Agenda Item 5 Prpsed ISRS 4400 (Revised) 1 Issues and Recmmendatins Objective f Agenda Item The bjective f this agenda item is t: (a) (b) Obtain IAAASB views n the Expsure Draft f prpsed ISRS 4400 (Revised); and Apprve the Expsure Draft f prpsed ISRS 4400 fr public cnsultatin. Sectin 1: Intrductin and Overview f Agenda Items 1. Since the March 2018 IAASB meeting and the August 2018 IAASB telecnference, the Agreed-Upn Prcedures (AUP) Task Frce (the Task Frce ) has fcused n addressing cmments received frm Bard members (during the meeting, telecnference and ffline) and cntinuing t lk fr ways t imprve the readability and understandability f the standard. In ding s, a key bjective has been t ensure that public interest cnsideratins and significant issues raised by Bard members were deliberated and addressed by the Task Frce. 2. This paper is set ut as fllws: Sectin 2 Describes the public interest cnsideratins as included in the prject prpsal and hw these have been addressed by the Task Frce. Sectin 3 Describes the verarching cnsideratins related t the revisins t ISRS 4400 (Revised) as a whle. Sectin 4 Prvides an explanatin f the substantial changes that have been made since the March 2018 meeting and the August 2018 telecnference, and the Task Frce s cnsideratins abut varius matters raised fr further discussin, including: Definitins; Relevant ethical requirements; Prfessinal judgment; Engagement acceptance and cntinuance; Perfrming the agreed-upn prcedures engagement; Using the wrk f a practitiner s expert; The agreed-upn prcedures reprt; and Dcumentatin. Sectin 5 Describes the Task Frce s views n matters fr inclusin in the Explanatry Memrandum, the expsure perid, effective date and ther due prcess matters. 1 Prpsed ISRS 4400 (Revised), Agreed-Upn Prcedures Engagements Prepared by: Chi H Ng (August 2018) Page 1 f 21
3. In additin t this paper, the Task Frce has develped the fllwing agenda papers fr discussin at the September 2018 IAASB meeting: -A: ED f prpsed ISRS 4400 (Revised) Requirements (Marked frm March 2018 and August 2018); -B: ED f prpsed ISRS 4400 (Revised) Applicatin and ther explanatry material (Marked frm March 2018 and August 2018); -C: ED f prpsed ISRS 4400 (Revised) Requirements (Clean); -D: ED f prpsed ISRS 4400 (Revised) Applicatin and ther explanatry material (Clean); and Supplement t : Mapping dcument f extant ISRS 4400 t prpsed ISRS 4400 (Revised) 4. At the Bard meeting, the Task Frce Chair will discuss the agenda items in the fllwing rder: The verarching issue as set ut in Sectin 3 f this paper; Draft f prpsed ISRS 4400 (Revised) the Task Frce Chair will use Sectin 4 f this paper, and -A and -B as the basis fr the discussin. The requirements and applicatin material will be discussed tgether; and The ther matters as set ut in Sectin 5 f this paper. 5. The Task Frce activities since the March 2018 IAASB meeting are summarized in Appendix 1. An extract frm the minutes f the March 2018 IAASB meeting related t AUP Engagements and the draft minutes f the August 2018 IAASB telecnference are included in Appendix 2 and 3, respectively. Sectin 2: Public Interest Cnsideratins 6. The fllwing table utlines the key public interest cnsideratins and the relevant paragraphs in prpsed ISRS 4400 (Revised) that address these cnsideratins. Key Public Interest Matter 2 Descriptin f Changes made t address identified issues Relevant paragraphs in Prpsed Draft Users f AUP reprts and ther stakehlders have identified an urgent need t clarify, enhance and mdernize ISRS 4400. The clarificatin, enhancement and mdernizatin f ISRS 4400 serves the public interest by: Respnding t the needs f the Bradened scpe t include bth financial infrmatin and nn-financial infrmatin. Added examples f AUP engagements that satisfy users, such as regulatrs and thers. Explanatin that the term infrmatin encmpasses all Paragraph 2 and A1 and A1A. 2 As nted in the Prject Prpsal fr the revisins f ISRS 4400 (Revised), http://www.iaasb.rg/system/files/meetings/files/20170918-iaasb-agenda-item-5-b-agreed-upn-prcedures-prject- Prpsal-UPDATED.pdf Page 2 f 21
IAASB s stakehlders Updating ISRS 4400 t better meet the needs f users, such as regulatrs, funding bdies and creditrs, fr increased accuntability arund the use f grants that are ften prvided frm public funds, and facilitating innvatin and enhancing services available t entities f all sizes (and t SMEs in particular). Fr example, in sme ecnmies, the rle f the state in prviding services such as welfare r investment incentives, is linked t demands fr accuntability related t the prvisin f such interventins, which culd be addressed (in part) thrugh AUP engagements matters n which AUP are perfrmed. Mdernized ISRS 4400 (Revised) by adding requirements dealing with the rle that prfessinal judgment plays in an AUP engagement. Added applicatin material that identifies areas in which prfessinal judgment is applied. Enhanced explanatins f what distinguishes assurance engagements and AUP engagements. Paragraph 19 and A15-A17. Paragraphs 4-6 and A17 Enhanced requirements dealing with cmpliance with laws and regulatins and fraud. Paragraphs 7 Prviding clarity in the AUP reprt Enhancing the reprt fr clearer, mre cnsistent language which will help clarify what was dne and the results therefrm, thereby reducing cnfusin that may arise in practice abut AUP engagements. Enhanced requirements and applicatin material n ensuring language used is clearer and mre cnsistent t reduce cnfusin by explaining that prcedures and findings are described bjectively, in terms that are clear, nt misleading and nt subject t varying interpretatins. Adding a requirement that the AUP reprt include a statement n the independence f the practitiner and refereeing t the ethical requirements fllwed. Paragraphs 21(b) and A24 A27 Paragraph 29 (f) Page 3 f 21
