IESBA Meeting (November/December 2015) Long Association Proposed Changes to Section 290 (MARK-UP from ED)

Transcription

1 IESBA Meeting (Nvember/December 2015) Agenda Item 5-B General Prvisins Lng Assciatin Prpsed Changes t Sectin 290 (MARK-UP frm ED) A Familiarity and self-interest threats, which may impact an individual s bjectivity and prfessinal skepticism, may be created and may increase in significance when an individual is invlved in by using the same persnnel n an audit engagement ver a lng perid f time. Althugh an understanding f an audit client and its envirnment is fundamental t audit quality, a familiarity threat may be created as a result f an individual s lng assciatin as a member f the audit team with: The audit client and its peratins; The audit client s senir management; r The financial statements n which the firm will express an pinin r the financial infrmatin which frms the basis f the financial statements. A self-interest threat may be created as a result f an individual s cncern abut lsing a lngstanding client f the firm r an desire interest t in maintaining a clse persnal relatinship with a member f senir management r thse charged with gvernance, and which may inapprpriately influence the individual s judgment B The significance f the threats will depend n factrs, individually r in cmbinatin, relating t bth t the individual and the audit client. Factrs relating t the individual include: The verall length f the individual s relatinship with the client, including if such relatinship existed whilst the individual was at a prir audit firm.; Hw lng the individual has been a member f the engagement team, and the nature f the rles perfrmed.; The extent t which the wrk f the individual is directed, reviewed and supervised by mre senir persnnel. ; The extent t which the individual, due t their senirity, has the ability t influence the utcme f the audit, fr example by making key decisins r directing the wrk f ther members f the engagement team.; The clseness f the individual s persnal relatinship with senir management r thse charged with gvernance.; and The nature, frequency and extent f the interactin between the individual and senir management r thse charged with gvernance. Factrs relating t the audit client include: The nature r cmplexity f the client s accunting and financial reprting issues and whether they have changed.; Prepared by: Elizabeth Higgs (Nvember 2015) Page 1 f 5

2 Lng Assciatin Prpsed Changes t Sectin 290 (Mark-Up frm ED) IESBA Meeting (Nvember/December 2015) Whether there have been any recent changes in senir management r thse charged with gvernance.; and Whether there have been any structural changes in the client s rganizatin which impact the nature, frequency and extent f interactins the individual may have with senir management r thse charged with gvernance C The cmbinatin f tw r mre factrs may increase r reduce the significance f the threats. Fr example, familiarity threats created ver time by the increasingly clse relatinship betweenf an individual and a member f the client s senir management wuld be reduced by the departure f that member f the client s senir management and the start f a new relatinship A The significance f any threat shall be evaluated and safeguards applied when necessary t eliminate the threat r reduce it t an acceptable level. Examples f such safeguards include: Rtating the individual ff the audit team.; Changing the rle f the individual n the audit team r the nature f the tasks they perfrm.; Having a prfessinal accuntant wh was nt a member f the audit team review the wrk f the individual.; r Perfrming regular independent internal r external quality reviews f the engagement. Perfrming an including an engagement quality cntrl review BC If a firm decides that the threats are s significant that rtatin f an individual is a necessary safeguard, the firm shall determine an apprpriate perid during which the individual shall nt be a member f the engagement teamparticipate in the audit engagement r exert direct influence n the utcme f the audit engagement. The perid shall be f sufficient duratin t allw the familiarity and self-interest threats t independence t be eliminated r reduced t an acceptable level. In the case f a public interest entity, paragraphs A t als apply. Audit Clients That Are Public InterestListed Entities A In respect f an audit f a public interestlisted entity, an individual shall nt be a key audit partner fr mre than seven years. After such(the time-n perid ), after which the individual shall serve a cling-ff perid. Subject t paragraph D: An individual key audit partner wh during the time-n perid wh has acted as the engagement partner r the individual respnsible fr the engagement quality cntrl review, in either capacity r a cmbinatin f these rles,at any time during the seven year peridfr either fur r mre years r at least tw ut f the last three years shall nt be a member f the engagement team r prvide quality cntrl fr the audit engagement fr a cling-ff perid f five cnsecutive years; and Any ther key audit partner wh acted in any ther cmbinatin f key audit partner rles during the time-n perid shall nt be a member f the engagement team r prvide quality cntrl fr the audit engagement fr a cling-ff perid f tw cnsecutive years. Page 2 f 5

