1. Proposed ISQM 2, Engagement Quality Reviews (ED-ISQM 2)
Imran Vanker, IAASB Member and Task Force Chair
IAASB Meeting
September 18, 2019
Agenda Item 7
Introduce TF members and Staff support.
Task Force Members
Imran Vanker, Chair
Fernando Ruiz Monroy
Sara Ashton
Jamie Shannon
Staff
Dan Montgomery
Hankenson Jane Talatala
A story about…
Mention coordination and outreach.
Task Force Activities in the Second Quarter of 2019
In Q2, the TF Chair presented, jointly with the ISA 220 TF Chair, a webcast providing an overview of quality management for audit engagements and EQ reviews.
Task Force Activities in the Third Quarter of 2019
In Q3, the TF held one teleconference and met once in person to identify and discuss in depth the key issues and other concerns arising from the comment letters and develop the TF’s initial thoughts and recommendations for the IAASB’s consideration.
Coordination with Other IAASB Task Forces and Working Groups and Other Standard Setting Boards
IAASB Task Forces – ISQM 1 TF, ISA 220 TF and ISA 600 TF
In light of the interaction between ISA 600 and the three quality management projects, the ISA 600 TF Chair has joined the QM Chairs coordination group.
In Q3, the Chairs of the four TFs and Staff held two teleconferences. Further coordination has also been facilitated through Staff liaison on specific matters.
The four TF Chairs also met during at this September 2019 IAASB meeting.
Page 1

2. Introduction Objectives of this session are to:
Provide an overview of the feedback received on ED-ISQM 2 and question 11 of the Explanatory Memorandum (EM) to ED-ISQM 1; and
Obtain the Board’s view on the Task Force’s (TF) proposals to address the key issues presented on the scope of engagements subject to an engagement quality (EQ) review, and objectivity and cooling-off period.
First part, 12 slides of respondents’ feedback and 1 slide of CAG representatives’ feedback.
Second part, 4 slides re: scope of engagements subject to an EQ review.
Third part, 6 slides re: Objectivity and cooling-off period.
Page 2

3. Overview of Responses on ED-ISQM 1 – Question 11
Respondents by Region
Global: 25
Europe: 29
North America: 16
Asia Pacific: 17
Middle East and Africa: 8
South America: 4
Very similar range and distribution of responses compared to ED-ISQM 2 and ED-ISA 220.
Page 3

4. Overview of Responses on ED-ISQM 2
Respondents by Region
Global: 22
Europe: 25
North America: 16
Asia Pacific: 14
Middle East and Africa: 9
South America: 5
Very similar range and distribution of responses compared to ED-ISQM 1 and ED-ISA 220.
Page 4

5. What We Heard in Responses to ED-ISQM 2 – Q1 (Separate Standard)
Support for a separate standard for an EQ review:
Increases the focus on an EQ review as a firm-level response to assessed quality risks.
Helps to clearly differentiate the roles of the firm and the EQ reviewer.
Enhances the requirements and guidance for appointment and eligibility of the EQ reviewer, and performance and documentation of the EQ review.
ED-ISQM 2 Q1: Do you support a separate standard for engagement quality reviews? In particular, do you agree that ED-ISQM 1 should deal with the engagements for which an engagement quality review is to be performed, and ED-ISQM 2 should deal with the remaining aspects of engagement quality reviews?
Support for a separate standard for an EQ review
Separate standard for EQ review increases the focus on an EQ review as a firm- level response to assessed quality risks.
Helps to clearly differentiate the roles of the firm and the EQ reviewer, and highlights the importance of the EQ reviewer’s responsibilities.
Enhances the requirements and guidance for appointment and eligibility of the EQ reviewer, and performance and documentation of the EQ review.
NOT ON THE SLIDE:
Concern that a separate standard for an EQ review may overemphasize one response, among others, to assessed quality risks, or imply that EQ review is the best response.
Put all firm-level requirements in ISQM 1 or more clearly distinguish firm-level and EQ reviewer requirements in ISQM 2.
Page 5