Reducing incnsistency in the perfrmance f AUP engagements redrafting using the clarity drafting cnventins and ther changes fr clarificatin and enhancement Clarity drafting cnventins adpted fr prpsed ISRS 4400 (Revised). Amng ther matters, this cmprised: - Adding a clear descriptin f what an AUP engagement is and the value it prvides. - Setting an bjective and establishing the practitiner s bligatin n relatin t that bjective. - Clarifying the bligatins impsed n practitiners by the requirements f prpsed ISRS 4400 (Revised) - Eliminating any pssible ambiguity abut the requirements a practitiner needs t fulfil - Imprving the verall readability and understandability f prpsed ISRS 4400 (Revised) Paragraph 4-6 Paragraph 13 Paragraphs 8-11 Paragraphs 1-33 and A1-A47 Paragraphs 1-33 and A1-A47 Sectin 3: Overarching Cnsideratins References t Quality Cntrl 7. There are three prjects t revise the Quality Cntrl standards underway prpsed ISQC 1 3, ISQC 2 4 and ISA 220. 5 The expsure drafts n these prjects are expected t be apprved at the December 2018 IAASB meeting. 8. Paragraphs 3, 20, A2-A7 and A19-A21 f prpsed ISRS 4400 (Revised) deal with quality cntrl. These paragraphs are replicated frm ISRS 4410 (Revised). 6 The Task Frce is aware that many f these paragraphs d nt reflect the mst updated wrding and cncepts being develped in the Quality Cntrl prjects (fr example, use f the term quality management ). 3 Prpsed ISQC 1, Quality Management fr Firms that Perfrm Audits r Reviews f Financial Statements, r Other Assurance r Related Services Engagements 4 Prpsed ISQC 2, Engagement Quality Cntrl Reviews 5 Prpsed ISA 220, Quality Cntrl fr an Audit f Financial Statements 6 ISRS 4410 (Revised), Cmpilatin Engagements Page 4 f 21
9. The Task Frce had a telecnference with the Chair f the ISQC Task Frce, Ms. Karin French, n July 16, 2018 t btain her views n hw t deal with quality cntrl in the prpsed draft. The discussin was very helpful in subsequent Task Frce discussins. Ms. French indicated that she thught a placehlder (as described in Optin 2 belw) might be the apprach t take. 10. The Task Frce debated several ptins t address this issue: Optin 1: Redraft paragraphs 3, 20, A2-A7 and A19-A21 t reflect the mst updated wrding and cncepts as set ut in the ISQC 1 agenda papers presented at the September 2018 meeting. Optin 2: Remve paragraphs 3, 20, A2-A7 and A19-A21 frm prpsed ISRS 4400 (Revised). Include a discussin in the Explanatry Memrandum that requirements and applicatin material n quality cntrl will be added t ISRS 4400 (Revised) after the apprval f ISQC 1. Optin 3: Replicate paragraphs 4, 23, A6-A11 and A25-A27 in ISRS 4410 (Revised) in ISRS 4400 (Revised). Include a discussin in the Explanatry Memrandum that requirements and applicatin material n quality cntrl will be updated after the apprval f ISQC 1. 11. The Task Frce agreed that Optin 1 is nt practicable. ISQC 1 is still under develpment and the wrding in the current versin f ISQC 1 may change. It may nt be apprpriate t include wrding r cncepts in prpsed ISRS 4400 (Revised) that have nt been debated by the Bard. 12. The Task Frce is amenable t either ptin 2 r 3 but prefers Optin 3. Under Optin 3, the effective date f ISRS 4400 (Revised) will nt be cntingent n revised ISQC 1 becming effective. This is because ISRS 4400 (Revised) wuld have all the necessary requirements and applicatin material based n extant ISQC 1. Optin 3 wuld mitigate the risk f needing t re-expse the draft because a whle new sectin wuld nt have been expsed fr cmment. 13. In additin, under Optin 3, the requirements and applicatin material related t quality cntrl use wrding lifted frm existing ISRS 4410 (Revised). Using identical wrding wuld facilitate the drafting f cnfrming amendments t bth ISRS 4400 (Revised) and ISRS 4410 (Revised) when the revised ISQC 1 is finalized. Matters fr IAASB Cnsideratin 1. The Bard is asked fr its views n the Task Frce s prpsed apprach t address references t quality cntrl in ISRS 4400 (Revised). Sectin 4: Explanatin f Substantial Changes since the March 2018 Meeting and August 2018 Telecnference Definitins Findings 14. At the March 2018 meeting, the Bard agreed with the use f the term findings t describe the results f the prcedures perfrmed in an AUP engagement. Hwever, the Bard directed the Task Frce t cnsider further clarificatins t the definitin f findings ; in particular, t address the fllwing matters: Page 5 f 21
The first tw sentences in the definitin Findings are the factual results f prcedures perfrmed and are capable f being bjectively verified and The findings in an AUP engagement reprt are described bjectively seem unclear and repetitive. In sme jurisdictins, the term findings is used in natinal standards t refer t practitiner s cnclusins that g beynd factual statements (fr example, in Germany). There may be a need t recgnize that there may be a distinctin between findings and factual findings in thse jurisdictins. 15. The Task Frce recnsidered the definitin f findings and is f the view that the tw elements f findings [capable f being (i) bjectively verified and (ii) bjectively described] are equally imprtant. Hwever, the Task Frce agrees that the tw cnditins are nt clearly set ut in the definitin as presented at the March 2018 meeting. T clarify the definitin f findings, the Task Frce has rewrded the first tw sentences in paragraph 14(f) t: Findings are the factual results f prcedures perfrmed. Findings are capable f being bjectively verified and bjectively described 16. On the issue f the need t recgnize the distinctin between findings and factual findings in sme jurisdictins, the Task Frce cnsidered including a statement in ISRS 4400 (Revised) alng the lines f the term findings may be used in standards in sme jurisdictins in a manner that is nt restricted t factual results. In such cases, the term findings may be replaced with factual findings r similar terms. 