1. Structure and Safeguards
Don Thomson and Gary Hannaford,
Task Force Chairs
IESBA Meeting
Livingstone, Zambia
December 4-8, 2017

2. Towards a Restructured IESBA Code
Structure and Safeguards
Towards a Restructured IESBA Code

3. Combined Objectives for December Meeting
Structure and Safeguards
Combined Objectives for December Meeting
Obtain final Board views on any outstanding issues
Discuss and agree to final revisions to proposed texts
Consideration will be given to refinements and revisions developed during meeting
Approve final texts
Don to note that the IESBA will consider effective date after the texts are approved on Friday

4. Approach to Joint Chairs’ Presentation
Structure and Safeguards
Approach to Joint Chairs’ Presentation
Introductory remarks and general matters
“Walk-through” of proposed texts by section with a focus on
Significant revisions highlighted in Agenda Items 2-A and 2-B
Substantive “advance input” comments re Structure and Safeguards
Board members asked to focus on substantive matters
Editorials and drafting refinements welcome off-line
Thanks for advance input, including editorial refinements
Don and Gary to indicate that comments should be provided by end of public session on Monday via to Shirley, Diane, and Liz to ensure that they are considered by both TFs during their Monday evening meetings.

5. Key Features of Restructuring
Safeguards- Feedback on Safeguards ED-2 and Task Force Proposals
Agenda Item E-1
Structure
Key Features of Restructuring
New title to emphasize key features:
International Code of Ethics for Professional Accountants
(including International Independence Standards)
Clearer language with explicit provisions + new Guide = greater understandability
More self-contained, topic based sections
Increased prominence of FPs and CF
Care taken to avoid inadvertent changes in meaning or weakening of Code
Speaking Notes for Don
Highlights of Restructuring as per Issues paper
Increased clarity of language to improve understandability and usability
Requirements distinguished from application material
Increased prominence of Code’s principles basis
Overarching requirements CF and specific requirements
Increased clarity of responsibility for independence
- Firms, network firms, individuals within firms
New title to emphasize International Independence Standards
Avoidance of inadvertent changes in meaning or weakening of Code
Out of scope matters referred to the Board for future attention

6. Key ED Comments – Overarching Requirements
Feedback on Structure ED-2
Key ED Comments – Overarching Requirements
Emphasize that compliance with specific requirements does not necessarily mean compliance with the overarching requirements
Does the Code now appear more rules-based?
Create a more explicit link to ethical outcomes?
Restructuring distinguishes, doesn’t add requirements
Explanation added to the Guide to emphasize the principles establishing ethical behavior and the Code’s ethical foundation

7. Key ED Comments – Clarity of Responsibility
Feedback on Structure ED-2
Key ED Comments – Clarity of Responsibility
Further work needed to clarify responsibility?
Add explanation of approach to responsibility in S120 (The Conceptual Framework)?
No senior management duties re ethical mind-set in Code?
IAASB considering clarifying responsibility as part of revision of ISQC 1
Explained in§400.4 – required to know and understand S400 (Applying the Conceptual Framework to Independence); S120 not intended to replace S400
Snr. management of firm providing assurance services subject to ISQC 1; Leadership is an element of ISQC 1

8. Revisions Made Since Sept 2017 IESBA Meeting
General Matters Relating to Structure
Revisions Made Since Sept 2017 IESBA Meeting
Quality control and consistency review
Drafting Guidelines updated for Safeguards wording
Requirements to exercise professional judgment
Use of “provisions” versus “requirements and guidance”
Referring to application material in requirements paragraphs
Use of “All Audit Clients” versus “General” in headings
Consistently used across all sections
Quality Control includes:
Consistency reviews
Comparison mark-up to show changes between January and December 2017
Review of of this comparison to check that inadvertent meaning changes reviewed

9. General Matters Relating to Structure
Questions?
Note to Don and Gary – provide IEBSA members an opportunity to comment on general remarks before walking

