Long Association Task Force Marisa Orbea Task Force
Long Association Task Force Marisa Orbea, Task Force Chair IESBA Meeting April 13 -15, 2015 New York, USA Page 1 | Proprietary and Copyrighted Information
Long Association Recap – Rotation of KAPs on the Audit of PIEs ED proposal Respondents support? Board’s tentative view at January 2015 meeting 7 -yr time-on for all KAPs Most supported No change 5 -yr cooling-off for EP Majority did not support No change, but consider package of safeguards 2 -yr cooling-off for other KAPs (inc EQCR) Most supported No change 5 yrs off applicable all PIEs Most supported No change 5 yrs off if only 1 yr EP General disagreement TF to reconsider EP becoming EQCR New issue – not in ED TF to consider further Page 2 | Proprietary and Copyrighted Information
Further consideration of the issues arising from the ED discussed by the Board in January 2015 Page 3 | Proprietary and Copyrighted Information
Long Association Length of Cooling-Off Period for EP • ED proposed increase in cooling-off period for EP to 5 years • Many agreed 2 years is too short but majority did not support increase to 5 years • Majority of Board supported proposals • TF asked to consider whether existence of different regulatory safeguards in local jurisdictions could provide an alternative to the Code’s rotation requirements • Teleconference with European stakeholder Page 4 | Proprietary and Copyrighted Information
Long Association Length of Cooling-Off Period for EP – Options (Ref Agenda Item 3 -B) A. Do not provide any exemption to compliance with Code requirements B. Provide an exemption to allow compliance with local jurisdiction rules instead of 290. 150 A C. Reconsider Board’s position on application of the requirements (e. g. apply to listed entities only instead of all PIEs) Page 5 | Proprietary and Copyrighted Information
Long Association Length of Cooling-Off Period for EQCR • ED proposed that the cooling-off period for KAPs (inc EQCR) other than the EP remain at 2 years • Most respondents supported • Some respondents did not support indicating the same coolingoff period should apply to the EQCR as the EP • Majority of CAG Representatives supported the EP and EQCR having the same 5 -year cooling-off period • SMPC and EU CAG Representatives did not support Page 6 | Proprietary and Copyrighted Information
Long Association Length of Cooling-Off Period for EQCR – Options (Ref Agenda Item 3 -B) D. Continue to support the proposal in the ED that only the EP serve a 5 -year cooling-off period E. Apply a 5 -year cooling-off period for both the EP and the EQCR F. Apply the same cooling-off period for the EP and the EQCR, but reconsider the five years Page 7 | Proprietary and Copyrighted Information
Long Association EP for only Part of the 7 -year Time-On Period • ED proposed a KAP who served as EP at any time during 7 year period of service should be required to cool-off for 5 years • Two-thirds of respondents did not support • Board asked TF to reformulate proposal • TF recommends that an individual who has acted as EP for either 4 or more years, or for at least 2 of the last 3 years be required to cool-off for 5 years • CAG comments not specifically received Page 8 | Proprietary and Copyrighted Information
Long Association KAP Moving Directly to EQCR Role • A respondent questioned whether an EP should be able move into an EQCR role without any cooling-off • Not an issue addressed in ED • Board asked TF to further consider • TF tentatively concluded if there was a requirement then it should be included in ISQC 1 • IESBA and IAASB leadership referred the issue to IAASB’s ISQC 1 Working Group Page 9 | Proprietary and Copyrighted Information
The remaining provisions not discussed by the Board in January 2015 Page 10 | Proprietary and Copyrighted Information
Long Association Restriction on Activities of KAPs ED Proposal Respondents Support? Allowance for limited consultation role for outgoing EP after 2 years On balance, more respondents supported proposal Additional restrictions on activities Evenly balanced views. Some performed by KAP during cooling- against the proposal as too strict, off some support, some consider not strict enough Page 11 | Proprietary and Copyrighted Information
Long Association Other Enhancements and General Provisions ED proposal Respondents support? New 290. 150 C and 290. 150 D Most supported Concurrence of TCWG Most supported Enhancements to 290. 148 Most supported Application to all on audit team Most supported Firm determining time-out Most supported 291 corresponding changes Most supported Page 12 | Proprietary and Copyrighted Information
Long Association Limited Consultation by the EP • ED proposed permitting an EP to undertake a limited consultation role in relation to the audit after 2 years of the 5 -year cooling-off • Most respondents supported • Those opposed noted contradiction with cooling-off requirement and considered “off means off” • CAG did not specifically consider • TF continues to support but is proposing amendments: – Consultation only with engagement team and not client – Add proviso that no other equivalent expertise is available Page 13 | Proprietary and Copyrighted Information
Long Association Additional Restrictions on KAP Activities During Cooling-Off Period • Support from respondents was mixed • CAG did not specifically consider • TF not recommending change to proposal: – Limiting contact during cooling-off is appropriate – It is not necessary or practical however for there to be no contact at all with the client Page 14 | Proprietary and Copyrighted Information
Long Association 290. 150 C – Application of the 7 -yr Time-on period • ED proposed new provision to consider whether KAP should continue in that role even if they have not completed 7 years on • Most respondents supported the proposal • Those who did not support thought the Code was already clear enough • CAG did not consider • TF continues to support the proposal Page 15 | Proprietary and Copyrighted Information
Long Association 290. 150 D – Long Association of Audit Team Members other than KAPs • ED proposed a “reminder” that consideration be given to threats by long association of members of audit team other than KAPs • Most respondents supported the proposal • Those who didn’t suggested provision repetitive and unnecessary • CAG did not consider • TF considering whether the provisions easier to understand apply if this paragraph is deleted Page 16 | Proprietary and Copyrighted Information
Long Association 290. 151 and 290. 152 – Concurrence with TCWG • ED proposed that firm should apply 290. 151 and 290. 152 only with the concurrence of TCWG • Most respondents supported • Those who did not support suggested not referring to “concurrence” but “informing” or “communicating” • CAG did not consider • TF continues to support and proposes no change Page 17 | Proprietary and Copyrighted Information
Long Association Enhancement to the General Provisions in 290. 148 A & B • Most respondents supported the proposed enhancements and also made editorial suggestions • Those who did not support believed provisions too detailed • CAG did not consider • TF has considered suggestions made by respondents and proposed various adjustments Page 18 | Proprietary and Copyrighted Information
Long Association Application of the General Provisions to All Individuals on Audit Team • ED proposed general provisions should apply to all individuals on audit team, not just senior personnel • More than half of the respondents recognized junior staff posed less risk but supported application to all • Those who did not support believed extension unnecessary • CAG did not consider • TF continues support with additional evaluation factors: • Seniority of individual/extent of review of their work/ability to direct others Page 19 | Proprietary and Copyrighted Information
Long Association Section 291/Other Matters/Project Timetable • Corresponding adjustments to Section 291 • Other Matters – Effective Date – Suggestion from regulatory respondent that professional skepticism may warrant dedicated section in the Code and be included in future project on audit quality • Matter to be addressed in conjunction with IAASB • Project timetable depends on Board’s discussion Page 20 | Proprietary and Copyrighted Information
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