17. After deliberatin, the Task Frce cncluded that including such a statement in ISRS 4400 (Revised) is nt needed. The Bard agreed t use the term findings instead f factual findings s as t avid the implicatin that findings may be nn-factual. Including a statement similar t the ne cntemplated in the preceding paragraph wuld be cntrary t the Bard s effrts n clarifying that findings are the factual results f prcedures perfrmed. Further, the Task Frce is f the view that the need t distinguish findings and factual findings is a jurisdictin-specific matter. The jurisdictin can translate the term findings as factual findings if necessary in their language t cnvey the apprpriate meaning. The Task Frce prpses t include a discussin f this matter in the Explanatry Memrandum t the ED. Other Definitins 18. The Task Frce received numerus ffline wrding suggestins r new definitins. The Task Frce made changes t, r added, definitins if the changes r additins are intended t address matters unique t ISRS 4400 (Revised), r are agreed with the Internatinal Ethics Standards Bard fr Accuntants (IESBA) member respnsible fr crdinatin with the IAASB, Ms. Sylvie Sulier. T that end, the Task Frce: Added a new definitin fr agreed-upn prcedures engagement in paragraph 14(b); Added a reference t the engaging party acknwledging the apprpriateness f the prcedures fr the purpse f the engagement in paragraph 14(c); and Made minr changes t the definitin f relevant ethical requirements in paragraph 14(i). 19. The Task Frce als carefully cnsidered ther suggested changes prvided ffline but ultimately decided nt t make the suggested changes. These suggested changes are primarily t definitins derived frm ISAE 3000. In the absence f matters unique t ISRS 4400 (Revised), the Task Frce prpses t retain the wrding f the definitins t maintain cnsistency between IAASB standards. Page 6 f 21
Relevant Ethical Requirements Practitiner s Independence 20. The issue f the practitiner s bjectivity and independence is f imprtant public interest as it has an impact n the quality f the engagement. At the August 2018 telecnference, the Bard generally agreed that, cnsistent with the IESBA Internatinal Cde f Ethics fr Prfessinal Accuntants (Including the Internatinal Independence Standards) (IESBA Cde), a practitiner perfrming an AUP engagement is required t cmply with the fundamental principle f bjectivity but is nt required t be independent. Hwever, t enhance transparency, if the practitiner is nt independent, the AUP reprt shuld include a statement t this effect. Sme Bard members further suggested that disclsure in the AUP reprt nt be restricted t circumstances when the practitiner is nt independent. That is, if the practitiner is independent, the AUP reprt shuld als include a statement t this effect. 21. A related issue is the criteria t be used fr determining whether the practitiner is independent. At the August 2018 telecnference, the Task Frce prpsed that the criteria be Part 4B f the IESBA Cde, Independence fr Assurance Engagements Other Than Audit r Review Engagements, adapted as necessary fr agreed-upn prcedures engagements, r ther prfessinal, legal r regulatry requirements that are at least as demanding. Many Bard members expressed sme discmfrt with this as it is nt clear what the phrase adapted as necessary fr AUP engagements, r ther prfessinal, legal r regulatry requirements that are at least as demanding means, and the fact that the IESBA Cde may nt be used in sme jurisdictins. 22. In respnse t cmments received at the August 2018 telecnference, the Task Frce has enhanced the requirements and applicatin material pertaining t relevant ethical requirements t emphasize the key public interest benefits f bjectivity and transparency: Paragraph A11 clarifies that the practitiner is required t cmply with relevant ethical requirements, which cmprise the IESBA Cde related t related services engagements, tgether with natinal requirements that are mre restrictive. The IESBA Cde requires practitiners t cmply with fundamental principles including bjectivity, which requires practitiners nt t cmprmise their prfessinal r business judgment because f bias, cnflict f interest r the undue influence f thers. Accrdingly, relevant ethical requirements t which the practitiner is subject wuld, at a minimum, require the practitiner t be bjective when perfrming an agreed-upn prcedures engagement. Paragraph A12 further clarifies that natinal ethical cdes, laws r regulatins, the firm s plicies and prcedures, r the terms f engagement may require the practitiner t cmply with additinal ethical requirements beynd thse specified in the IESBA Cde related t related services engagements. Fr example, the practitiner may be required t cmply with the IESBA Cde related t related services engagements as well as Part 4B f the IESBA Cde, Independence fr Assurance Engagements Other Than Audit r Review Engagements, which cntains independence requirements. The independence requirements facilitate the applicatin f bjectivity. In this case, the relevant ethical requirements wuld require the practitiner t be bjective and t cmply with the independence requirements as set ut in Part 4B f the IESBA Cde, adapted as necessary t related services engagements. Paragraph 22(d) requires the terms f engagement t include a statement as t whether the relevant ethical requirements with which the practitiner will cmply in cnducting the agreed- Page 7 f 21