6. What We Heard in Responses to ED-ISQM 2 – Q2 (Linkages)
Agree that the linkages between ED-ISQM 1 and ED-ISQM 2 are appropriate and clear.
ED-ISQM 1 establishes the requirements for determining which engagements are subject to an EQ review.
ED-ISQM 2 deals with the eligibility and appointment of an EQ reviewer and the performance and documentation of the EQ review.
ED-ISQM 2 Q2: Are the linkages between the requirements for engagement quality reviews in ED-ISQM 1 and ED-ISQM 2 clear?
Agree that the requirements in ED-ISQM 1 and ED-ISQM 2 are organized in a manner that provides appropriate linkages between the standards.
It is clear that ED-ISQM 1 establishes the requirements for determining which engagements are subject to an EQ review, while ED-ISQM 2 deals with the eligibility and appointment of an EQ reviewer and the performance and documentation of the EQ review.
NOT ON THE SLIDE:
Emphasize that an EQ review is just one aspect of quality management and one particular response to quality risks so that this does not overshadow other measures included in ED-ISQM 1.
Various comments to enhance certain linkages between ED-ISQM 1 and ED-ISQM 2 (e.g., para of ED-ISQM 2 and para. 38 of ED-ISQM 1; para. 16(a) of ED-ISQM 2 and para. 38(b) of ED-ISQM 1).
Page 6

7. What We Heard in Responses to ED-ISQM 2 – Q3 (Terminology)
Support the change in terminology because the emphasis is now on quality management, rather than on quality control.
Do not anticipate any adverse consequences of changing the terminology.
ED-ISQM 2 Q3: Do you support the change from “engagement quality control review/reviewer” to “engagement quality review/reviewer?” Will there be any adverse consequences of changing the terminology in respondents’ jurisdictions?
Support the change in terminology because the emphasis is now on quality management, rather than on quality control.
Do not anticipate any adverse consequences of changing the terminology.
NOT ON THE SLIDE:
Change in terminology may have some consequences on translation and local laws.
Term may be confused with other types of engagement-level quality reviews performed by the firm.
Page 7

8. What We Heard in Responses to ED-ISQM 2 – Q4 (Eligibility)
Note: These points relate to considerations other than those discussed on slides relating to objectivity and a cooling-off period for an engagement partner moving into the EQ reviewer role.
Consider whether the limitations on eligibility of an engagement partner moving into an EQ reviewer role should also apply to other roles on the engagement.
Clarify if the principle on threats to objectivity and guidance on cooling-off period also apply to assistants of the EQ reviewer.
ED-ISQM 2 Q4: Do you support the requirements for eligibility to be appointed as an engagement quality reviewer or an assistant to the engagement quality reviewer as described in paragraphs 16 and 17, respectively, of ED-ISQM 2?
Consider whether the limitations on eligibility of an engagement partner moving into an EQ reviewer role should also apply to other roles on the engagement (e.g., other key audit partners or senior staff on the engagement).
Clarify if the principle on threats to objectivity and guidance on cooling-off period also apply to assistants of the EQ reviewer.
NOT ON THE SLIDE:
The EQ reviewer's authority may be diminished depending on whether the EQ reviewer has a reporting line or holds a lower grade than the engagement partner.
Page 8

