alignment of part 4b with isae 3000 · (revised), part 4b also covers audits of specific elements,...

Supplement to Agenda Item C

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| Proprietary and Copyrighted Information

Alignment of Part 4B with ISAE 3000

Liesbet Haustermans, IESBA Memberand Task Force Chair

IESBA CAG Meeting

New York

March 4, 2019

Page 2 | Proprietary and Copyrighted Information

• To review Part 4B of the revised and restructuredCode for any revisions needed to align with therevised ISAE 3000

• No intention to re-open any discussion or tochallenge the concepts of ISAE 3000 (Revised)

Objectives of the Project

IESBA CAG Meeting (March 2019)

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• To update the IESBA CAG on developments since the approvalof the project proposal in September

• To enable the IESBA CAG to provide comments on the draftExposure Draft (ED) (Agenda Item C-1)

Objectives of the Session


• The TF met on several occasions between September andDecember to continue to identify the issues for Part 4B arising fromthe Project and to develop the aligned Part 4B

• The TF also requested comments from designated IAASBrepresentatives on the draft issues paper and the draft ED anddiscussed in a conference call and by email with them their viewsand comments on the material

Developments since the September meeting of IESBA

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1. Independence considerations concerning direct engagements

2. Key changes proposed in the draft ED

a) Changes in key terminology (incl. definition of assurance client)

b) Impact of these changes on the independence requirements

c) Proposed deletion of R900.18, R900.19 and R900.20; proposedrevision to 900.19 A1

Outline of the discussion


3. Other changes proposed in the draft ED

a) Split of Assurance engagements between Parts 4A and 4B

b) Examples of assurance engagements – paragraph 900.1

c) Source of guidance on Assurance Engagements (§900.7 –900.11)

4. Evaluation of Objectivity

Outline of the discussion

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• IAASB was questioned in 2013 as to whether direct engagementsare compatible with independence, either because:

– There might be a self-review threat if the practitioner isresponsible for measuring or evaluating the underlying subjectmatter and obtaining assurance to express a conclusion; or

– The practitioner might participate in the development of thecriteria

1. Independence considerations concerning directengagements


• Generally the practitioner obtains assurance while performing themeasurement/evaluation and does not re-evaluate work previouslyperformed. Hence self-review does not arise

• The practitioner might participate in the development of criteria, butgenerally in conjunction with other parties as appropriate

• ISAE 3000 (Revised) addresses situations where intended users orthe engaging party do not acknowledge suitability of criteria


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• General requirement (R900.15): A firm shall apply the conceptualframework set out in Section 120 to identify, evaluate and addressthreats to independence in relation to an assurance engagement

• When considering whether to accept a direct engagement, thepractitioner needs to take into account how the criteria are to bedetermined and how the practitioner will be obtaining assurance toenable the conclusion to be provided

• The TF proposes that a brief discussion on these matters is includedin the explanatory memorandum to accompany the ED and a futurestaff publication might be considered also



2. Key changes proposed in the draft Exposure Draft

a) Changes in key terminology, including definition of Assurance Client

b) Impact of the revised Assurance Client definition on theindependence requirements

c) Proposal to delete paragraphs R900.18, R900.19 and to rework andrelocate paragraph 900.19 A1

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• ISAE 3000 (Revised) terminology changes:

– Assertion-based Attestation engagements

– Direct reporting Direct engagements

– Subject matter Underlying subject matter

• The term ‘responsible party’ now used only for the party responsiblefor the underlying subject matter (SM)

• Additional role defined of ‘measurer or evaluator’ (who may or may notbe responsible for the subject matter information (SMI))

2a. Changes in key terminology


• Assurance Client is a term used throughout Part 4B

• TF proposes to define the Assurance Client as follows:

“The responsible party and also, in an attestation engagement, the partytaking responsibility for the subject matter information (who might be the sameas the responsible party)”

• Definitions of attestation engagement, direct engagement, responsible partyand measurer or evaluator as per ISAE 3000 have also been included in theglossary

• TF proposes to amend R900.14 to clarify that independence is required of theassurance client(s) and then to reproduce the definition of assurance client asapplication material at 900.14 A1

2a. Definition of Assurance Client

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• Lack of clarity and logic in existing independence requirements