upn prcedures engagement cntain independence requirements, and whether the practitiner is expected t be, r nt t be, independent. Paragraph 29(f) requires the AUP reprt t identify the relevant ethical requirements, including a statement as t whether the relevant ethical requirements cntain independence requirements pertaining t independence and whether the practitiner is, r is nt, independent. 23. In the Task Frce s view, the apprach adpted reflects an apprpriate balance between the need fr: The AUP engagement t be perfrmed by a practitiner wh is bjective (that is, the practitiner s prfessinal r business judgment is nt cmprmised); Flexibility t address circumstances when the engaging party des nt require the practitiner t be independent r the practitiner is required t perfrm the engagement despite nt being independent; and Transparency f the relevant ethical requirements with which the practitiner has cmplied in perfrming the AUP engagement and whether the practitiner is (r is nt) independent. Crdinatin with the IESBA 24. In August 2018, the Task Frce held a telecnference call with the IESBA Technical Directr and Deputy Directr t discuss the Task Frce s prpsals related t relevant ethical requirements. In additin, the Task Frce sent the penultimate draft f prpsed ISRS 4400 (Revised) t IESBA staff and the IESBA member respnsible fr crdinatin with the IAASB, Ms. Sylvie Sulier, fr cmments n the prpsed requirements and applicatin material. The cmments received have been addressed in Prpsed ISRS 4400 (Revised) presented in Agenda Items 5-A and 5-B. Prfessinal Judgment Rle f Prfessinal Judgment in an AUP engagement 25. At the August 2018 telecnference, the Task Frce presented a draft f prpsed ISRS 4400 (Revised) that included a requirement fr the practitiner t apply prfessinal judgment taking int cnsideratin the nature f the prcedures perfrmed in an AUP engagement and applicatin material paragraph that explained hw the nature f the prcedures affect the applicatin f prfessinal judgment. 26. The Bard agreed with the Task Frce s view that the rle f prfessinal judgment in an AUP engagement differs frm that in an assurance engagement. Hwever, many Bard members expressed the view that the requirement and the related applicatin material paragraphs d nt adequately explain the rle f prfessinal judgment in an AUP engagement. 27. The cmments made during the telecnference and subsequent ffline cmments suggest varying views n the rle f prfessinal judgment in an AUP engagement. On the ne hand, sme Bard members expressed the view that the rle f prfessinal judgment shuld be mre limited. Fr example, sme Bard members suggested wrding alng the lines f: it is nt pssible fr the practitiner t apply prfessinal judgment when perfrming the prcedures. On the ther hand, ther Bard members said that the rle f prfessinal judgment shuld be expanded and disagreed Page 8 f 21
with wrding implying that there are areas in an AUP engagement where little r n prfessinal judgment is invlved. 28. The Task Frce cnsidered all cmments and redrafted the requirement and applicatin material t imprve the explanatin f the unique rle that prfessinal judgment plays in an AUP engagement as fllws: The practitiner exercises prfessinal judgment taking int cnsideratin the characteristics f an AUP engagement (paragraph 19 f prpsed ISRS 4400 (Revised)); and Unlike in an assurance engagement, the prcedures perfrmed in an agreed-upn prcedures engagement are nt designed by the practitiner t btain reasnable r limited assurance evidence t prvide a basis fr an pinin r assurance cnclusin. Rather, an agreed-upn prcedures engagement invlves the perfrmance f specific prcedures agreed with the engaging party, when the engaging party acknwledges that the prcedures perfrmed are apprpriate fr the purpse f the engagement. Cnsequently, perfrming the agreed-upn prcedures des nt require the practitiner t apply prfessinal judgment in evaluating the sufficiency f evidence btained r t interpret findings (paragraph A17 f prpsed ISRS 4400 (Revised)). Fraud and Nn-Cmpliance with Laws and Regulatins 29. Similar t paragraphs 9 and A8 f ISA 250 (Revised) 7, paragraphs 7 and A9 f prpsed ISRS 4400 (Revised) presented at the August 2018 telecnference included an explanatin that the practitiner may have additinal respnsibilities regarding an entity s nn-cmpliance with laws and regulatins. 30. The Bard generally agreed with the Task Frce s prpsed apprach t address the entity s nncmpliance with laws and regulatins. Hwever, the Bard directed the Task Frce t further cnsider: Referring t fraud in paragraph 7 specifically as fraud may nt necessarily be addressed by nn-cmpliance with laws and regulatins; Retaining the example n applying prfessinal judgment in determining whether any f the prcedures that the practitiner is being asked t agree t, including prcedures that are mdified ver the curse f the engagement, are clearly inapprpriate fr the purpse f the agreed-upn prcedures engagement; and Psitining paragraph A9 as a ftnte t paragraph 7. 31. The Task Frce has addressed the abve cmments thrugh the changes reflected in paragraphs 7 and A16 and ftnte 2 in prpsed ISRS 4400 (Revised). Knwledge Acquired frm Other Engagements 32. Paragraph A18 f prpsed ISRS 4400 (Revised) presented at the August 2018 telecnference stated that the exercise f prfessinal judgment is based n facts and circumstances that are knwn t the practitiner including knwledge acquired frm perfrmance f ther engagements undertaken fr the entity 7 ISA 250 (Revised), Cnsideratin f Laws and Regulatins in an Audit f Financial Statements Page 9 f 21
33. The Bard expressed cncerns that expanding the applicatin f prfessinal judgment t include knwledge acquired frm perfrmance f ther engagements is nt practicable. Sme Bard members suggested that the knwledge acquired frm perfrmance f ther engagements fr the entity shuld be restricted t the engagement partner s knwledge. The Bard members further suggested that ISRS 4400 (Revised) shuld take a similar apprach as prpsed ISA 315 (Revised) 8, which requires the engagement partner t cnsider whether infrmatin btained frm perfrming ther engagements fr the entity is relevant t identifying and assessing the risks f material misstatement. Other Bard members thught that this applicatin material paragraph shuld be remved. 34. In light f the cmments raised at the August 2018 telecnference, the Task Frce recnsidered this applicatin material. Taking an apprach similar t prpsed ISA 315 (Revised) wuld mean adding a requirement fr the practitiner t cnsider whether infrmatin btained frm perfrming ther engagements fr the entity is relevant t the AUP engagement. The Task Frce is f the view that such a requirement wuld be difficult t peratinalize as it is unclear hw the engagement partner s knwledge wuld (r shuld) impact the AUP engagement. 