1. Non-Assurance Services
Richard Fleck, Task Force Chair
IESBA Meeting
New York
March 11-13, 2019

2. NAS Provisions Being Proposed & Matters for IESBA Consideration
Agenda
Current landscape
Approach
Timeline
Task Force Proposals
Key Policy Decisions
Fee-related matters
Clarifications, Structural Matters & Other Proposals
Feedback from CAG
NAS Provisions Being Proposed & Matters for IESBA Consideration

3. Current Landscape NAS provisions already in effect since 2016
Removal of “emergency situations” bookkeeping & tax services
Clarity about management resp. & “routine or mechanical” services
More revisions to come into effect in June 2019
NAS prohibitions more prominently identified
Conceptual framework has been enhanced and is more robust
Clearer safeguards that are more closely aligned to threats
Emphasis that if threats cannot be addressed, firm must decline or end the NAS or audit engagement

4. Why Change NAS Provisions Now?
Code provides strong foundation, but more work needed
Public expectations about auditor independence changed
More focus on independence in appearance
Public perception about “acceptable level” of threats to independence is different
Less tolerance from stakeholders for self-review threats in context of NAS
Changes in laws, regulations and firm policies re NAS in many jurisdictions
In certain jurisdictions, some firms no longer provide NAS to audit clients that are listed

5. Most substantive revisions will impact PIEs
Task Force Approach
Key aim to clarify circumstances in which firms/ network firms may or may not provide NAS to their audit clients
Focus of revisions are to Section 600
Conforming/ consequent amendments expected in
Sections 400, 950
Sections 523, 525
Most substantive revisions will impact PIEs
Decision trees to help visually illustrate proposals
Targeted outreach in advance of ED exposure

6. NAS Project Timeline* Approve ED Approve final provisions
Global Roundtables
June-July 2018
Approve project proposal
Sept 2018 (CAG)
Develop ED Proposals
Dec 2018
March 2019 (CAG)
June 2019
Approve ED
Sept 2019 (CAG)
Comment Period
Oct-Dec 2019
Comment analysis and Revisions
Mar/ Apr 2020 (CAG)
June 2020
Approve final provisions
Sept 2020 (CAG)
* Does not reflect all Task Force and Staff activities

7. Activities up to ED Exposure
March 2019 (CAG and Board)
Issues and Task Force Proposals
April/ May 2019
Forum of Firms
IESBA National Standard Setters
June 2019 Board
Consider remaining issues and Task Force Proposals
September 2019 (CAG and Board)
Consider and finalize proposed text  Approve ED for exposure

8. Task Force Proposals

9. Prohibit firms from providing NAS to audit clients that are PIEs if:
Task Force Proposals
Key Policy Decisions
Maintain different provisions for audit clients that are PIEs and non-PIEs
Prohibit firms from providing NAS to audit clients that are PIEs if:
The outcome of NAS might be included directly or indirectly in f/s; and
The NAS creates/ might create a SR threat to independence
New provisions re auditor communication with TCWG
For PIEs – new req’t for firms to obtain NAS pre-approval from TCWG
For non-PIEs – this would be encouraged

10. Coordination with Fees Task Force
Task Force Proposals
Coordination with Fees Task Force
New req’t to establish a threshold for fee disclosure
Ratio of audit fees to services other than audit

11. Clarifications and Structural Matters
Task Force Proposals
Clarifications and Structural Matters
Expanded explanation of how firms are to apply CF to deal with threats to independence that are created when providing NAS to audit clients
Intended for emphasis and to help drive consistent application of Code
Inclusion of summary list of NAS prohibited due to self-review threat
Existing NAS prohibitions in subsections of S600
Inclusion of general examples of actions that might be NAS safeguards
Repositioning of provisions re management responsibilities
More clarity about exemption for certain related entities

12. Feedback from CAG
Strong support for prohibiting NAS that create SR threats
Varied views about whether prohibitions should apply only to PIEs
Don’t risk signaling gradations of independence for PIEs & non-PIEs
Consider applicability to public sector entities
Explain what is meant by directly and indirectly included in f/s
Accelerate IESBA future initiative to revise description of PIEs
Effective date for new description of PIEs should align to revised NAS provisions
Strong support for enhanced auditor communication
Pre-approval should be documented
Support for having summary list of NAS prohibitions

13. NAS Revisions Being Proposed

14. Proposed NAS Model – Audit Clients that are PIEs
Step 1
Is the type of NAS explicitly prohibited?
Step 2
Does NAS involve assuming a management responsibility?
Step 3*
Does the outcome of NAS impact f/s and create/ might create SR threats?
Step 4
Are other types of threats at an acceptable level?
Step 5*
Has the firm obtained pre- approval for NAS from TCWG?
Yes = Prohibited
Self-review threat = Prohibit
Yes = Prohibited
No = Prohibited
No = Prohibited
No = Proceed to 2
No = Proceed to 3
No = Proceed to 4
Yes = Proceed to 5
Yes = Provide NAS