9. What We Heard in Responses to ED-ISQM 2 – Q5 (NTE)
Define, or provide guidance on, significant matters and significant judgments.
Clarify how to demonstrate, or how to document compliance with the requirements.
Clarify the replacement EQ reviewer’s responsibilities and the EQ reviewer assistant’s responsibilities.
Consider the EQ reviewer’s responsibility to consider independence matters (in extant), and to review other specific matters.
Provide guidance on the application of ISQM 2 in the context of group audits and in other assurance engagements.
ED-ISQM 2 Q5: Do you agree with the requirements relating to the nature, timing and extent of the engagement quality reviewer’s procedures? Are the responsibilities of the engagement quality reviewer appropriate given the revised responsibilities of the engagement partner in proposed ISA 220 (Revised)?
Emphasize connection of this discussion with ED-ISA 220.
Significant matters and significant judgments:
Define, or provide guidance to further elaborate or explain the two concepts, and the interrelationship between them.
Clarify whether the EQ reviewer is required to independently assess the completeness of the significant judgments identified by the engagement team and consider including specific significant judgments that the EQ reviewer is required to evaluate.
Provide guidance on how the EQ reviewer would demonstrate and / or document the evaluation of the basis for the engagement partner's conclusion that the engagement partner has taken overall responsibility for managing and achieving quality on the audit engagement in para. 22(f).
Consider the balance between the EQ reviewer's responsibilities and those of the engagement partner.
Provide guidance on the application of ISQM 2 in the context of group audits and in other assurance engagements.
Clarify the nature, timing, extent of procedures, how to demonstrate compliance with requirement, or how to document:
Para. 21(a) and 21(c) – Involvement of EQ reviewer at “appropriate points in time” and discussions between the engagement team and the EQ reviewer.
Para. 22(a) and 22(g) – Read and understand information (including monitoring and remediation) and the review of the financial statements and engagement reports.
Para. 23 – Unresolved EQ review concerns.
Clarify the replacement EQ reviewer’s responsibilities and the EQ reviewer assistant’s responsibilities.
Consider the EQ reviewer’s responsibility to consider independence matters (in extant), and to review other specific matters (e.g., communications with TCWG, significant risks, uncorrected misstatements).
NOT ON THE SLIDE:
Believe that the work effort is disproportionate due to not focusing on the more important quality risks (see Question 8 for related concerns about scalability).
Page 9

10. Exercise of PS by the EQ reviewer: (3 perspectives)
What We Heard in Responses to ED-ISQM 2 – Q6 (Professional Skepticism)
Agree that the EQ reviewer’s evaluation of significant judgments includes evaluating the engagement team’s exercise of professional skepticism (PS) in reaching conclusions but concerns on how to evidence the evaluation.
Exercise of PS by the EQ reviewer: (3 perspectives)
ED-ISQM 2 sufficiently addresses the exercise of PS by EQ reviewer, so there is no need to further address it.
The exercise of PS by EQ reviewer is not relevant, so there is no need to further address it.
Further address the exercise of PS by the EQ reviewer in ED-ISQM 2.
ED-ISQM 2 Q6: Do you agree that the engagement quality reviewer’s evaluation of the engagement team’s significant judgments includes evaluating the engagement team’s exercise of professional skepticism? Do you believe that ED-ISQM 2 should further address the exercise of professional skepticism by the engagement quality reviewer? If so, what suggestions do you have in that regard?
Comments on professional skepticism (PS):
Agree that the EQ reviewer’s evaluation of significant judgments includes evaluating the engagement team’s exercise of PS in reaching conclusions (for assurance engagements for which PS applies), but concerns on how to evidence the evaluation.
Exercise of PS by the EQ reviewer: (3 perspectives)
ED-ISQM 2 sufficiently addresses the exercise of PS by EQ reviewer, so there is no need to further address it (implicit in the objective evaluation).
The exercise of PS by EQ reviewer is not relevant, so there is no need to further address it.
Further address the exercise of PS by the EQ reviewer in ED-ISQM 2.
Page 10

11. What We Heard in Responses to ED-ISQM 2 – Q7 (Documentation)
Requirements are appropriate and will not cause major problems in practical implementation.
View that these enhanced requirements reflect what many firms currently require to be included in the engagement file as evidence of the EQ review.
Support the enhanced documentation requirements and principle that the EQ reviewer takes responsibility for documentation of the EQ review and that this may be documented in a number of ways.
ED-ISQM 2 Q7: Do you agree with the enhanced documentation requirements?
Requirements are appropriate and will not cause major problems in practical implementation.
View that these enhanced requirements reflect what many firms currently require to be included in the engagement file as evidence of the EQ review.
Support the enhanced documentation requirements and principle that the EQ reviewer takes responsibility for documentation of the EQ review and that this may be documented in a number of ways.
NOT ON THE SLIDE:
Provide implementation support through examples of form, content and extent of documentation.
Clarify how to demonstrate completion of EQ review in para. 24 and use of word 'complete.’
Document discussions with the engagement team, including those relating to para. 22(f) and 22(g).
Page 11