35. The Task Frce agreed with the cncerns expressed and sees this applicatin material as being unnecessarily cmplicated and mre prblematic than helpful. Therefre, the Task Frce agreed t remve this paragraph. Engagement Acceptance and Cntinuance Clear Understanding f Prcedures t be Perfrmed 36. The draft f prpsed ISRS 4400 (Revised) presented at the IAASB March 2018 meeting included several cnditins fr an AUP engagement, including that the engaging party and the intended users have a clear understanding f the prcedures t be perfrmed. 37. The Bard expressed the view that it may nt be practicable fr the practitiner t determine whether the engaging party and intended users have a clear understanding f the prcedures. The Task Frce agrees with this view. Upn further cnsideratin, the Task Frce is als f the view that it is the engaging party s (and nt the practitiner s) respnsibility t determine that the intended users understand the prcedures and that the prcedures are apprpriate fr their purpses. This is because the practitiner nly has a cntractual relatinship with the engaging party. Accrdingly, the Task Frce prpses t: Remve the cnditin that the engaging party and the intended users have a clear understanding f the prcedures t be perfrmed; Explain in paragraph A23 that agreeing the prcedures t be perfrmed with the engaging party helps t prvide the engaging party with a basis t acknwledge that the prcedures t be perfrmed are apprpriate fr the purpse f the engagement; and Repurpse the guidance in paragraph A28 s that it fcuses n actins that the engaging party may take (fr example, discussing prpsed prcedures with intended users) s that the engaging party is able t acknwledge the apprpriateness f the prcedures t be perfrmed. 8 Prpsed ISA 315 (Revised), Identifying and Assessing the Risks f Material Misstatements Page 10 f 21
Previusly, this guidance was drafted in the cntext f the practitiner discussing the prpsed prcedures with the intended users. 38. A Bard member indicated that an AUP engagement may invlve the practitiner reaching a preliminary agreement with the engaging party n prcedures expected t be perfrmed at the beginning f the engagement but having t mdify the prcedures during the curse f the engagement. Paragraphs A33 and A37 recgnize this relatively cmmn circumstance. The Task Frce ntes that these tw paragraphs are smewhat repetitive but is f the view that they wrk tgether t reinfrce the idea that the prcedures may be mdified ver the curse f the engagement by discussing this idea in the cntext f agreeing the terms f engagement and perfrming the prcedures, respectively. 39. Further, as suggested by a Bard member, the Task Frce added new applicatin material (paragraph A34) t remind practitiners that the cnditins als apply t prcedures that have been mdified during the curse f the engagement. Terminlgy 40. The Bard agreed with the prpsed cnditin fr the AUP and findings t be described in terms that are clear, nt misleading and nt subject t varying interpretatins. Several Bard members suggested that guidance wuld be helpful t explain what is meant with these terms. In respnse, the Task Frce updated the related applicatin material (Paragraph A25 f prpsed ISRS 4400 (Revised)). 41. The Task Frce further cnsidered prviding a list f wrds that shuld nt be used in an AUP engagement in a similar fashin as that included in sme natinal AUP standards. Hwever, the Task Frce decided nt t d s as certain wrds may: Nt be unclear, misleading r subject t varying interpretatins because f the cntext in which they are used; Be required by law r regulatin (and a definitin f the term is included in the AUP reprt s that the descriptin f the prcedure r finding is n lnger unclear, misleading r subject t varying interpretatins); r Present translatin difficulties. Other Changes t Engagement Acceptance and Cntinuance 42. In additin t the changes described in this and previus sectins (such as thse set ut in Relevant Ethical Requirements), the Task Frce has received many ffline cmments t enhance the clarity f the requirements and applicatin material in this sectin. The Task Frce carefully cnsidered all cmments and has made several changes in respnse t mst f the cmments received, including: Clarifying that the purpse f the engagement and the intended user(s) f the AUP reprt are identified by the engaging party in paragraphs 22(b) and 22(f); and Adding a reference t the addressee f the AUP reprt in paragraph 22(e). Page 11 f 21
Perfrming the Agreed-Upn Prcedures Engagement Written Representatins 43. At the March 2018 meeting, the Bard agreed with the Task Frce s view that it is nt necessary t require the practitiner t request written representatins fr the fllwing reasns: The engaging party may nt be the respnsible party. In such cases, it may nt be practicable fr the practitiner t btain representatins frm the respnsible party. Representatins are intended t serve as evidence t supprt a practitiner s pinin r assurance cnclusin. Acknwledgement f the engaging party s respnsibilities is already addressed in agreeing the terms f engagement. Hwever, the Bard indicated that prpsed ISRS 4400 (Revised) shuld include an acknwledgement that representatins are smetimes requested in practice as well as examples f what may be included in a representatin letter. 