquiring mind” and the revisions to para. R120.5 to 120.5 A5 of the Code?

Revisions to Section 120 Bias Retained term “unconscious bias” after considering the suggestion of “subconscious bias” Connected bias with exercise of PJ instead of application of CF Lead-in to examples of bias in para. 120.12 A2, removed reference to “unconscious bias” as examples relate to both conscious and unconscious bias

Revisions to Section 120 Bias – List of Examples Commonly used terms – on balance, useful to have and consistent with IAASB ISA 220 (Revised) ED (e.g., Confirmation bias, groupthink) Term “anchor” – no change after consideration of IAASB PSSG comment re translation Automation bias – added at recommendation of Tech WG

Revisions to Section 120 Bias – List of Examples Groupthink – Revised in light of potential translation issue with “coalesce” Overconfidence bias – Replaced with text from IAASB ISA 220 (Revised) ED “Devil’s advocate” – Removed in para. 120.12 A3 to avoid potential translation issue

Revisions to Section 120 Bias Question: Does the Board agree with the proposed changes to paragraphs 120.12 A1 – A3?

Organizational Culture Revisions to Section 120 Organizational Culture 120.13 A2 Revised proposed text to align with language in IAASB ISQM 1 ED Inserted last sentence to highlight the importance of adherence to ethical values in dealings with 3rd parties with respect to promoting ethical culture within an organization

Reference to ISQM 1 and Professional Skepticism Revisions to Section 120 Reference to ISQM 1 and Professional Skepticism 120.14 A2 Added reference to ISQM 1 to: Highlight importance of firm culture towards compliance of the Code by PAPPs Demonstrate connectivity between the two Board’s standards \ 120.16 A2 Added AM on “determination to act appropriately” to demonstrate how such behavior supports the exercise of PS

Organizational Culture Revisions to Section 120 Organizational Culture Question: Does the Board agree with the proposed changes relating to: Organizational culture? cross-reference to ISQM 1 and PS?

Consequential Changes Reviewed Parts 2 - 4B of the Code Taken into consideration: Focus is on Part 1 of the Code as the Role and Mindset concepts apply to all PAs when undertaking professional activities Reference to application of the CF already included in every Section Stakeholders’ caution (including those from CAG) about the need to add more material to the Code in light of the revised and restructured Code only becoming effective in June 2019

Consequential Changes Added a bullet on examples of actions that promote ethics-based culture; this proposed change aligns with the language in the “organizational culture” concept in 120.13 A2 R220.4 Added a requirement for PA to be aware of the risk of bias when preparing or presenting information R220.7 Revised requirement that aligns with revisions to description of objectivity 270.3 A2 Added a new paragraph on determination to act appropriately when a PA is facing pressure Glossary Inserted the description of “professional judgment”

Consequential Changes Question: Does the Board agree with: The consequential changes in Part 2? The insertion of PJ description in the Glossary?

Discuss turnaround version Next Steps Wednesday session Discuss turnaround version Approve ED July 2019 Publish ED Comment period (90 days)

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