3 Lng Assciatin Prpsed Changes t Sectin 290 (Mark-Up frm ED) IESBA Meeting (Nvember/December 2015) Audit Clients that are Public Interest Entities but nt Listed Entities B In respect f an audit f a public interest entity that is nt a listed entity, an individual shall nt be a key audit partner fr mre than seven years ( the time-n perid ) after which the individual shall serve a cling-ff perid. Subject t paragraph D: A key audit partner wh during the time-n perid acted as the engagement partner fr either fur r mre years r at least tw ut f the last three years, shall nt be a member f the engagement team r prvide quality cntrl fr the audit engagement fr a cling-ff perid f five cnsecutive years; and A key audit partner wh during the time-n perid was respnsible fr the engagement quality cntrl review fr either: (c) Fur r mre years; r At least tw ut f the last three years; r Wh acted in a cmbinatin f engagement partner and engagement quality cntrl review rles fr fur years r mre r at least tw ut f the last three years shall nt be a member f the engagement team r prvide quality cntrl fr the audit engagement fr a cling-ff perid f three cnsecutive years; and A key audit partner wh acted in any ther cmbinatin f key audit partner rles during the time-n perid shall nt be a member f the engagement team r prvide quality cntrl fr the audit engagement fr a cling-ff perid f tw cnsecutive years. Audit Clients that are Public Interest Entities C In determining the number f cntinuus years that an individual has been a key audit partner, the length f the relatinship shall, where relevant, include time whilst the individual was a key audit partner n that engagement at a prir audit firm D An independent standard setter, regulatr r legislative bdy may have evaluated the familiarity and self-interest threats t independence that arise frm lng assciatin with an audit client and determined that a different set r cmbinatin f safeguards t thse required in this Cde are apprpriate t reduce the threats t an acceptable level. In such circumstances, the cling-ff perids f five cnsecutive years specified in paragraphs A and B may be reduced t three cnsecutive years, if an independent standard setter, regulatr r legislative bdy has: Implemented an independent regulatry inspectin regime; and Established requirements fr either: (i) (ii) A time-n perid shrter than seven years during which an individual is permitted t be the engagement partner r the individual respnsible fr the engagement quality cntrl review; r Mandatry firm rtatin, r mandatry re-tendering f the audit appintment at least every ten years EB Fr the duratin f the relevant cling-ff perid, the individual shall nt: Cnsult with the engagement team r the client regarding technical r industryspecific issues, transactins r events affecting the audit engagement (ther than Page 3 f 5

4 Lng Assciatin Prpsed Changes t Sectin 290 (Mark-Up frm ED) IESBA Meeting (Nvember/December 2015) discussins with the engagement team limited t wrk undertaken r cnclusins reached in the lastprevius year f their time-n perid where this remains relevant t the audit). Hwever, if an individual wh has acted as the engagement partner r the individual respnsible fr the engagement quality cntrl review is als, r becmes, an individual whse primary respnsibility is t be cnsulted within a firm n a technical r industry-specific issue, the individual may prvide such technical cnsultatin t the engagement team prvided: r client after Ttw years has elapsed since the individual was a member f the engagement team r the individual respnsible fr the engagement quality cntrl review;, There is n ther partner within the firm expressing the audit pinin with the expertise t prvide the advice; and prvided that Ssuch cnsultatin is in respect f an issues, transactins r events that wasere nt previusly cnsidered by that individual in the curse f acting as engagement partner r the individual respnsible fr the engagement quality cntrl review; Be respnsible fr leading r crdinating the firm s prfessinal services t the audit client r verseeing the firm s relatinship with the audit client; r Undertake any ther rle r activity nt referred t abve with respect t the audit client, including the prvisin f nn-assurance services, that wuld result in the individual: Having significant r frequent interactin with senir management r thse charged with gvernance; r Exerting direct influence n the utcme f the audit engagement. The prvisins f this paragraph are nt intended t prevent the individual frm assuming a leadership rle in the firm, such as that f the Senir r Managing Partner FC There may be situatins where a firm, based n an evaluatin f threats in accrdance with the general prvisins abve, cncludes that it is nt apprpriate fr an individual wh is a key audit partner t cntinue in that rle even thugh the length f time served as a key audit partner is less than seven years. In evaluating the threats, particular cnsideratin shall be given t the rles undertaken and the length f the individual s assciatin with the audit engagement prir t an individual becming a key audit partner D Cnsideratin shall als be given t the significance f any threat created by the lng assciatin f a member f the audit team wh is nt a key audit partner with an audit client. Safeguards shall be applied when necessary t eliminate the threat r reduce it t an acceptable level. Safeguards may invlve the rtatin f a partner r ther individual ff the audit team at any pint during their assciatin with the audit engagement Despite paragraph A and B, key audit partners whse cntinuity is especially imprtant t audit quality may, in rare cases due t unfreseen circumstances utside the firm s cntrl, and with the cncurrence f thse charged with gvernance, be permitted t serve an additinal year as a key audit partner as lng as the threat t independence can be eliminated r reduced t an acceptable level by applying safeguards. Fr example, a key audit partner may remain in that rle n the audit team fr up t ne additinal year in circumstances where, due t unfreseen events, a required rtatin was nt pssible, as Page 4 f 5

5 Lng Assciatin Prpsed Changes t Sectin 290 (Mark-Up frm ED) IESBA Meeting (Nvember/December 2015) might be the case due t serius illness f the intended engagement partner. The firm shall discuss with thse charged with gvernance the reasns why the planned rtatin cannt take place and the need fr any safeguards t reduce any threat created When an audit client becmes a public interest entity, the length f time the individual has served the audit client as a key audit partner befre the client becmes a public interest entity shall be taken int accunt in determining the timing f the rtatin. If the individual has served the audit client as a key audit partner fr five years r less when the client becmes a public interest entity, the number f years the individual may cntinue t serve the client in that capacity befre rtating ff the engagement is seven years less the number f years already served. If the individual has served the audit client as a key audit partner fr six r mre years when the client becmes a public interest entity, the partner may cntinue t serve in that capacity with the cncurrence f thse charged with gvernance fr a maximum f tw additinal years befre rtating ff the engagement When a firm has nly a few peple with the necessary knwledge and experience t serve as a key audit partner n the audit f a public interest entity, rtatin f key audit partners may nt be an available safeguard. If an independent regulatr in the relevant jurisdictin has prvided an exemptin frm partner rtatin in such circumstances, an individual may remain a key audit partner fr mre than seven years, in accrdance with such regulatin, prvided that the independent regulatr has specified alternative safeguards which are applied, such as a regular independent external review. Page 5 f 5