44. T address the views expressed, the Task Frce develped paragraph A38 f prpsed ISRS 4400 (Revised) t indicate that the prcedures perfrmed by the practitiner may include requesting representatins frm apprpriate parties (fr example, the practitiner may request representatins that the engaging party has prvided the practitiner with access t all recrds relevant t the AUP engagement r that the engaging party has disclsed t the practitiner its knwledge f identified r suspected fraud r nn-cmpliance with laws and regulatins). As there is n requirement fr the practitiner t btain written representatins, fr the reasns indicated in the paragraph abve, the Task Frce agreed t nt include guidance n a cmplete set f representatins r an illustrative representatin letter. Using the Wrk f a Practitiner s Expert Additinal Example f a Practitiner s Expert 45. Subsequent t the August 2018 telecnference, the Task Frce received a few ffline cmments suggesting cnfusin the use f a practitiner s expert in an AUP engagement. Fr example, using a practitiner s expert t perfrm a prcedure because the practitiner des nt have the necessary expertise seems t imply that significant prfessinal judgment is invlved in evaluating the sufficiency f evidence btained r in interpreting the findings. Sme Bard members als requested further examples n hw a practitiner s expert can assist the practitiner in perfrming AUP. 46. The Task Frce cntinues have the view that a practitiner s expert can assist the practitiner by using the expert s cmpetence and capabilities in perfrming the AUP withut applying prfessinal judgment in evaluating the sufficiency f evidence btained r interpreting findings. An example may be a technician perating a drne t assist the practitiner in taking aerial phtgraphs [this example is included in paragraph A39 f prpsed ISRS 4400 (Revised)]. The Task Frce believes that such use f a practitiner s expert is likely ging t becme mre prevalent with technlgical advances. Page 12 f 21
Referring t a Practitiner s Expert in an AUP Engagement Reprt 47. The draft f prpsed ISRS 4400 (Revised) presented at the IAASB March 2018 meeting required the AUP engagement t reprt a listing f the prcedures perfrmed detailing the nature and extent f each prcedure, including, if relevant, the prcedures perfrmed by the practitiner s expert. 48. In ffline cmments, a few Bard members questined the necessity f highlighting prcedures perfrmed by the practitiner s expert in the AUP engagement reprt. The Bard members nted that the practitiner is respnsible fr the AUP engagement as a whle any allcatin f the prcedures between the practitiner and the expert shuld nt cncern the engaging party r intended users. Mrever, highlighting the prcedures perfrmed by the expert may increase the likelihd f the engaging party r intended users misinterpreting thse prcedures and the resulting findings. 49. The Task Frce agrees with the views expressed and prpses t use the same apprach as in ISAE 3000 (Revised). 9 T that end, the Task Frce: Deleted the requirement fr the AUP engagement reprt t refer t the prcedures perfrmed by the practitiner s expert; Added a requirement in paragraph 30 in prpsed ISRS 4400 (Revised) that, if the practitiner refers t the prcedures perfrmed by a practitiner s expert in the AUP reprt, the wrding f the AUP reprt shall nt imply that the practitiner s respnsibility fr perfrming the prcedures and reprting the findings is reduced because ff the invlvement f that expert; and Added applicatin material t prvide guidance n cnsideratins when referring, in the AUP reprt, t a practitiner s expert wh perfrmed any f the AUP in paragraph A46 f prpsed ISRS 4400 (Revised). Other Cnsideratins 50. The Task Frce ntes that ISA 620 10 deals with evaluating the adequacy f the auditr's expert's wrk while paragraph 27(c) f prpsed ISRS 4400 (Revised) deals with determining whether the findings reprted by the practitiner s expert adequately describe the results f the prcedures perfrmed. The wrd determine is nrmally used when the result f the determinatin is a clear yes r n. In the Task Frce s view, the wrd determining is apprpriate in the cntext f an AUP engagement. As the findings are factual results f prcedures perfrmed, the practitiner is able t determine whether r nt the findings reprted by the individual r rganizatin adequately describe the results f the prcedures perfrmed. 9 ISAE 3000 (Revised), Assurance Engagements Other Than Audits r Reviews f Histrical Financial Infrmatin, paragraphs 70 and A185-A186 10 ISA 620, Using the Wrk f an Auditr s Expert Page 13 f 21
The Agreed-Upn Prcedures Reprt Illustratins f AUP Engagement Reprts Issues Paper ISRS 4400 (Revised) 51. The Wrking Draft f prpsed ISRS 4400 (Revised) presented at the IAASB March 2018 meeting included tw illustratins f AUP engagement reprts. The IAASB directed the Task Frce t cnsider further clarificatins t the illustrative reprts fr example, clarifying: Hw the practitiner determined that the 125 cntracts btained by the practitiner are the nly cntracts relevant t the AUP engagement. What the finding f n exceptin means. 52. In respnse t the IAASB s directin, the Task Frce has revised the illustrative AUP engagement reprts in Appendix 2 f -B. Date f Reprt 53. The Wrking Draft f prpsed ISRS 4400 (Revised) presented at the IAASB March 2018 meeting included a requirement fr the practitiner t date the reprt n earlier than the date n which the practitiner has cmpleted the AUP and described the findings A Bard member indicated that this requirement is unclear and suggested that the requirement n the date f the AUP engagement reprt be wrded in a similar fashin as in ISRS 4410. 54. The Task Frce agrees and has revised paragraph 31 f prpsed ISRS 4400 (Revised) t replicate paragraph 41 f ISRS 4410 (Revised). Other Changes t Reprting 55. In additin t the changes as previusly discussed such as thse set ut in the sectins n Relevant Ethical Requirements and Practitiner s Expert, t enhance cnsistency thrughut the standard, the Task Frce has added references t: The engaging party acknwledging that the prcedures are apprpriate fr the purpse f the engagement in paragraph 29(g)(ii); and If relevant, timing f the prcedure in paragraph 29(h). The Task Frce included the preamble if relevant befre timing t reflect many f the AUP reprts issued in practice tday, which nly describe the nature and extent (but nt the timing) f the prcedures perfrmed. Dcumentatin 56. The draft f prpsed ISRS 4400 (Revised) presented at the IAASB March 2018 meeting included dcumentatin requirements based n ISA 230. 11 A Bard member indicated that the dcumentatin requirements are mre rigrus than thse in ISAE 3000 (Revised). While agreeing that the requirements reflect gd practice, the member nted that it seemed peculiar that the dcumentatin requirements in a nn-assurance engagement standard wuld be mre rigrus than thse in an assurance engagement standard. 11 ISA 230, Audit Dcumentatin Page 14 f 21