12. What We Heard in Responses to ED-ISQM 2 – Q8 (Scalability)
Separate standard for EQ review improves scalability.
Inherently scalable as there are fewer significant matters or significant judgments for less complex engagements.
Allowing for an external individual to be an EQ reviewer helps smaller firms in applying the standard.
Helpful that the standard acknowledges that the NTE of the EQ reviewer’s procedures depends on the facts and circumstances of the engagement (e.g., para. A27).
References to scalability in the Appendix to the EM to ED-ISQM 2 also were helpful.
ED-ISQM 2 Q8: Are the requirements for engagement quality reviews in ED-ISQM 2 scalable for firms of varying size and complexity? If not, what else can be done to improve scalability?
Separate standard for EQ review improves scalability.
Inherently scalable as there are fewer significant matters or significant judgments for less complex engagements.
Allowing for an external individual to be an EQ reviewer helps smaller firms in applying the standard.
Helpful that the standard acknowledges that the NTE of the EQ reviewer’s procedures depends on the facts and circumstances of the engagement (e.g., para. A27).
References to scalability in the Appendix to the EM to ED-ISQM 2 also were helpful.
NOT ON THE SLIDE:
Challenges for smaller firms to meet eligibility requirements due to small number of qualified individuals in the firm and finding external EQ reviewers may be difficult.
Implementation support and additional guidance will be needed (e.g., examples of scalability for different types of engagements or firms, including examples of documentation).
Conclusion:
All of the above issues and concerns arising from the remaining areas / questions of the EM to ED-ISQM 2, and TF recommendations to address them, will be discussed at the December IAASB meetings as described in Appendix 4 (Questions and Topics to be Considered by the IAASB) to the issues paper.
Page 12

13. Analysis of Key Issues to be Discussed at this Meeting
1. Scope of Engagements Subject to EQ Review
2. Objectivity and Cooling-off Period
These were the issues that had their start at the ITC and remain relevant. The TF brought it first to the Board in light of the significance of these issues in progressing the ISQM 2 project and the level of coordination with IESBA.
Page 13

14. CAG Representative Views
Representatives were supportive of the TF’s proposals on the scope of engagements subject to an EQ review.
Representatives had mixed views on objectivity and cooling-off period but noted support for a cooling-off period requirement in ISQM 2 if not addressed in the IESBA Code.
Whatever route the IAASB may pursue should be consistent with, and complementary to, the IESBA Code.
Scope of Engagements Subject to an EQ Review
The Representatives were supportive of the TF’s proposals.
Noted that it represented an elegant solution to the concerns raised, particularly the concept of SPI.
The requirements as redrafted would be functional in the public sector.
The Representatives also provided the following comments and suggestions:
Suggested that the IAASB consider scoping PIEs first and then adding such entities where an EQ review is appropriate due to its nature.
Expressed support for the proposals but noted the importance of the objective of extending EQ reviews to more engagements, and asked whether the proposals would meet this objective.
Sought clarification whether IPO entities will be subject to an EQ review.
Objectivity and Cooling-Off Period
The Representatives also commented as follows:
Noted that applying the Conceptual Framework of the IESBA Code may lead practitioners to conclude that a cooling-off period may be necessary to protect objectivity.
Pointed out that there are jurisdictions where the ISAs are in effect but the IESBA Code is not.
Noted that the required ethical requirements are within the remit of the IESBA.
Noted the importance of the linkage between the requirements and guidance in ISQM 2 and the IESBA Code, but cautioned against delaying the approval of ISQM 2 to allow for this to be resolved.
Supportive of a cooling-off period in ISQM 2 if it is not addressed in the IESBA Code.
Whatever route the IAASB may pursue should be consistent with, and complementary to, the IESBA Code.
Page 14

