1. IESBA Meeting Nashville, TN USA June 17-19, 2019
Technology
Patricia Mulvaney, Working Group Chair
Brian Friedrich, Working Group Member
IESBA Meeting
Nashville, TN USA
June 17-19, 2019

2. Objectives of the Session
To provide an update on TWG analysis and observations to date
To walk through the application the CF using two scenarios that illustrate ethical considerations of the impact of technology in a PAs work environment
To receive input from IESBA to inform TWG activities for Q3 and Q4 2019

3. Outreach Activities since March 2019
In-person meetings with stakeholders:
U of Waterloo Centre for Accounting Ethics – 4th Ethics Symposium (Toronto)
CPA Canada – Foresight meeting (Toronto)
IESBA-NSS meeting (Paris)
OECD (Paris)
Cercle d’Ethique des Affaires (Paris)
Meeting with French accounting firms (Paris)
Accountancy Europe (Belgium)
European Commission (Belgium)
Plans for Q3/Q4 2019
Meeting with regulatory bodies and PAOs in US
Consider value and feasibility of outreach meetings in other jurisdictions

4. Recent Poll – Less Complex Entities Event
Live polling results – IAASB Less Complex Entities Event – Paris, May 2019

5. Other Undertakings since March 2019
Conducted an initial analysis of Part 1 of the Code, focusing on FPs and CF:
Goal = to articulate the specific, discrete impacts to FPs of AI and Data based on realistic “use case” scenarios and applying the CF to evaluate threats
Deeper dive analysis still ongoing
Based on initial analysis, recommended technology related language to the Role and Mindset TF for inclusion in its draft proposals (Agenda Item 2A)
Agreed with IAASB to have a correspondent member for each other’s Tech WG
Coordinated with SMPC and IFAC PAIB to provide update on TWG activities and solicit views

6. Observations from Initial Analysis
Impact of technology on FPs is pervasive
Technology impacts ethical behavior across all Fundamental Principles (FPs) in an inter-related manner
Example: Identifying risks/threats related to machine bias
Integrity
Objectivity
Professional Competence and Due Care
Confidentiality
Professional Behavior
Technology cuts across all FPs and CP

7. Observations from Initial Analysis
Addressing the pervasive impact of technology:
Option A
Develop overarching AM in Part 1 of the Code
Might give undue emphasis on technology over other key ethics considerations
Option B
Develop AM (including examples) under one or more FPs
Might inadvertently create perception that technology does not affect the other FPs
Option C
Develop guidance material outside the Code
Consistent with stakeholder comments; more timely and greater latitude for language

8. Observations from Initial Analysis
Self-interest
Self-review
Advocacy
Familiarity
Intimidation
Existing Threats to FPs
QUESTION:
Are the threats set out in the Code sufficient to address the pervasive and complex risks associated with technology advancements?

9. Observations from Initial Analysis
Criticality of Professional Judgment
As the value generated from machine prediction increases, the value of human judgment also increases
Judgment is needed to address bias

10. Observations from Initial Analysis
Principles Used for Ethical AI
Microsoft
Fairness, Transparency, Inclusiveness, Reliability, Safety, Privacy and Security, Accountability
IBM
Accountability, Value alignment, Explainability, Fairness, User Data Rights
European Comm
Respect for human autonomy, Prevention of harm, Fairness and Explicability
OECD
Inclusive growth, Sustainable development and Well-being, Human-centred values and Fairness, Transparency and Explainability, Robustness, Security and safety, Accountability
Australia Gov’t Paper
Do not Harm, Regulatory and Legal Compliance, Privacy Protection, Fairness, Transparency and Explainability, Contestability, Accountability, Generates net benefit

11. Observations from Initial Analysis
The Right Mindset
“Growth mindset”
Willingness to adapt to and adopt new technology
Evolve from compliance mindset (only) to advisory mindset
Ethical Leadership
Key to building and maintaining public confidence especially in times of change = Ethics
Wider role in society as ethical leaders and champions?

12. Observations from Initial Analysis
AI Ethics
FPs
Fairness
Transparency
Accountability
Explainability
Privacy/Security
Growth Mindset
Ethical Leadership
Integrity
Objectivity
Prof. Comp. & Due Care
Confidentiality
Professional Behavior

13. Observations from Initial Analysis
The TWG will be addressing the following at its next in-person meeting
FP of Confidentiality
FP of PC & DC
Ethical Leadership
Currency of the language Relationship with “privacy” Tension with concept of transparency
Knowledge and skills beyond tech & prof standards and legal requirements
Alignment with IES
Additional AM in Part 1 or elsewhere in the Code related to ethical leadership expectations/responsibilities

14. Matters for IESBA Consideration
Are the commonly used AI ethical principles (e.g., fairness, transparency, privacy, accountability) sufficiently represented in the Code?
Should the WG consider the concept of ethical leadership in Part 1 of the Code?

