Page 1 | Proprietary and Copyrighted Information Safeguards Gary Hannaford, Task Force Chair IESBA CAG Meeting New York, USA September 14, 2015

Page 2 | Proprietary and Copyrighted Information To note the report back on the March 2015 CAG discussion To obtain CAG Representatives’ views on the Task Force’s (TF) proposals, in particular on the matters identified in Agenda Item E Safeguards Objective of Agenda Item

Page 3 | Proprietary and Copyrighted Information Project Objective To review the clarity, appropriateness and effectiveness of safeguards in Sections 100 and 200 and those safeguards that pertain to NAS in Section 290 of the Code TF’s Activities To-Date Initial discussion with CAG at its March 2015 meeting Preliminary issues considered at the April and June/ July 2015 IESBA meetings Proposals to be considered by IESBA at their next meeting Project Objective and TF’s Activities To-Date

Page 4 | Proprietary and Copyrighted Information Section 100 Section 200/ PAs in public practice Section 290/ NAS Other Parts of the Code Section 300/ PAIB Safeguards: Approach and Timing

Page 5 | Proprietary and Copyrighted Information TF continues to closely coordinate its work with the Structure project, but standalone Safeguards ED planned –Proposed revisions in extant Code will be in the format and language of draft re- structured code –TF continues to explore options for presenting the changes in the ED so that respondents can easily identify the changes being proposed Board approval of Safeguards ED expected to be concurrent with Structure project, at the December 2015 IESBA meeting Alignment and Coordination with Structure Project

Page 6 | Proprietary and Copyrighted Information Overview of Threats to the Fundamental Principles Fundamental Principles Threats Self-interest Self- review AdvocacyFamiliarityIntimidation Integrity Objectivity Independence Professional Competence and Due Care Confidentiality Professional Behavior

Page 7 | Proprietary and Copyrighted Information Alignment with ISAs re identifying, assessing, and responding to risks of risks of material misstatement –Re-focus PA’s on identifying, evaluating and addressing threats, rather than simply applying safeguards, thereby reducing ambiguities regarding the objective of the CF –More prominent and robust principles-based requirements that continue to require PAs to exercise of professional judgment More guidance to assist PAs consistently apply the CF –New explicit description of a safeguard Clarifying the Conceptual Framework (CF)

Page 8 | Proprietary and Copyrighted Information Specific actions or measures that the PA takes to effectively eliminate identified threats to the fundamental principles or reduce them to an acceptable level Safeguards, which may be individual or a combination of specific actions or other measures, are effective when they eliminate or reduce the level of the threat to an acceptable level, such that the fundamental principles are not compromised, or are not likely to be compromised Description of a Safeguard

Page 9 | Proprietary and Copyrighted Information The term “safeguards” is used in an inconsistent manner throughout the extant Code New description combined with clarified CF is intended to: –Enhance the robustness of the Code, by addressing actual and perceived concerns that have been raised relating to PAs application of safeguards –Better link the concept of safeguards to threats to compliance with the fundamental principles Rationale for New Description of a Safeguard

Page 10 | Proprietary and Copyrighted Information Acknowledgment that identification, evaluation and addressing of threats is an iterative process –“ Stepping back” is an important part of applying the CF –PA re-evaluates threats and safeguards if new information indicates an inconsistency with the PA’s original identification and evaluation More robust guidance to better explain the process of “stepping back” so that it is more closely linked to the reasonable and informed third party test New Guidance Relating to “Stepping Back” Identifying Threats Evaluating Threats Addressing Threats

Page 11 | Proprietary and Copyrighted Information A conceptual person who possesses suitable skills, knowledge and experience to evaluate the appropriateness of the PA’s conclusions Evaluation entails weighing all the specific facts and circumstances that the PA knows, or could reasonably be expected to know, at the time, to objectively determine whether the relevant threats to compliance with the fundamental principles will be eliminated or reduced to an acceptable level Reasonable and Informed Third Party

Page 12 | Proprietary and Copyrighted Information Streamlined examples of safeguards in Section 200 The terms “material” and “significant” are intentionally avoided in Agenda Item E.1 –Because those terms are used in an inconsistent manner throughout the extant Code (in some cases meaning is different from how term is described in the ISAs) –For future TF work relating to NAS, material in same context as ISAs is acceptable and terms will be retained Other Enhancements Relating to Safeguards

The Ethics Board