15. Scope of Engagements Subject to EQ Review
Question 11 in the EM to ED-ISQM 1 asked respondents:
Do you agree with the proposals addressing the scope of engagements that should be subject to an engagement quality review? In your view, will the requirements result in the proper identification of engagements to be subject an engagement quality review?
The concept of significant public interest (SPI) cannot be consistently interpreted and therefore may be confusing or may result in inconsistent application of the requirements.
Need to describe, or provide guidance about, how SPI relates to public interest entity (PIE) in the IESBA Code.
ED-ISQM 1 Q11: Do you agree with the proposals addressing the scope of engagements that should be subject to an engagement quality review? In your view, will the requirements result in the proper identification of engagements to be subject an engagement quality review?
The scope of engagements subject to an EQ review is covered in para of the issues paper.
Discuss the graph / key message.
23 (23%) – agreed with the proposed scope of engagements subject to an EQ review;
55 (56%) – agreed with the proposed scope but had further comments;
7 (7%) – disagreed with the proposals; and
14 (14%) – responses were unclear or had no specific comments.
There was strong support from a Monitoring Group member to strengthen the EQ review standard, identifying the expanded scope of engagements for which EQ reviews were required as an area where substantive improvements have been made to the extant standards.
A Monitoring Group member expressed the view that “internationally active banks” should be subject to a mandatory EQ review and noted that the application guidance should be strengthened by requiring consideration of economic importance, complexity, and activity in relation to whether other banks should be subject to an EQ review.
The concept of significant public interest (SPI) cannot be consistently interpreted and therefore may be confusing or may result in inconsistent application of the requirements.
Need to describe, or provide guidance about, how SPI relates to public interest entity (PIE) in the IESBA Code.
Page 15

16. Scope of Engagements Subject to EQ Review (Cont.)
Task Force’s Key Considerations:
The objective, in the public interest, of extending the requirement for an EQ review.
The clear direction from respondents indicating that the concept of SPI is difficult to interpret (including with respect to how it relates to the concept of PIE in the IESBA Code).
Considered whether it would be practicable to provide guidance for determining engagements that are of SPI that would be clear and capable of consistent application.
Considered whether it would be possible to define an SPI and determined that the global jurisdictional implications or barriers would be difficult to overcome.
Task Force’s Key Considerations
The objective, in the public interest, of extending the requirement for an EQ review to engagements in addition to audits of financial statements of listed entities.
The clear direction from respondents indicating that the concept of SPI is difficult to interpret (including with respect to how it relates to the concept of PIE in the IESBA Code) and therefore may be confusing or may result in inconsistent application of the requirements.
Considered whether it would be practicable to provide guidance for determining engagements that are of SPI that would be clear and capable of consistent application across all engagements and jurisdictions, including for public sector engagements.
Considered whether it would be possible to define an SPI and determined that the global jurisdictional implications or barriers would be difficult to overcome because of the disparity of the factors or characteristics ascribed to SPIs in different jurisdictions or regions.
Page 16

17. Scope of Engagements Subject to EQ Review (Cont.)
Task Force’s Indicative Drafting:
(e) Establishing policies or procedures addressing engagement quality reviews in accordance with ISQM 2, and that require an engagement quality review for:
(i) Audits of financial statements of listed entities;
(ii) Audits or other engagements for which an engagement quality review is required by law or regulation; and (Ref: Para. A103)
(iii) Audits or other engagements for which the firm determines that an engagement quality review is:
a. An appropriate response to assessed quality risks, based on the reasons for the assessments given to those risks.; or (Ref: A104–A105)
b. Appropriate due to the nature of the entity. (Ref: Para. A105A)
Task Force’s Preliminary Views:
Remove the requirement in paragraph 37(e)(ii) for an EQ review for audits of financial statements of entities that the firm determines are of SPI.
Add a requirement for audits or other engagements for which the firm determines that an EQ review is appropriate due to the nature of the entity (i.e., not in response to an assessed quality risk).
Change the order of the requirements in paragraph 37(e) to better reflect those engagements for which an EQ review is required (i.e., listed entities or by law or regulation) versus those for which the firm determines that an EQ review is appropriate (i.e., in response to an assessed quality risk, or due to the nature of the engagement).
The TF also has proposed revisions to the related application material based on the proposed revised requirements.
The TF also explored ways to link to the PIE concept in the IESBA Code.
The TF proposed new application material in support of the new proposed requirement for engagements for which the firm determines that an EQ review is appropriate due to the nature of the entity. This application material (see paragraph A105A in the indicative drafting) incorporates factors previously included in paragraph A102 of ED-ISQM 1, and also refers to the similar factors in paragraph of the IESBA Code.
The TF concluded that the proposed revisions described above, including the proposed revised application material, would be responsive to concerns raised by respondents.
Page 17