15. Testing the Conceptual Framework
The TWG has begun to test the application of the CF to “real world” scenarios that incorporate the impact of technology on the professional activities of PAs
Goal = to determine whether there are any unique issues/gaps that need to be addressed
Seeking Board input from a high level walkthrough of one scenario for PAIBs and one for PAPPs

16. Testing the Conceptual Framework
Applying the Conceptual Framework requires:
1. Identify Threats to Compliance with the FPs
2. Evaluate the Threats identified
3. Address any Threats that are not at an acceptable level

17. Scenario 1 - PAIB …continued
You are the CFO of a financial institution. You’ve been championing the introduction of an AI system that assists in the loan application review and approval processes by improving the prediction of loan default.
The AI system was trained using all historic data available on loan applications, approvals, and defaults. It was tested against a sample of the historic data and shown to have high accuracy in predicting default. A review of a sample of applications and decisions was also conducted by an underwriter before sign-off for live use.
…continued

18. Scenario 1 – PAIB (continued)
Several months into the process, you are starting to see a pattern emerge. Single women are significantly over-represented among those whose loan applications are being rejected by the system. You investigate further using a manual process and find a number of applications that you believe should have been approved. You wonder if the underlying algorithm is biased against single female applicants because it was trained on several decades of historic data that had a lower proportion of sole applicant females, resulting in the model being biased to reject more loan applications from this group. You don’t know how to definitively prove or disprove your suspicion, due to the complexity of the model.

19. Applying the Conceptual Framework
1. Identify Threats to Compliance with the FPs
Applying the Conceptual Framework
Self interest
Self review
Threats
Objectivity
Integrity
FPs

20. Applying the Conceptual Framework
1. Identify Threats to Compliance with the FPs
Applying the Conceptual Framework
Self interest
Self review
Threats
Objectivity
Integrity
Professional competence &
Due care
FPs

21. Applying the Conceptual Framework
1. Identify Threats to Compliance with the FPs
Applying the Conceptual Framework
Complexity, exponential change, uncertainty
Self interest
Self review
Threats
Objectivity
Integrity
Professional competence &
Due care
FPs

22. Applying the Conceptual Framework
2. Evaluate the threats identified
Apply the RITP Test
Threats are not at an acceptable level.

23. Applying the Conceptual Framework
3. Address any threats that are not at an acceptable level
Devise safeguards
Request AI developer to re-examine algorithm.
Add a human review until comfort over model is achieved.
Insert new results from manual review into data pool to help with algorithm training.

24. Applying the Conceptual Framework
1. Identify Threats to Compliance with the FPs
Applying the Conceptual Framework
Complexity, exponential change, uncertainty
Self interest
Self review
Threats
Objectivity
Integrity
Professional competence &
Due care
FPs

25. Scenario 2 - PAPP
Your audit client is a large engineering equipment development company that holds a significant number of patents. The company has begun using an AI system to estimate the fair value of the patents to support impairment testing, using a system developed by a reputable AI solutions firm.
Although the system is not particularly transparent, and the client has difficulty explaining how fair value determinations are made, client staff provide a comparison of the “traditional” FV calculation and the AI system’s determinations for the first year. You are comfortable the difference is immaterial. …continued

26. Scenario 2, continued
It is now the end of year 2, and the AI result shows fair value estimates that are significantly higher than you would expect under the traditional approach.
The client explains that the AI developer has assured them that the system has learned and that its estimates are more accurate than traditional approach calculations.
You’ve been working with this client for a number of years and believe that management is conservative and focused on ensuring sufficient controls in their systems.

27. Applying the Conceptual Framework
1. Identify Threats to Compliance with the FPs
Applying the Conceptual Framework
Familiarity
Self interest
Threats
Objectivity
Independence
FPs

28. Applying the Conceptual Framework
1. Identify Threats to Compliance with the FPs
Applying the Conceptual Framework
Familiarity
Self interest
Threats
Objectivity
Independence
Professional competence &
Due care
FPs

29. Applying the Conceptual Framework
1. Identify Threats to Compliance with the FPs
Applying the Conceptual Framework
Complexity, exponential change, uncertainty
Familiarity
Self interest
Threats
Objectivity
Independence
Professional competence &
Due care
FPs

30. Applying the Conceptual Framework
2. Evaluate the threats identified
Apply the RITP Test
Threats are not at an acceptable level.

31. Applying the Conceptual Framework
3. Address any threats that are not at an acceptable level
Devise safeguards
Bring in more expertise from the firm
Ask client to:
Obtain more detailed explanation from AI developer
Run off-line until accuracy can be established

32. Applying the Conceptual Framework
1. Identify Threats to Compliance with the FPs
Applying the Conceptual Framework
Complexity, exponential change, uncertainty
Familiarity
Self interest
Threats
Objectivity
Independence
Professional competence &
Due care
FPs

33. Matters for IESBA Consideration
Does the Board have any directional insight on:
Using these kinds scenarios with walkthroughs of the Conceptual Framework as non-authoritative guidance for users of the Code?
Challenges seen with respect to the finite limitation to five categories of threats (in para A3) and whether they sufficiently capture the technology-related risks to compliance with the FPs?

34. Next Steps Dec 2019 Board meeting Sept 2019 Board and CAG meeting
Jun – Sept 2019
Information gathering/ analysis
Sept 2019 Board and CAG meeting
Preliminary Recommendations
Dec 2019 Board meeting
Final Phase 1 Report