57. T address the peculiarity while encuraging gd practice, the Task Frce recnsidered the dcumentatin requirements and is prpsing t: Delete the requirement relating t matters that may preclude the practitiner frm cmpleting the engagement. This is because, in an AUP engagement, such a matter wuld already be included in the AUP reprt as a finding. Mve the matters that are nt required t be dcumented in ISAE 3000 t a new applicatin material (see paragraph A48). Matter fr IAASB Cnsideratin 2. The Bard is asked fr its views n the Task Frce s prpsals as reflected in prpsed ISRS 4400 (Revised). Sectin 5: Other Matters Matters fr Explanatry Memrandum 58. The Task Frce intends t include a discussin and related questins in the Explanatry Memrandum n the fllwing matters: Public interest Setting ut the public interest cnsideratins and hw they have been addressed in the prject and asking the questin f whether a practitiner independence shuld becme mandatry. Significant changes Explaining significant changes, including why the changes are made and hw they may impact AUP engagements. Quality cntrl Explaining that prvisins relating t quality cntrl are subject t change depending n cmments received n the IAASB s revisins t ISQC 1. Key issues Explaining key issues and btaining stakehlders input n: Findings whether the definitin and the use f the term findings is apprpriate, and whether jurisdictins that distinguish findings and factual findings are able t address this distinctin within their respective jurisdictins. Relevant ethical requirements whether the requirements and applicatin material relating t relevant ethical requirements, in particular thse relating t the practitiner s bjectivity and independence, are apprpriate. Prfessinal judgment whether the requirement and applicatin material apprpriately reflect the rle f prfessinal judgment in an AUP engagement. Engagement acceptance whether the cnditins as set ut in paragraphs 21 and A22- A29 are apprpriate, including the applicatin material n terminlgy used t describe prcedures and findings. Practitiner s expert whether the requirement and applicatin material n the use f a practitiner s expert is apprpriate. Page 15 f 21
Expsure Perid 59. The IAASB s due prcess requires that an ED rdinarily has a 120-day cmment perid. This perid allws sufficient time fr translatin f the ED in certain jurisdictins and fr stakehlders t cnsider the prpsals. The Task Frce recmmends that the nrmal 120-day cmment perid be maintained. Effective Date 60. The IAASB s usual practice is t set an effective date f a new standard apprximately 18 24 mnths after the final standard is issued. This perid allws time fr firms t update their methdlgies and fr the develpment and delivery f training. The Task Frce recmmends that the nrmal 18 24 mnth implementatin perid be maintained. The Task Frce als believes that early adptin shuld be permitted and encuraged. Other Due Prcess Matters 61. In the Task Frce s view, the significant matters identified frm the beginning f this prject have all been presented t the Bard fr discussin. In the view f the Task Frce, there are n significant matters that have nt been brught t the attentin f the Bard. 62. The Task Frce des nt believe that a cnsultatin paper, field testing r a rundtable is needed at this stage f the prject as the Task Frce had previusly cnducted substantial utreach n the Discussin Paper, Explring the Demand fr Agreed-Upn Prcedures Engagements and Other Services, and the Implicatins fr the IAASB s Internatinal Standards. The Task Frce plans t reach ut t parties that have previusly prvided cmments n the Discussin Paper. 63. The Task Frce did nt identify any impact n the IAASB s Internatinal Standards arising frm the prpsed changes t ISRS 4400 (Revised). Matters fr IAASB Cnsideratin 3. The Bard is asked fr its views n: (a) (b) Whether there are any ther matters that shuld be addressed in the Explanatry Memrandum. The expsure perid and the planned effective date. Page 16 f 21
Appendix 1 Task Frce Activities including Outreach and Crdinatin with Other IAASB Task Frces The fllwing sets ut the activities f the Task Frce, including utreach with thers and crdinatin with ther IAASB Task Frces since March 2018. Task Frce Activities since March 2018 IAASB Discussin 1. The Task Frce held ne physical meeting and tw telecnferences since March 2018 IAASB meeting. 2. The Task Frce presented tw issues t the Bard at the August 2018 telecnference. Outreach 3. The Chair f the Task Frce and staff had a telecnference in August 2018 with IESBA staff t discuss requirements and applicatin material related t relevant ethical requirements in prpsed ISRS 4400 (Revised). The Task Frce als had nging cmmunicatins via e-mail with IESBA staff and the IESBA member respnsible fr crdinatin with the IAASB, Ms. Sylvie Sulier. 4. The Task Frce had a meeting with the Small and Medium Practices Cmmittee s Internatinal Rapid Respnse Task Frce (IRRTF) in June 2018 t discuss certain aspects f prpsed ISRS 4400 (Revised). Crdinatin with Other IAASB Task Frces 5. The Chair f the Task Frce and staff had a telecnference in July 2018 with the Chair and staff f the ISQC Task Frce t discuss references t quality cntrl in ISRS 4400 (Revised). Page 17 f 21
