Page 1 | Proprietary and Copyrighted Information Convergence with the Code – Canadian Rules of Professional Conduct Colleen Dunning, CPA-CA Partner, KPMG Canada IESBA Meeting London January 12-14, 2015

Page 2 | Proprietary and Copyrighted Information Standard Setting – Canada Convergence with the Code Each of the 10 provinces and 2 territories have the authority to establish, monitor and enforce ethical standards in their jurisdiction – Rules of Professional Conduct (RPC) The CPA’s Public Trust Committee establishes and recommends standards for adoption by the provincial institutes – generally harmonized throughout Canada

Page 3 | Proprietary and Copyrighted Information Standard Setting – Canada Convergence with the Code RPC apply to members of the Provincial Institute (PAIB and PAIPP), students of the institute and firms, as applicable Standards of practice are enforced by the Institute’s bylaws (e.g. Chartered Professional Accountants Act 2010 and the bylaws of CPA Ontario) –Enforceable by disciplinary sanctions

Page 4 | Proprietary and Copyrighted Information First Provincial Rules of Professional Conduct Substantial Changes Establishment of core ethical principles Introduction of Council Interpretations New Independence Standard Reflected the updated IESBA Code + SEC requirements for public companies T&S framework + specific prohibitions $10M threshold for reporting issuers Task Force reviews potential changes to the independence standard Recommends changes in 2 phases: -ED: Partner rotation provisions (7/2 vs 5/5) -Convergence with the Code in other areas (consultation paper) Proposed revisions become effective Some differences remain, including the $10M threshold and SEC-like prohibitions for certain NAS Ethical Standard Setting Canada – Historic Overview 1883 ICAO incorporated Bylaws do not address member conduct Additional rules added, including those on independence AICPA influence Concern shifts to public interest vs moral character Revisions to partner rotation rules – move to a 7/5 model for LAEP and EQCR No changes for other audit partners (7/2) Other proposed changes to converge to 2009 Code exposed (204) 2013

Page 5 | Proprietary and Copyrighted Information Standard Setting – Canada Convergence with the Code RPC generally address the content of the Code: –Fundamental Principles are the same –RPC do not apply the T&S approach, except in relation to independence (R 204) –Separation of the “Rules” (requirements and prohibitions) from “Interpretations” (guidance) –No separation of Rules applicable to Public Accountants in Business

Page 6 | Proprietary and Copyrighted Information Standard Setting – Canada Independence Convergence with the Code The Independence Task Force of the Public Trust Committee - empowered to recommend harmonized independence standard for Chartered Accountants in Canada Oversight by the Auditing and Assurance Standards Oversight Council (AASOC) - similar to the PIOB Securities regulators/CPAB do not set independence standards

Page 7 | Proprietary and Copyrighted Information Independence Level of Convergence in Canada – 2003 Convergence with the Code Convergence activities began in 2003 – adoption of the systematic, principles-based framework for independence contained in the Code Specific prohibitions – having regard to current expectations of securities regulators and investor groups –More restrictive than IESBA for listed entities (closer to SEC) –Exception with respect to smaller reporting issuers (<$10M market capitalization and total assets)

Page 8 | Proprietary and Copyrighted Information Level of Convergence in Canada – 2014 Convergence with the Code As against the 2009 Code - Independence: Maintained stricter rules for reporting issuers (regulators) –Non-audit services (SEC-like prohibitions) –Partner rotation Maintained the $10M market capitalization and asset thresholds (RI) Some additional restrictions on loans

Page 9 | Proprietary and Copyrighted Information Canadian Market Considerations – Reporting Issuer Convergence with the Code A large number of small reporting issuers –Approximately 3,850 reporting issuers in Canada –48% have market capitalization of <$10M –They represent 0.3% of total market capitalization Lack of qualified in-house expertise Service provider options may be limited Source: TSX quoted market value report and TSX Venture quoted market value report December 31, Reporting issuers are entities that are deemed to be a reporting issuer under the applicable Canadian provincial or territorial securities legislation. The majority of mutual funds are reporting issuers.