18. Scope of Engagements Subject to EQ Review (Cont.)
Matters for IAASB Consideration
The IAASB is asked for its views on:
The proposed changes to the requirements relating to the scope of engagements subject to an EQ review as described in paragraph 23 of Agenda Item 7; and
The indicative drafting for the proposed requirements and application material as presented in Agenda Item 7, including whether the proposed application material in paragraph A105A will be helpful in explaining what is meant by ‘appropriate due to the nature of the entity.’
Page 18

19. Objectivity and Cooling-off Period
Question 4(a) in the EM to ED-ISQM 2 asked respondents:
What are your views on the need for the guidance in proposed ISQM 2 regarding a “cooling-off” period for that individual before being able to act as the engagement quality reviewer?
Need for a cooling-off period requirement in ISQM 2 or in the IESBA Code.
Flexibility of cooling-off period depending on the nature and circumstances of the engagement.
Guidance on cooling-off period in paragraph A5 of ED-ISQM 2 would become a de facto requirement.
More guidance consistent with the provisions of the IESBA Code will be needed to drive consistent implementation.
Some apparent confusion about whether the IESBA Code already addresses this particular cooling-off circumstance.
ED-ISQM 2 Q4(a): What are your views on the need for the guidance in proposed ISQM 2 regarding a “cooling-off” period for that individual before being able to act as the engagement quality reviewer?
Objectivity and cooling-off period are covered in para of the issues paper.
Discuss the graph / key message.
16 (18%) – agreed on the need for guidance on a cooling-off period;
54 (59%) – agree but had further comments (e.g., cooling-off period as requirement; flexibility of cooling-off period depending on nature and circumstances of the engagement, among others);
12 (13%) – disagreed with the guidance or did not support a cooling-off period; and
9 (10%) – responses were unclear or did not include specific comments.
Need for a cooling-off period requirement in ISQM 2 or in the IESBA Code.
Respondents (including two Monitoring Group members) commented that there should be a requirement for a specific cooling-off period for an individual stepping into the role of EQ reviewer after serving as engagement partner, with views varying as to whether such a requirement should be in ISQM 2 or in the IESBA Code.
Flexibility of cooling-off period depending on the nature and circumstances of the engagement.
Guidance on cooling-off period in paragraph A5 of ED-ISQM 2 would become a de facto requirement.
More guidance consistent with the provisions of the IESBA Code will be needed to drive consistent implementation.
Some apparent confusion about whether the IESBA Code already addresses this particular cooling-off circumstance.
Page 19

20. Objectivity and Cooling-off Period (Cont.)
Question 4(b) in the EM to ED-ISQM 2 asked respondents:
If you support such guidance, do you agree that it should be located in proposed ISQM 2 as opposed to the IESBA Code?
Comments on the location of any guidance (or requirement) for a cooling-off period for an individual moving into an EQ reviewer role were about evenly split between a preference for ISQM 2 or the IESBA Code.
Comments that cooling-off period should be addressed in ISQM 2 in the absence of a requirement in the IESBA Code.
Suggestion that the guidance could reside in either location as long as appropriate cross-references were provided, while others noted that there was no harm in having the guidance in both places.
ED-ISQM 2 Q4(b): If you support such guidance, do you agree that it should be located in proposed ISQM 2 as opposed to the IESBA Code?
Discuss the graph / key message.
16 (18%) – agreed that the guidance should be located in ISQM 2;
35 (38%) – agreed but had further comments that the guidance (or requirement) should be located in ISQM 2, in both ISQM 2 and the IESBA Code, or align with, or include reference to, the IESBA Code;
26 (29%) – disagreed with the proposal to include the guidance in ISQM 2; and
14 (15%) – responses were unclear or did not include specific comments.
Comments on the location of any guidance (or requirement) for a cooling-off period for an individual moving into an EQ reviewer role were about evenly split between a preference for ISQM 2 or the IESBA Code.
Comments that cooling-off period should be addressed in ISQM 2 in the absence of a requirement in the IESBA Code.
Suggestion that the guidance could reside in either location as long as appropriate cross- references were provided, while others noted that there was no harm in having the guidance in both places.
Page 20

