Proposed ISQM 2 Imran Vanker EQ Review Task

Proposed ISQM 2 Imran Vanker, EQ Review Task Force Chair IAASB Meeting, New York Agenda Items 4 -A and 4 -D December 11, 2018

Proposed ISQM 1 Extract (Agenda Item 4 -D) – Engagements Subject to EQ Review Paragraph References for IAASB Discussion Requirements: 40(e) Application material: A 102 – A 109 • IESBA – Question about “significant public interest” vs. use of PIE in IESBA Code – Suggestion to include discussion and a question in the EM • SMPC – Concern about requiring an EQR for entities the firm determines are of SPI; may be open to challenge by regulators Page 2

Proposed ISQM 2 (Agenda Item 4 -A) – Introduction and Authority Paragraph References for IAASB Discussion Paragraphs 1 – 8 • Off-line Board comments – no significant comments • Authority (para. 8) – Approach agreed with Interim Technical Director and Managing Director – Professional Standards – Addresses Board comments in September to keep an Authority section in each QM standard, but consider ways to streamline or reduce the detailed paragraphs – Detailed AM on Authority and Preface in ISQM 1 (paragraphs A 5 – A 5 C) Page 3

Proposed ISQM 2 (Agenda Item 4 -A) – Objective Paragraph References for IAASB Discussion Paragraph 10 • Objective is outcome-based (see paras. 11 -13 in Agenda Item 4) • Offline Board comments – significant points raised – Intent of “obtain” from the EQ reviewer an objective evaluation – reporting to firm? – No reference to firm requirements for appointment and eligibility – Omission of an objective for the EQ reviewer • SMPC also commented on omission of an objective for the EQ reviewer Page 4

Proposed ISQM 2 (Agenda Item 4 -A) – Definitions Paragraph References for IAASB Discussion Paragraph 11 and Application Material paragraph A 1 • Offline Board comments – significant points raised – Engagement quality review – question about deletion of extant reference to “formulating the auditor’s report” – Engagement quality reviewer – placement of “suitably qualified” and clarity that the reviewer could be external to the firm Page 5

Proposed ISQM 2 (Agenda Item 4 -A) – Applying and Complying with Relevant Requirements Paragraph References for IAASB Discussion Requirements: 12 – 14 • Off-line Board comments – no significant comments Page 6

Proposed ISQM 2 (Agenda Item 4 -A) – Appointment and Eligibility Paragraph References for IAASB Discussion Requirements: 15 – 18 Application material: A 2 – A 21 • IESBA – discussions on objectivity of EQ reviewer and cooling-off period – Question about whether para. A 6 creates a de facto requirement • IFIAR and IOSCO – importance of stature and seniority of the EQ reviewer • Offline Board comments – significant points raised – Reference to cooling-off period in the standard – Interaction of paras. A 5 and A 15 (IESBA had similar comments and suggestions) – Structure of section (firm P or P vs. requirements for EQ reviewer and assistants) – Objectivity of the individual Page 7

Proposed ISQM 2 (Agenda Item 4 -A) – Performance of the EQ Review Paragraph References for IAASB Discussion Requirements: 19 – 21 Application material: A 22 – A 34 • Offline Board comments – significant points raised – Structure of para. 21 – EQ reviewer first needs to address any concerns about significant judgments before determining that the requirements of the ISQM have been met and the engagement report can be dated – Who are the appropriate individuals in the firm to be notified if the EQ reviewer has concerns? – Responsibility for making sure that the work of assistants is appropriate (EQ reviewer retains overall responsibility) Page 8

Proposed ISQM 2 (Agenda Item 4 -A) – Documentation of the EQ Review Paragraph References for IAASB Discussion Requirements: 22 – 24 Application material: A 35 – A 37 • Offline Board comments – significant points raised – Requirement for EQ reviewer to prepare documentation vs. determining that sufficient documentation of the EQ review is prepared – Concern about review of “other documentation” required by the firm’s policies or procedures (para. 24(e)) • SMPC raised point on the firm requirement to establish policies or procedures (para. 22) Page 9

Explanatory Memorandum • Matters identified for inclusion in the EM: – Allocation of requirements between proposed ISQM 1 and proposed ISQM 2 – Engagements for which an engagement quality review is required, including entities that are of significant public interest – Objective of ISQM 2 – Eligibility criteria for the engagement quality reviewer, including: – Performance and documentation of the engagement quality review Are there are other important matters that should be addressed in the EM for proposed ISQM 2? Page 10