10. Safeguards Project Overview
Objective
Review clarity, appropriateness and effectiveness of safeguards
Phases 1 and 2
Phase 1 – Conceptual Framework
Linked to Structure of the Code Project
Phase 2 - NAS and Conforming Amendments
Restructured Code
Phase 1 – agreed in principle Dec 2016
Enhanced conceptual framework will require mind shift
Phase 2 – on track for completion Dec 2017
Review of safeguards pertaining to provision of non- assurance services (NAS) to audit clients
Permissibility of NAS out of scope
Close coordination with Structure and other Task Forces

11. Key Enhancements re Conceptual Framework
Safeguards
Key Enhancements re Conceptual Framework
Identified threats must be addressed in one of three ways:
Eliminate circumstances creating the threats;
Apply safeguards; or
Decline or end the specific professional service
Safeguard and RITP concepts clarified
Safeguards now more closely correlated to identified threats
New “step back” requirement for an overall conclusion
Emphasis that if threats cannot be addressed, must decline or end the engagement

12. Feedback on Safeguards ED-2
Key ED Comments
Comment
Accepted?
Tailor safeguards to specific threats
Examples of safeguards reviewed and linked to specific threat(s)
Make clear situations where no safeguards would be effective
Explicit statement that there are some situations in which threats can only be addressed by declining or ending the specific engagement
Prohibitions in NAS subsections prominently flagged
Seeking out, or performing reference checks for, director or officer of entity (or management able to significantly influence financial statement preparation) now prohibited for all entities

13. Feedback on Safeguards ED-2
Key ED Comments
Comment
Accepted?
Review concepts like “materiality” and “significance” for greater enforceability
To be considered for prioritization as part of next strategy and work plan
Providing exceptions to NAS provisions impairs clarity and robustness of the Code
Outside scope of Safeguards project; for consideration as part of upcoming NAS initiative
Clarify NAS provisions that apply to firms and network firms in all instances
Extensively reviewed and clarified as appropriate (in coordination with Structure Task Force)
Are NAS provisions conveying the message that providing advice and recommendations to management is always acceptable?
IESBA does not believe this is the case – firms required to ensure that client management makes all judgments and decisions that are the proper responsibility of management

14. Revisions Made Since Sept 2017 IESBA Meeting
General Matters Relating to Safeguards
Revisions Made Since Sept 2017 IESBA Meeting
New AM added to CF to explain role of “consultation with others”
Refinements relating to advocacy threats
Improved examples of actions that might be safeguards in Code
“Appropriate professional” changed to “appropriate reviewer”
Revised examples of safeguards for contingency fees
Several drafting refinements to achieve drafting consistency across Code and minimize duplication of provisions in CF
Deleted A3 re determining whether an action is a safeguard
Better explained in Basis for Conclusions and other tools
Note to Gary – for all except the last main bullet, consider walking through text to provide further explanation.

15. Determining Whether an Action is a Safeguard
Safeguards
Determining Whether an Action is a Safeguard
Acceptable level is the level at which a PA applying the RITP test would likely conclude that the PA complies with the FPs
Safeguards are actions, individually or in combination, that PA takes that effectively reduces threats to compliance with the FPs to an acceptable level

16. Application of the Enhanced CF
Safeguards
Application of the Enhanced CF
Note to Gary – this diagram can be used to explain that material in paras 9-16 of the issues paper
Identifying threats – para 120.6
Evaluating threats – para – 120.9
Addressing threats – para

17. General Matters Relating to Safeguards
Questions?
Note to Don and Gary – provide IEBSA members an opportunity to comment on general remarks before walking

18. Structure and Safeguards Walk-through Revisions in Agenda Item 2-C

19. Substantive Advance Input
Structure
Guide to the Code
Paragraph 4 – Alignment to revised Applicability paras and reference made to listing of abbreviations to Glossary
Paragraph 9 – Refinements to how reference is made to FP and CF in Part 1, and addition of “relevant” to provisions
Substantive Advance Input
Questions raised about reference to contractors in para 4 T