15. Why Focus on PIEs?
Providing NAS to a PIE audit client might be perceived to result in a higher level of a threat to independence in appearance
Therefore, different approaches for PIEs and non-PIEs to be retained
Revisiting definition of PIEs is not part of this project, but:
New AM to explain rationale for different approaches in A1 to A2
Intended that EM will include material to:
Summarize stakeholders’ concerns at the description of PIEs in the Code
Views about possible options to address those concerns
Solicit input about how the Code might address PIEs in a future project

16. Matter for IESBA Consideration
IESBA members are asked whether they support the proposal to retain different provisions governing the provision of NAS to PIEs and non-PIEs in the Code.

17. NAS Prohibitions in Laws and Regulations
NAS Revisions Being Proposed
NAS Prohibitions in Laws and Regulations
Jurisdictional laws, regulations and local codes deal with NAS and may be:
More specific to deal with topics that are not addressed in the Code/ or topics may be dealt with a different manner than the IESBA Code
More “rules-based” and include more explicit NAS prohibitions than IESBA Code to accommodate national circumstances
Task Force Proposal
R to A1 require firms to consider and apply NAS jurisdictional laws and regulations

18. Prohibition for NAS that Create Self-Review Threats (PIEs)
NAS Revision Being Proposed
Prohibition for NAS that Create Self-Review Threats (PIEs)
R prohibits firms/ network firms from providing NAS to audit clients that are PIEs if:
The outcome of the service might be included, directly or indirectly, in f/s; and
Providing that service might give rise to a self-review threat to independence
600.9 A1/ A2 provides more guidance to help identify threats for NAS
A3/ A4 develops description of SR threats in relation to NAS
Summary list of examples of NAS prohibitions created by SR threats
A2 is drawn from existing NAS prohibitions for PIEs (all except recruiting services)

19. Divergent Views re Having a Summary List in Code
NAS Revision Being Proposed
Divergent Views re Having a Summary List in Code
Responsive to calls for a clear list of NAS prohibitions or “black list”
Summary list can be accessed via e-Code

20. Provisions to Support SR Threat Prohibition (PIEs)
NAS Revision Being Proposed
Provisions to Support SR Threat Prohibition (PIEs)
A4 explains that
The focus on self-review threats is due to the increasing awareness and concerns at the impact on trust in the profession resulting from threats to independence in appearance arising from the provision of NAS to PIEs
Self-review threats to independence in appearance cannot be eliminated and safeguards are not capable of being applied to reduce such threats to an acceptable level
A3 explains how to assess outcome of service and likelihood of SR threat

21. NAS Revisions Being Proposed
Materiality (PIEs)
In case of SR threat, concept of materiality is relevant only when assessing whether output of NAS will be included, directly or indirectly, in the f/s
Therefore, references to materiality that exist in current NAS prohibitions would be withdrawn where a SR threat arises
Withdraw the exemption in current Code in R601.7 that allowed for the provision of accounting and bookkeeping services that are of a routine and mechanical nature for divisions or related entities of audit client when such services are immaterial to the f/s

22. Threats other than Self-review (PIEs)
Apply CF to identify, evaluate and address all other types of threats to independence

23. Matter for IESBA Consideration
IESBA members are asked whether they support:
The proposal to prohibit the provision of NAS that may give rise to a self-review threats impacting the financial statements to be audited; and
The inclusion of a list of prohibited NAS prohibitions for PIEs in A2.

24. Enhanced Auditor Communications with TCWG
NAS Revision Being Proposed
Enhanced Auditor Communications with TCWG
A1 reminds firms to comply with the provisions in S300 re communications with TCWG
R to A2 apply to PIEs only
Require firms and network firms to obtain approval from TCWG in order to provide NAS to audit clients
Allows flexibility for TCWG to pre-approve on an individual NAS engagement basis or via an established process
NAS that are trivial and inconsequential would not require pre-approval ( RITP test to determine “trivial or inconsequential” NAS)
TF is still exploring how firms should evidence pre-approvals and whether pre-approvals be in writing
A1 encourages firms to obtain pre-approvals for non-PIEs

25. Matter for IESBA Consideration
IESBA members are asked whether they support the proposal for:
Enhanced auditor communications with TCWG
Proposed requirement for firms to obtain pre- approval from TCWG for provision of NAS to PIEs

