IAASB – IESBA Coordination Fees Proposals by IESBA Willie Botha (IAASB Technical Director) and Imran Vanker (IAASB Member) IAASB Meeting – New York, USA Agenda Item 3 September 16, 2019

IESBA Coordination – Fees Proposals IESBA identified two broad matters Level of audit fees should not affect Firm’s ability to perform audit in accordance with professional standards Assigning sufficient and appropriate resources Transparency of information regarding fees for audits of PIEs Communication with TCWG Public disclosure of fee-related information Addressed at Quality Management Task Force level – ongoing Elevated to Board level for discussion – Sept 2019 IAASB meeting Page 2

IESBA Fees Proposals – Communication with TCWG Extant Code of Ethics [R410.4] Communicate with TCWG of an audit client that is a PIE: Where, for two consecutive years, the total fees from client > 15% of total fees of the firm Disclose to TCWG the fact that such fees > 15% of total fees … Extant Code does not require communication of any other fee-related information to TCWG Page 3

IESBA Fees Proposals – Communication with TCWG Proposed Requirement in the Code – Fee-Related Information Communicate with TCWG of an audit client that is a PIE: Amount of the audit fee and how the firm is satisfied that level of audit fee did not compromise its independence Amount of fees for non-audit services charged by the firm or network (and threats and safeguards linked to proportion of non-audit fees to audit fees) Any fee dependency, whether it is likely to continue and the safeguards applied WHY? To provide a meaningful discussion with TCWG about fee-related information, including assessing independence Fees from audit client > 15% of total fee income Page 4

IESBA Fees Proposals – Communication with TCWG Proposed Requirement in the Code – Non-Assurance Services (NAS) Obtain agreement with TCWG of an audit client that is a PIE regarding provision of NAS Before accepting NAS engagement, provide information to TCWG about: Nature and scope of services to be provided Any threats to independence that might be created Firm’s evaluation of whether threats identified are at an acceptable level If any threats are not at an acceptable level Actions to address any threats Why the threats would be eliminated or reduced to an acceptable level Page 5

IESBA Fees Proposals – Communication with TCWG Overlap with ISA 260 (Revised), par. 17 Communicate with TCWG of listed entities: Statement of compliance with relevant ethical requirements re: independence Relationships and other matters that may reasonably be thought to bear on independence Total fees charged for audit services and non-audit services during period covered by FS Safeguards applied to eliminate identified threats or reduce to an acceptable level Source: Traced back to May 2003; Also, IFAC Code (2003) required written communication (at least annually) of all relationships that bear on independence ISA 200, par. 14: The auditor shall comply with relevant ethical requirements … Page 6

IESBA Fees Proposals – Communication with TCWG Possible Options Identified by IESBA Representatives Align the scope of the requirements in ISA 260 (Revised) and the Code Do nothing (in context of pre-existing difference in scope) Withdraw the requirement in ISA 260 (Revised) – communication in relation to independence and fee information Withdraw only the part of the requirement in ISA 260 (Revised) concerning communication of fee information Matters for IAASB Consideration – The IAASB is asked For its views on the four possible options to achieve closer alignment between ISA 260 (Revised) and the Code, including any other possibilities that should be considered Whether there are any other matters that the JWG should consider in undertaking further coordination activities Page 7

IESBA Fees Proposals – Public Disclosure of Fee-Related Information Proposed Requirement in the Code For an audit client that is a PIE, the firm shall be satisfied about public disclosure of: Amount of the fee for the audit of the FS; Amount of fees for services other than the audit of the FS charged during the period covered by the FS; and If applicable, the fact that total fees from audit client > 15% of total fees of the firm (“… represent, or are likely to represent, … for two consecutive years, …”) Information must be “appropriately accessible” Readily available for any stakeholder In a manner that stakeholders are specifically informed about (or firm believes, know about) Page 8

IESBA Fees Proposals – Public Disclosure of Fee-Related Information Proposed Requirement in the Code – How to … Local laws and regulations If the requirement is not satisfied by disclosure made in accordance with law or regulation, further guidance is proposed, as follows: The audit client might agree to disclose the required fee- related information If not, the firm considers other suitable locations, for example: Client’s proxy statement Auditor’s report Page 9

IESBA Fees Proposals – Public Disclosure of Fee-Related Information Possible Disclosure in Auditor’s Report – ISA Requirements ISA 700 (Revised) Fees proposals not covered by the basic reporting elements of ISA 700 (Revised) Reporting not required under the ISAs is regarded as ‘Other Reporting Responsibilities’ Separate section, with heading ‘Report on Other Legal and Regulatory Requirements’ or otherwise as appropriate to the content of the section ISA 706 (Revised) If the auditor considers it necessary / in the auditor’s judgment Matters, not presented or disclosed in FS, relevant to users understanding of the audit, auditor’s responsibilities, or auditor’s report Exceptions: Prohibited by law or regulation or ‘Key Audit Matter’ (ISA 701) Page 10

IESBA Fees Proposals – Public Disclosure of Fee-Related Information Proposed IESBA Application Material – Group Audits Fees paid (or estimate) include all fees paid / payable to firms in relation to audit work performed on which the audit opinion is based Based on information available at time of the disclosure Group audits: Include work by any component auditor at the direction of the group engagement partner in accordance with ISA 600 Page 11

IESBA Fees Proposals – Public Disclosure of Fee-Related Information Matters for IAASB Consideration – The IAASB is asked For its views on the appropriate location in the auditor’s report for communication of relevant fee-related information as proposed by the Fees Task Force in those instances where it is determined that the auditor’s report is the appropriate location for such disclosure, including the possibilities discussed in paragraphs 25–31 of this paper or any other possibilities that should be considered. For its views on the proposed application material in the Code relating to the determination of the relevant fee-related information in the case of a group audit (refer to paragraph 32 of this paper). Whether there are any other matters that the JWG should consider in undertaking its further coordination activities after the September 2019 meetings of the IAASB and IESBA. Page 12