20. Structure and Safeguards
Part 1 – Sections
120.7 A1 – AM for acceptable level moved up and new subheading added for “Factors Relevant in Evaluating the Level of Threats”
120.8 A3 – New AM explains that discussions/ consultation with others might assist PAs understand factors
A1 (and throughout Code) – “Parts 4A and 4B replaced with International Independence Standards
Substantive Advance Input
Question about whether SG description in A2 should refer to “firms”
TF to address this comment when we get to S600

21. Matter for IESBA Consideration
Guide and Part 1
Matter for IESBA Consideration
Do Board members
Agree with the proposed revisions to the Guide and Part 1?
Have any comments on the advance input highlighted in this presentation?
Have any additional substantive input?

22. Structure and Safeguards
Part 2 – Sections [1]
200.5 A3 – Deleted first sentence to avoid repeating 100.1
200.6 A1 – Refinements to align to A1, and to improve examples relating to self-interest threats
200.7 A1 – Refinements to drafting to be consistent A1
R200.9 to A1 – Refinements to minimize duplication
Substantive Advance Input
None as of December 2, 2017
Suggestions to improve drafting of R200.9 to A1

23. Structure and Safeguards
Part 2 – Sections [2]
220.8 A1 to A2 – Clarifications for addressing information that is misleading
A2 – Moved reference to NOCLAR from A1
R260.21/R – Avoids use of “shall not constitute” by referring to R114.1(d) allowing disclosure
Substantive Advance Input
None as of December 2, 2017

24. Structure and Safeguards
Part 2 – Sections [3]
270.3 A4 – Merged and streamlined old A4 and A5 to avoid repetition; overarching principle re consultation added to CF in A3
270.3 A5 – Deleted superfluous last sentence
Substantive Advance Input
None as of December 2, 2017

25. Matter for IESBA Consideration
Part 2
Matter for IESBA Consideration
Do Board members
Agree with the proposed revisions to Part 2?
Have any comments on the advance input highlighted in this presentation?
Have any additional substantive input?

26. Structure and Safeguards
Part 3 – Sections [1]
300.8 A2 – Refinements to examples of actions that might be SGs
300.8 A4 – Refinements to description of “appropriate reviewer” which will be used throughout Code
Substantive Advance Input
Appropriate reviewer
Consistency in specific examples across Code
Should description explain that individual is internal vs external to firm?
We received drafting refinements from Hiro and Liesbet to improve para A3.

27. Structure and Safeguards
Part 3 – Sections [2]
330.4 A2 to A3 – Revisions to examples of factors created by contingency fees and actions that might be SGs
330.5 A1 to A4 – Ref to advocacy threat added and refinements made to actions that might be SGs
Substantive Advance Input
Questions raised about whether disclosure is an appropriate SG to address self-interest threat

28. Substantive Advance Input None as of December 2, 2017
Structure
Part 3 – Sections [3]
R360.26, R360.27, R and R360.38
Aligned with revisions in R260.21/R to avoid use of “shall not constitute” and refer to R114.1(d)
Substantive Advance Input
None as of December 2, 2017

29. Matter for IESBA Consideration
Part 3
Matter for IESBA Consideration
Do Board members
Agree with the proposed revisions to Part 3?
Have any comments on the advance input highlighted in this presentation?
Have any additional substantive input?

30. Structure and Safeguards
Part 4A – Sections [1]
400.4 and throughout – Abbreviations for titles of standards defined in Glossary
400.7 – Refinements to align with changes to CF
410.3 A6, A2 and A3 – Refinements and revisions to actions that might be SGs
Substantive Advance Input
None as of December 2, 2017

31. Matters for IESBA Consideration
Part 4A – Sections 400s
Matters for IESBA Consideration
Do Board members
Agree with the proposed revisions to the 400 series?
Have any comments on the advance input highlighted in this presentation?
Have any additional substantive input?