Appendix 2 Agreed-Upn Prcedures Engagement Minutes f the March 2018 Bard Meeting The Bard discussed the matters set ut in ( and the accmpanying Wrking Draft f ISRS 4400 12 (-A). The IAASB generally supprted the AUP Task Frce s prpsals. Key views expressed included: Supprt fr the use f the term findings instead f factual findings, but the bard asked that the AUP Task Frce cnsider further clarificatins where pssible. Supprt fr the AUP Task Frce s cllabratin with the Internatinal Ethics Standards Bard f Accuntants (IESBA) t develp criteria fr determining whether the practitiner is independent. While agreeing that the AUP standard shuld be sufficiently flexible t address varius circumstances when an AUP engagement is perfrmed, the Bard directed the AUP Task Frce t cnsider whether it is apprpriate t elevate sme f the applicatin material t requirements; fr example, actins t be taken if the practitiner becmes aware f fraud. That ISRS 4400, when revised, shuld reflect the circumstances where the practitiner may reach a preliminary agreement with the engaging party n prcedures t be perfrmed at the start f the engagement, and subsequently cnfirm the prcedures that were actually perfrmed at the end f the engagement. Other matters fr the AUP Task Frce s cnsideratin, such as: Further clarity fr the phrase findings are described bjectively, as it is unclear whether the phrase means that the practitiner wh describes the findings is bjective; Clarifying whether the phrase subject matter is intended t cnvey the same meaning as the phrase that is used in ISAE 3000 (Revised); 13 Aligning the dcumentatin requirements with thse in ISAE 3000 (Revised); Clarifying the requirement fr the date f the AUP reprt; and Prviding examples f inapprpriate terminlgy, which may be mre useful than examples f apprpriate terminlgy. IAASB CAG CHAIR S REMARKS Mr. Dalkin nted the CAG s supprt fr mving frward with the AUP prject. On the issue f the use f the term finding, Mr. Dalkin supprted the use f the term finding as finding is inherently factual. He als suggested further cnsideratin f the relatinships between prfessinal judgment, independence and bjective reprting. 12 Internatinal Standard n Relate Related Services (ISRS) 4400, Engagements t Perfrm Agreed-Upn Prcedures Regarding Financial Infrmatin 13 Internatinal Standards n Assurance Engagements (ISAE) 3000 (Revised), Assurance Engagements Other than Audits r Reviews f Histrical Financial Infrmatin Page 18 f 21
PIOB OBSERVER REMARKS Ms. Stthers indicated that the PIOB is particularly interested in the issue f whether a practitiner perfrming an AUP engagement is required t be independent. This issue has ptential public interest implicatins n the credibility f the practitiner and the quality f the engagement. WAY FORWARD The AUP Task Frce will further cnsider changes t the Wrking Draft f ISRS 4400, as well as actively mnitr develpments relating t ISQC 1 14 and the new revised IESBA Internatinal Cde f Ethics fr Prfessinal Accuntants (including Internatinal Independence Standards) s that any changes in the draft f ISRS 4400 (Revised) align. 14 Internatinal Standards n Quality Cntrl (ISQC) 1, Quality Cntrl fr Firms that Perfrms Audits and Reviews f Financial Statements, and Other Assurance and Related Services Engagements Page 19 f 21
Appendix 3 Agreed-Upn Prcedures (ISRS 4400) Minutes f the August 2018 Bard Telecnference The Bard discussed the Agreed-Upn Prcedures (AUP) Task Frce s (the Task Frce) prpsals n prfessinal judgment and relevant ethical requirements (Agenda Item 1). The IAASB generally supprted the AUP Task Frce s prpsals. PROFESSIONAL JUDGEMENT The Bard supprted the Task Frce s view that the rle f prfessinal judgment in an AUP engagement differs frm that in an assurance engagement and that the rle f prfessinal judgment ges beynd the practitiner s cnsideratin f the nature f the prcedures. Fr example, prfessinal judgment is invlved in activities such as engagement acceptance and cntinuance and reprting. The Bard asked the Task Frce t further cnsider: Including a reference t fraud in the paragraphs addressing nn-cmpliance with laws and regulatins as there may be circumstances when fraud may nt be cvered by nn-cmpliance with laws and regulatins. Changing the applicatin material related t knwledge acquired frm ther engagements as it may nt be practicable fr the practitiner t cnsider knwledge frm ther engagements perfrmed fr the entity as these engagements may be perfrmed by anther audit partner. It was suggested that the knwledge acquired frm perfrmance f ther engagements fr the entity shuld be restricted t the engagement partner s knwledge r shuld be remved given that it will be difficult t peratinalize. RELEVANT ETHICAL REQUIREMENTS The Bard supprted the Task Frce s view that a practitiner perfrming an AUP engagement is required t cmply with the fundamental principle f bjectivity but is nt required t be independent and asked the Task Frce t further cnsider: Requiring, if the practitiner is nt independent, a statement t this effect given the imprtance f transparency n whether the practitiner is (r is nt) independent. Sme Bard members suggested that the AUP reprt shuld always include a statement abut the auditr s independence. Clarifying the Task Frce s prpsed criterin fr determining whether the practitiner is independent, as it is unclear what Part 4B f the Internatinal Ethics Standards Bard fr Accuntants Cde, adapted as necessary fr AUP engagements, means. IAASB CAG CHAIR S REMARKS Mr. Dalkin nted that in his view the prject is mving in the right directin. With respect t the auditr s independence when perfrming an AUP engagement, he agreed with the cncept f bjectivity and nted that disclsure f nn-independence is critical fr transparency. Page 20 f 21
PIOB OBSERVER REMARKS Ms. Stthers nted that the prfessinal judgment sectin had imprved significantly and that the IAASB had a rbust discussin f the tpics presented. WAY FORWARD The AUP Task Frce will present the prpsed ISRS 4400 (Revised) fr the Bard s apprval fr expsure in September 2018. Page 21 f 21