• TF proposes a simplification to require independence both of theresponsible party and also (in an attestation engagement) of themeasurer or evaluator where that party is taking responsibility for theSMI. This is explained in the new paragraph 900.14 A2

• In most cases, the responsible party and the measurer or evaluatorare part of the same organization

• This is achieved with minimal textual changes to Part 4B through theamended definition of Assurance Client

2b. Impact of the revised Assurance Client definition on the independence requirements


• Paragraphs R900.18, R900.19 and R900.20 currently summarizeindependence requirements which are set out in detail in thesubsequent sections

• The TF believes these paragraphs are unclear and unnecessary giventhe proposed simplification of the independence requirements andproposes that they be deleted

• 900.19 A1 (situation where the parties responsible for the underlyingSM and SMI are different) has been reworked and relocated in 900.14A2

2c. Proposal to delete paragraphs R900.18, R900.19 and R900.20

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Matters for consideration

• Do IESBA CAG members believe that the definition of AssuranceClient is clear and appropriate for use in Part 4B?

• Do IESBA CAG members have any comments on the other proposedchanges?


a) Split of assurance engagements between Parts 4A and 4B

b) Examples of assurance engagements – paragraph 900.1

c) Source of guidance on assurance engagements – paragraphs 900.7to 900.11

3. Other changes proposed in the draft ExposureDraft

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• Part 4B covers ‘assurance engagements other than audit and reviewengagements’

• In addition to addressing engagements covered by ISAE 3000(Revised), Part 4B also covers audits of specific elements, accounts oritems of a financial statement which are conducted under ISA 805(Revised)

• The TF decided to make the split between Parts 4A and 4B clearer inPart 4B by inserting an additional sentence in the definition ofFinancial Statements in the Glossary

3a. Split of assurance engagements between Parts 4A and 4B


• The TF believes that it is helpful to illustrate a more extensive range ofassurance engagements for which the independence requirements inPart 4B are applicable

• Therefore, the TF included more examples of the types of assuranceengagements that fall within the scope of the Part, as set out inparagraph 900.1

3b. Examples of assurance engagements –paragraph 900.1

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• Paragraphs 900.7 to 900.11 in the extant Code are intended to providea summary of the key elements of the different types of assuranceengagements. Based on advice from representatives of the IAASB,the TF believes that it is more appropriate for the user to refer to thedefinitive source of that material

• Accordingly, in the draft Exposure Draft most of this material has beenremoved other than a brief description in paragraph 900.7 of anassurance engagement and a reference to where further guidance canbe obtained, i.e. ISAE 3000 (Revised) and the Assurance Framework

3c. Source of guidance on assurance engagements – paragraphs 900.7 to 900.11


• Do IESBA CAG members agree that the split of assuranceengagements between Part 4A and Part 4B will be clarified byinserting the additional words to the definition of Financial Statementsand by adding more examples at the start of Part 4B?

• Do IESBA CAG members agree that it is preferable to refer users ofPart 4B to guidance on assurance engagements included in theIAASB materials, rather than include additional guidance in the Code?

Matters for consideration

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• Some Board members questioned in December whether it issufficiently clear in Part 4B that the firm needs to evaluate the firm’sobjectivity in the particular circumstances of the engagement, inaddition to applying the requirements for independence.

4. Evaluation of objectivity


• The TF notes that a great deal of thought was given to the need toapply the fundamental principles, including objectivity, at the timewhen Part 4A and Part 4B were developed as part of the Restructuringof the Code Project

• In particular, paragraph 900.5 addresses this issue in the same wayas paragraph 400.5 with respect to audit and review engagements

• The TF believes, therefore, that the matter raised is already addressedin Part 4B and does not propose any revisions to Part 4B

4. Evaluation of objectivity

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Proposed Timeline

Indicative Timing Milestone

March 2019 Discussion of draft Exposure Draft with IESBA CAG

Second read and approval of draft Exposure Draft by IESBA

April 2019 Publication of Exposure Draft

September 2019 Consideration of responses by IESBA

First read of proposed revised Part 4B

December 2019 Approval of revised Part 4B of the Code (to become effective in

June 2021)

The Ethics Boardwww.ethicsboard.org

alignment of part 4b with isae 3000 · (revised), part 4b also covers audits of specific elements,...

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