21. Objectivity and Cooling-off Period (Cont.)
Task Force’s Key Considerations:
Considered whether firm policies or procedures should be required to address threats to objectivity.
Considered whether a requirement is needed for a specified cooling- off period.
Considered whether a requirement or guidance should apply to audits of listed entities, PIEs, or all audits, or even more broadly to all assurance engagements.
Considered whether a requirement or guidance should also apply when another key audit partner or engagement team member steps into the EQ reviewer role.
Task Force’s Key Considerations
Considered whether firm policies or procedures should be required to address threats to objectivity created when an individual steps into an EQ reviewer role after serving as the engagement partner.
Considered whether a requirement is needed for a specified cooling-off period for an individual stepping into the EQ reviewer role after serving as the engagement partner, and whether such a requirement should be in the IESBA Code or ISQM 2.
Considered whether a requirement or guidance should apply to audits of listed entities, PIEs, or all audits, or even more broadly to all assurance engagements, for which an EQ review is required or for which the firm determines an EQ review is an appropriate response to assessed quality risks.
Considered whether a requirement or guidance should apply only when an engagement partner steps into an EQ reviewer role, or whether it also should apply when another key audit partner or engagement team member steps into the EQ reviewer role.
Page 21

22. Objectivity and Cooling-off Period (Cont.)
Task Force Preliminary Views:
Proposed response in ISQM 2:
Alternative 1 – Addressed specifically in the IESBA Code
Option 1.1: Code provides guidance on threats to objectivity and possible safeguards for an EP stepping into an EQR role, but no specific cooling-off period.
Option 1.2: Code provides guidance above, and includes a specific cooling-off period.
Alternative 2 – Not addressed specifically in the Code
General principles in the Code on threats to objectivity and possible safeguards.
Alternative 1
For both Options 1.1 and 1.2, firm policies or procedures (P or P) require EQ reviewer to comply with relevant ethical requirements, including related to threats to objectivity generally.
For Option 1.1, an additional requirement for firm P or P to include a specific two-year cooling-off period, or longer if required by relevant ethical requirements.
Alternative 2
Same as for Option 1.1, but also requires firm P or P to address specific threats to objectivity for EP moving into an EQR role.
Page 22

23. Objectivity and Cooling-off Period (Cont.)
Matters for IAASB Consideration
Does the IAASB agree with the proposed changes as shown in the indicative drafting presented in Agenda Item 7? In particular, does the IAASB support the TF’s recommendation that:
The cooling-off period be addressed in ISQM 2 if not specifically addressed in the IESBA Code?
If addressed in ISQM 2, firm policies or procedures be required to include an explicit cooling-off period to address threats to objectivity created when an individual steps into an EQ reviewer role after serving as the engagement partner?
First of the 2 related questions in the issues paper (Q2 & Q3).
Page 23

24. Objectivity and Cooling-off Period (Cont.)
Matters for IAASB Consideration
Should a requirement or guidance regarding a cooling-off period apply to:
Audits of listed entities only, or all PIEs, or all audits?
Assurance engagements more broadly, i.e., for any engagement for which an EQ review is required, or for which the firm determines that an EQ review is an appropriate response to assessed quality risks or is appropriate based on the nature of the entity?
Page 24

25. The Way Forward 1st full draft of post-ED ISQM 2
Coordination with IESBA representatives and other IAASB TFs
Analysis of stakeholders’ comments and identification of key issues
Coordination with IESBA representatives and other IAASB TFs
Q2 2020
Anticipated approval of final ISQM 2
Coordination with IESBA representatives and other IAASB TFs
The TF expects to have the 1st draft of the post-ED ISQM 2 ready in December 2019.
As long as we have time on the IAASB’s agenda, we will be ready to go.
Page 25

26. IAASB Agenda Item 6
March 2014
Page 26