32. Part 4A – Sections
A1 to A13 – Refinements to actions that might be SGs in relation to financial interests – other circumstances
Added subheadings to improve readability
520.6 A1 to A2 – Added “intimidation threats”
522.4 A3 – “…individual conducting review…” replaced with “…appropriate reviewer…”
Substantive Advance Input
A1 – Question about placement of close/immediate family

33. Part 4A – Sections
524.4 A2 – Clarified which provisions are being referenced
525.3 A1 to A2 – Refinements to SGs relating to threats created from a loan of personnel
540.3 A6 – Refinements to examples of SGs in LA section to enhance consistency in drafting
Substantive Advance Input
525.3A1 – additional examples of SGs suggested

34. Matters for IESBA Consideration
Part 4A – 500s
Matters for IESBA Consideration
Do Board members
Agree with the proposed revisions to the 500-series?
Have any comments on the advance input highlighted in this presentation?
Have any additional substantive input?

35. Part 4A – Section 600 General Provisions [1]
600.4 A1 to A4 –Re-ordered to improve flow of provisions for evaluating threats
600.6 A1 to A2 – Additional explanation to emphasize the application of certain overarching provisions to address threats in the context of providing NAS to audit clients
Substantive Advance Input
Material in A1 to A2 appear duplicative
To align with A1, should “firm” be added to A1?
Several editorial suggestions received for S600. For example, suggestions about whether A1 s/b “considers providing” or “provides”

36. Part 4A – Section 600 General Provisions [2]
R600.9 – Clarification to “R” para that did not include “shall”
R – Reversal of inadvertent revision to Sept draft
Substantive Advance Input
600.7 A2 – “create” vs “might create” advocacy threat

37. Part 4A – Section 600 Subsections
Safeguards
Part 4A – Section 600 Subsections
604.5 A1 to A1 – Clarifications to provisions re tax calculations for the purpose of preparing accounting entries
Substantive Advance Input
603.3 A4 – If there are no SG to address advocacy threat, is service prohibited?
SMPC continue to express concern re prohibition in R609.7

38. Matters for IESBA Consideration
Part 4A – Section 600
Matters for IESBA Consideration
Do Board members
Agree with the proposed revisions to Section 600, including subsections?
Have any comments on the advance input highlighted in this presentation?
Have any additional substantive input?

39. Part 4B – Section 800 800.4 A1 – Para better positioned after R800.3
Substantive Advance Input
800.4 A1 – Para better positioned after R800.3
A1 – Should be more closely aligned with extant

40. Matters for IESBA Consideration
Section 800
Matters for IESBA Consideration
Do Board members
Agree with the proposed revisions to Section 800?
Have any comments on the advance input highlighted in this presentation?
Have any additional substantive input?

41. Part 4B – Sections 900 to 990 [1]
900.6 – Refinements to align with changes to CF
– Revision to address comment on Structure ED-2, thereby further aligning to material in extant Code
R – Deleted 1st sentence, and other refinements made in response to suggestion from IESBA member
Substantive Advance Input
A1 – Reverse revisions to avoid change in meaning

42. Part 4B - Sections 900 to 990 [2]
910.8 A2 to A7 – Aligned to changes made in S510 in Part 4A re financial interests – other circumstances
920.4 A1 – Addition of reference to “intimidation” threat for consistency and to align with and A2
Substantive Advance Input
None as of December 2, 2017

43. Safeguards
Part 4B – Sections [3]
940.3 A6 – Refinements to examples of SGs in LA section to enhance consistency in drafting
950.5 A1, R950.7 and A2 – Revisions and refinements to better align with changes to S600 and the provisions in extant Code for assurance engagements
Responsibility for assuming mgt responsibility in the context of assurance engagements is narrower than in audit context
Substantive Advance Input
None as of December 2, 2017

44. Part 4B – Sections [4]
Section 999 – Retitled to Section 990, name remains unchanged
990.7 – Deleted because Section 990 does not provide any modification to in relation to network firms in R900.16
Substantive Advance Input
990.4 A1 – Para better positioned after R990.3

45. Matters for IESBA Consideration
Section 900s
Matters for IESBA Consideration
Do Board members
Agree with the proposed revisions to the 900 series?
Have any comments on the advance input highlighted in this presentation?
Have any additional substantive input?