26. Matters Coordinated with Fees Task Force
Regulators suggested IESBA consider including ‘fee-cap’ to the Code → RT participants disagreed
Task Force considered
Most recently adopted EU rules and guidance
Options presented in Fees Final Report to address ratio of audit and NAS fee:
Establish a threshold to level of fees for NAS in relation to audit fees, as a trigger to require to reassess the threats to independence;
Include a cap on the level of fees for NAS in relation to audit fees,

27. Matters Coordinated with Fees Task Force
Task Force Proposal
Include req’t to reassess threats to independence once a certain fee threshold is exceeded → alternative to a “fee cap”
Ratio would be audit fees to fees for services other than audit (i.e. audit related, assurance services and NAS)
Firms would be required to:
Disclose and discuss with TCWG
Determine whether to apply safeguards that are specified by the Code
Proposal would apply to audits of clients that are PIEs only

28. Matter for IESBA Consideration
IESBA members are asked whether they support the proposal to establish:
A fee threshold for disclosure of the ratio of audit fees to fees for services other than audit; and
A requirement for firms to reassess threats when the threshold is reached.

29. Assuming Management Responsibility
Under current Code, firms and network firms SHALL NOT assume management responsibilities for audit clients
Task Force believes that the prohibition for assuming mgt resp is always relevant when applying the CF to independence (not only when providing NAS to audit clients)
Accordingly, the Task Force repositioned the provisions relating to mgt resp, including the exemption for certain related entities to the International Independence Standards (i.e., S400)
Clarify and retain provisions that permit firms to provide advice and recommendations to assist management in discharging their responsibilities (see A1 to R600.18)
Firm required to ensure that mgt designates individual with suitable skill, knowledge and experience to take ownership and to evaluate adequacy and results of NAS (R600.18)

30. Matter for IESBA Consideration
IESBA members are asked whether they support the clarifications and structural revisions proposed including those that are to:
Help drive consistency in terms of how the CF is applied for NAS;
Reposition provisions re management resp. to Section 400.

31. Exemptions for Certain Entities Under Current Code
Firms/ network firms allowed to assume management responsibilities or provide certain NAS to certain parent/sister/brother entities provided:
Firm does not express opinion on (e.g., audit) the f/s of that entity
Provision of service doesn’t result in firm assuming management responsibility for audited entity
Provision of NAS doesn’t create a SR threat – because the output will not be subject to audit procedures
Firm addresses any other threats created by provision of such services
Types of entities covered by exemption
Parent: (i) entity that has direct or indirect control; (ii) entity with a direct financial interest; (iii) entity with significant influence or whose interest is material
Sister/Brother: Entity under common control

32. Current Code – Categorization of Different Related Entities
Parent Entity
Sister Co. A
Brother Co. C
Audited
Entity B1 B2 B3

33. Issues arising from Approach in Current Code
US SEC rules and EU approaches are conceptually different
EU prohibit firms from providing black-list-NAS to audit clients that are PIEs and to “parent undertakings” or “controlled undertakings” of PIEs
SEC specifies types of NAS that will impair auditor independence, but allows for exemptions for entities that are not subject to audit
Questions:
Should exemptions permitting services to parent and sister/brother entities in current Code be retained?
Should a different approach be adopted for PIEs and non-PIEs?
Should exemptions be retained for sister/brother entities, but removed for parent entities?

34. Clarifications to Help Drive Consistency (all entities)
NAS Revision Being Proposed
Clarifications to Help Drive Consistency (all entities)
More enhancements to explain how firms are to apply CF for NAS
Revised introductory paras in to 600.6
New guidance for identifying threats for NAS
Strengthen provisions for evaluating and addressing threats for NAS (R and R repeats req’ts in R120.7 and R120.10)
Application material to consider the combined effect of providing multiple NAS to the same audit client is now elevated to a req’t (see R600.13)
More emphasis that firms are to use the RITP when addressing threats (R repeats req’t in R120.5(c))
A1/A2 expands on guidance in the Code about NAS safeguards and provides examples of general NAS safeguards

35. Other Proposals
Clarification to periods for which independence is required
Code already requires firms to maintain independence during both audit engagement period, and period covered by the f/s
Responsive to Qs about implications of NAS provided before period covered by f/s:
New AM refer firms to guidance in S400
Firms/ network firms are required to determine whether a NAS provided prior to being appointed to conduct the audit engagement continue to give rise to threats to independence (R600.26)
No specific “cooling-in” period established
Structural revisions to subsections – Subsections 601 to 603
Revisions to description and examples of administrative services – Subsection 602

36. Matter for IESBA Consideration
IESBA members are asked whether they support the other proposals being considered by the Task Force, including those intended to:
Clarify the periods for which independence is required in the context of NAS engagements
Improve the structure and flow of the provisions in subsections
Modernize the description and examples of administrative services in Subsection 602

37. The Ethics Board