Page 10 | Proprietary and Copyrighted Information Canadian RPCEvaluation Stricter rules apply to Reporting Issuers/Listed Entities (defined under applicable securities legislation – shares, debt, securities traded on public exchange) – size exemption $10M Code: PIE definition more broad than Listed Entities – currently in Canada, only Reporting Issuers/Listed Entities captured – more restrictive since no size exemption Partner rotation – 7/5 for LAEP and EQCR, 7/2 for other KAPs Code : 7/2 for all KAPs Related entityDefinitions aligned with the Code Audit Committee pre-approval of professional services No requirement in Code Independence RPC vs Code (2014)

Page 11 | Proprietary and Copyrighted Information Canadian RPC – RI/LEEvaluation Exception available if reasonable to conclude (RTC) not subject to audit – rebuttable presumption that the results will be subject to audit Only available for certain services Five categories, similar to SEC BookkeepingRTC exemption available No materiality carve out Similar emergency situations exception Independence RPC vs Code – Non-Audit Services

Page 12 | Proprietary and Copyrighted Information Canadian RPC – RI/LEEvaluation Valuation servicesRTC exemption available No materiality threshold Exception for tax only valuations Actuarial servicesRTC exemption available Not specifically addressed in Code Internal audit servicesRTC exemption available No significance/materiality carve out IT systemsRTC exemption available No carve out for “off-the-shelf” accounting software or insignificance Independence RPC vs Code – Non-Audit Services

Page 13 | Proprietary and Copyrighted Information Canadian RPC – RI/LEEvaluation Litigation support servicesProhibited if purpose is to advance the client’s interest in a civil, criminal, regulatory, administrative or legislative proceeding or investigation Code is T&S approach Legal servicesFull prohibition, regardless of purpose of service or materiality of matter Code prohibits if advocacy role in dispute or litigation – if material Independence RPC vs Code – Non-Audit Services

Page 14 | Proprietary and Copyrighted Information Canadian RPC – RI/LEEvaluation Human resource servicesGenerally comparable Corporate finance servicesGenerally comparable, expanded list of prohibited activities (management functions) Tax servicesSimilar emergency situations exception (tax calculations) No materiality carve out (tax provision calculations) No materiality threshold for acting as an advocate in public tribunal or court Independence RPC vs Code – Non-Audit Services

Page 15 | Proprietary and Copyrighted Information Canadian RPCEvaluation Management decisions/functionsNo carve out for routine and administrative activities or those that involve insignificant matters Slightly varied list of prohibited activities (e.g. reporting in a management role to AC) Independence RPC vs Code

Page 16 | Proprietary and Copyrighted Information Canadian RPCEvaluation SafeguardsRequired when threats are other than clearly insignificant Three categories: i.Created by the profession, legislation or regulation ii.Within the client iii.Within the firm’s own systems and procedures Similar examples as Code Includes discussing with AC Independence RPC vs Code – Safeguards

Page 17 | Proprietary and Copyrighted Information Canadian RPCEvaluation Breaches2013 version of the Code Inadvertent breaches do not impair independence provided: i.The firm had quality control policies and procedures in place to promote independence; and ii.Once discovered, the breach was corrected promptly and any necessary safeguards were applied Independence RPC vs Code – Breaches

Page 18 | Proprietary and Copyrighted Information Level of Convergence in Canada – 2014 Convergence with the Code As against the 2009 Code – Other Areas: Conflict of interest generally consistent as relates to Public Accountants in Public Practice – does not address network firms Contingent fees are addressed outside of the independence section – have not been converged with the Code (e.g. size test)

Page 19 | Proprietary and Copyrighted Information Level of Convergence in Canada – Current Activities Convergence with the Code The ITF is considering the impact of the changes to the Code related to breaches Rule 210 (Conflicts of interest) is currently being reviewed to apply more specifically to PAIB as well as PAIPP Review is also underway to address contingent fees within Rule 204 in addition to the existing Rule 215 and consider whether to adopt PCAOB-type prohibitions on certain tax services

The Ethics Board