1. Inducements Mike Ashley – IESBA Member and Task Force Chair
IESBA CAG Meeting
New York, USA
March 5-6, 2018

2. Overview of the Session
Project timeline and report-back
Highlight significant issues raised by respondents to ED:
Sections 250, 340, 420 and 906
Discuss TF proposed responses
Obtain CAG’s views in advance of Board meeting

3. Project Timeline Exposure Review Next Steps
Proposed text approved for exposure by IESBA (Jun 2017)
ED issued for 90-day exposure (Sept – Dec 2017)
Review
TF will discuss feedback on ED and proposed responses with CAG and IESBA (Mar and Jun 2018)
Next Steps
Expected IESBA approval of proposed text in June 2018

4. CAG Report Back
TF/IESBA responses to key matters raised by CAG at the September 2017 meeting:
Whether the text should specifically address cultural differences
Whether the Code should require PAs to comply with internal policies and procedures

5. ED Key Features Description of Inducements
Compliance with Laws and Regulations
Intent Test
Application of Conceptual Framework
Immediate or Close Family Member
Conforming Changes for PAPP and Independence Sections

6. Description of Inducements
ED Responses – Section 250
Description of Inducements
Comment
Respondents generally supportive of the definition
Some were concerned it encapsulates too many concepts, whether defining it as neutral would create confusion
A few suggested that it should not capture certain gifts and hospitality that are mere social courtesy
Additional examples were also suggested

7. Description of Inducements
ED Responses – Section 250
Description of Inducements
Proposal
TF proposes:
Revising the definition to improve clarity
Explicitly stating in the definition that influence of an inducement can be either positive or negative
Adding new examples
Adding the definition to the glossary of the Code

8. Inducements Prohibited by Laws and Regulations
ED Responses – Section 250
Inducements Prohibited by Laws and Regulations
Comment
Respondents generally supportive of proposed text
A few suggested the proposals did not add to what is already covered under the fundamental principle of professional behavior
Also a suggestion to cover all illegal inducements and not just those related to bribery and corruption
Proposal
TF continues to believe that it is important to explicitly cover bribery and corruption
TF proposes clarifying all illegal inducements are prohibited

9. Intent Test Majority did not raise any concerns about the intent test
ED Responses – Section 250
Intent Test
Comment
Majority did not raise any concerns about the intent test
Some suggested that the intent test is not the appropriate test
Actual intent cannot be known
Focus should be on potential effect rather than intent
Appears to add a new layer of the RITP test
Whether intent is suitable in light of cultural differences
The intent test may complicate matters and is difficult to operationalize

10. Intent Test TF proposes retaining the intent test:
ED Responses – Section 250
Intent Test
Proposal
TF proposes retaining the intent test:
Accepting or offering inducements with improper intent would breach FP of integrity
Intent test takes into account cultural differences
TF notes that comments about the RITP test were similar to those raised as part of the Safeguards project and have been dealt as part of that project

11. Inducements with Improper Intent
ED Responses – Section 250
Inducements with Improper Intent
Comment
Express support from regulator and NSS respondents
Some queried whether “trivial and inconsequential” inducements are:
Likely to have any improper intent, actual or perceived
Likely to have any influence over a person’s behavior
A few questioned whether unnecessary burdens would be created if required to assess threats even when an inducement is “trivial and inconsequential”
Some suggested more clarity is needed on what is intent to improperly influence behavior

12. Inducements with Improper Intent
ED Responses – Section 250
Inducements with Improper Intent
Proposal
TF acknowledges that the likelihood of improper intent with inducements that are trivial and inconsequential should be low, but therefore the consideration should be straight-forward
However, TF continues to believe these inducements should not be excluded a priori
The TF proposes clarifying the accepting or offering of inducements with improper intent is a breach of the FP of integrity

13. Inducements with Improper Intent
ED Responses – Section 250
Inducements with Improper Intent
Proposal
TF also proposes to:
Explaining what an inducement with intent to improperly influence behavior is
Explicitly stating the need to apply professional judgment
Requiring PAs to consider other actions even if inducement not accepted

14. Trivial and Inconsequential, Relevant Factors
ED Responses – Section 250
Trivial and Inconsequential, Relevant Factors
Proposal
TF does not believe that the term “trivial and inconsequential” (which is used elsewhere in the restructured and extant Code) needs to be defined
TF proposes:
Adding new factors to assist PAs to determine intent and evaluate the level of threats
Explicitly stating that cultural practice is a factor for consideration

15. Inducements with No Improper Intent
ED Responses – Section 250
Inducements with No Improper Intent
Comment
A few pointed out this section does not contain any requirement and suggested the provisions could be clearer about what inducements are captured in this section
Proposal
TF proposes adding:
A new requirement to apply the conceptual framework
New application material to explain that the threats created by inducements that are trivial and inconsequential will not usually be at an unacceptable level

16. Addressing Threats Comment Proposal TF proposes:
ED Responses – s250
Addressing Threats
Comment
Some suggested explicitly including the option of not offering or accepting an inducement if a threat cannot be reduced to an acceptable level
Some questioned the usefulness of the safeguards examples
Proposal
TF proposes:
Including the option of declining or not offering an inducement as an example of action that may eliminate a threat
Adding a new safeguard example on returning a gift after it has been initially accepted

17. Immediate or Close Family Members
ED Responses – Section 250
Immediate or Close Family Members
Comment
Most respondents did not have any concerns.
A few:
Suggested the scope should be extended beyond immediate or close family members
Queried how the “closeness of the relationship” can be evaluated
Some queried the level of knowledge required of a PA

18. Immediate or Close Family Members
ED Responses – Section 250
Immediate or Close Family Members
Proposal
TF did not agree that the scope needs to be broadened:
This section requires active discouragement by a PA compared to just banning encouragement so should be more narrow in scope
Closeness of a relationship assists in determining intent
TF proposes:
Explaining the term ‘remain alert” in the Basis for Conclusion
Requiring PA to take action only when there is actual knowledge

19. ED Responses to Section 340
Strong support to align with s250
Most comments for s250 also relevant to s340
Added “potential clients” under the Immediate or Close Family Member section

20. Conforming Amendments to Independence Provisions
ED Responses – Sections 420 and 906
Conforming Amendments to Independence Provisions
Comment
Strong support for revisions to independence sections (ss420 and 906)
Some suggested the scope should be expanded (e.g., include all inducements)
A few questioned whether the language would lead to conclusion that non-compliance with a requirement in Section 340 would also constitute a breach of the independence provisions and whether this would always be appropriate

21. Conforming Amendments to Independence Provisions
ED Responses – Sections 420 and 906
Conforming Amendments to Independence Provisions
Proposal
TF did not agree that the scope needs to be broadened
TF proposes the text be revised to remind PAs:
Gifts and hospitality with improper intent should not be accepted
When offering or accepting an inducement, requirements in s340 apply
Non-compliance with s340 may have implications for independence

22. Conforming Amendments to Independence Provisions
ED Responses – Sections 420 and 906
Conforming Amendments to Independence Provisions
Whether IESBA should consider a future project to align independence sections with s340
Respondents’ comments were mixed
TF recommends that the IESBA consider the viability of a future project

23. Matter for CAG Consideration
CAG Representatives are asked for views about TF’s responses to respondents comments, and whether they agree with the proposed revisions to ED