Long Association Task Force Marisa Orbea Task Force
Long Association Task Force Marisa Orbea, Task Force Chair IESBA Meeting April 7 -9, 2014 Toronto, Canada Page 1
Long Association Background • From Sept. and Dec. 2013 meetings, IESBA agreed: ‒ Monitor regulatory developments re: mandatory tendering and rotation legislation ‒ Strengthen overall framework of 290. 150 ‒ Maintain 7 yr. time-on period. Reconsider 2 yr. cooling-off period ‒ Mandatory rotation not required for non-PIEs or non-KAPs on PIEs Page 2
Long Association Background • IESBA requested TF to consider: – – Longer cooling-off for Key Audit Partners (KAPs) on PIEs Nature of permissible roles during cooling-off How to consider time served on audit prior to becoming a KAP Adding additional guidance in general framework for non. KAPs – Providing guidance on communication with those charged with governance (TCWG) on rotation issues Page 3
Long Association Length of Cooling-Off Period • TF proposal in Dec. 2013 IESBA meeting - 3 yr. cooling-off (combined with additional restrictions on permissible activities): – Varied response from IESBA members – Informal poll: • 5 yr. cooling-off for Lead and/or Engagement partners. 2 or 3 yr. cooling-off for other-KAPs – 9 IESBA members • 3 yr. cooling-off for all KAPs – 7 IESBA members • TF requested to consider bifurcation of cooling-off period Page 4
Long Association Length of Cooling-Off Period • TF considered: – Reason to change cooling-off period: • Perception concern • Any change must be substantive • Benefits of change must be balanced against cost of implementation – Familiarity concerns specific to Lead, Engagement and Other KAPs – All PIEs vs Listed Companies – Additional consequences to bifurcation Page 5
Long Association Length of Cooling – Off Period • All CAG Representatives that expressed a view: – indicated a preference for a uniform cooling-off period – Confirmed that a cooling-off period of greater than two years was preferable – Did not indicate a view on the ideal cooling-off period • TF recommendation: – Bifurcation preferable option Page 6
Long Association Permissible Roles during Cooling-Off • Conditions proposed at Dec. 2013 IESBA meeting: – Cannot influence the audit outcome – Limited contact with engagement team and client • Differing views received from IESBA members • Should some restrictions be relaxed if a 5 yr. cooling-off is proposed? Page 7
Long Association Permissible Roles during Cooling-Off • TF Considered: – Whether certain roles could be performed after a period (e. g. 2 years) without creating significant threat – Balance addressing perception concern vs. practical problems relating to rotation and access to resources – After 2 years cooling-off could allow: • Consult on technical and industry specific matters not previously considered • Other services, provide not directly influencing audit outcome Page 8
Long Association Permissible Roles during Cooling-Off • CAG Comments: – Agree that a rotated partner should not be able to directly influence the outcome – Doubt over the practicality of no interaction – A Representative expressed a view that permissible activities should not be relaxed with a 5 yr. rotation period • TF Recommendation: – Maintain proposed restrictions – If 5 yr. cooling-off option preferred, allow certain limited activities after 2 years Page 9
Long Association Strengthening of Overall Framework • Dec 2013 proposals: – – – Familiarity essential to audit quality How familiarity and self interest threats created Factors to consider when evaluating threats Factors – individually and in combination Examples of safeguards – at engagement level and generally – Guidance on rotation as a safeguard Page 10
Long Association Strengthening of Overall Framework – Board Responses • Reconsider positioning of first sentence • Clarify how threats and factors contribute to the significance of the threat • Consider references to “senior management” • Consider alignment of 1 year cooling-off period to suggested 3 year cooling-off period for PIEs Page 11
Long Association Strengthening of Overall Framework • CAG Comments: – Guidance on rotation as a safeguard appeared confusing – Cooling-off period of more than 1 year could be more appropriate – Is cooling-off period needed at all? • TF Recommendation: – If rotation deemed appropriate safeguard – requires a min. cooling-off period – TF continues to recommend 1 year cooling-off Page 12
Long Association Involvement of TCWG • Dec 2013 proposals: – Consider additional guidance in the context of the Code as a whole – Role of TCWG relating to exception provisions • TF Recommendation: – Requirement in para 290. 152/154 to obtain concurrence from TCWG Page 13
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