Long Association Task Force Marisa Orbea Task Force

Long Association Task Force Marisa Orbea, Task Force Chair IESBA Meeting September 16 -18, 2013 Sydney, Australia Page 1

Long Association Background • Summary of research • Key issues – Structural changes affecting the profession – General principles in paragraph 290. 150 – Rotation requirements that currently apply to PIEs – Exceptions to the rotation requirements – Requirements for non-PIEs Page 2

Long Association Structural changes • • Mandatory firm rotation and mandatory tendering debates European Commission Green Paper UK FRC Corporate Governance Code U. S House of Representatives vote in favor of prohibiting PCAOB requiring mandatory firm rotation Page 3

Long Association Paragraph 290. 150 • Research Findings – Familiarity vs. audit quality – Self Interest – Other safeguards • TF Considerations – Revision of framework – Enhancement of 290. 150 Page 4

Long Association Paragraph 290. 150 • TF Proposals – Strengthen framework in 290. 150 – Clearer introductory paragraph – Factors to consider when evaluating significance of potential threats – Examples of safeguards – If rotation is applied as a safeguard, other factors to be considered Page 5

Long Association Involvement of Those Charged with Governance • Research Findings ‒ Majority believe that TCWG should not have a decision making role • TF Considerations ‒ TF agree that TCWG should not have a decision making role ‒ Consultation when exceptions sought ‒ Concerns over independence of auditor • TF Proposals ‒ TCWG involvement in rotation decision is not a safeguard Page 6

Long Association Rotation Requirements for PIE Audits • • Who should be subject to rotation Duration of “time on” period Duration of “cooling off” period Permissible activities during “cooling off” period Page 7

Long Association Who Should be Subject to Rotation • • • Lead Audit Engagement Partner Quality Control Review Partner Other partners assigned to the audit engagement Managerial staff assigned to the audit engagement Junior staff assigned to the audit engagement Page 8

Long Association Duration of “Time On” Period • Research Findings – No clear preference - five and seven-year most common • TF Considerations – Familiarity vs. Audit Quality – Reduce vs. Maintain – Longer / shorter “time on” for certain PIEs • TF Proposals – Familiarity vs. Audit Quality – correct balance Page 9

Long Association Duration of “Cooling off” Period • Research Findings – Two-year most common • TF Considerations – Perception concern – Increase vs. Maintain • TF Proposals – Considering no decrease in “time on” – split views on whether to increase two-year “cooling off” – Consider also whether all KAPs vs. LAEP Page 10

Long Association Permissible Activities During “Cooling Off” Period • Research Findings – Responses split • TF Considerations – Exclusion from Engagement Team – Ability to impact audit outcome • TF Proposals – Additional guidance Page 11

Long Association Exceptions to Rotation • Research Findings – Current exception requirements appropriate • TF Considerations – Audit quality vs. familiarity – IOSCO letter • TF Proposals – No further exception paragraphs – Amend 290. 154 Page 12

Long Association Mandatory Rotation for Non-PIE Audits • Research Findings – Majority against mandatory rotation • TF Considerations – No evidence for mandatory rotation – Audit of financial institutions • TF Proposals – Improve guidance - 290. 150 Page 13