page 1 long association task force marisa orbea, task force chair iesba meeting january 12-14, 2015...

Long Association Task Force

Marisa Orbea,

Task Force Chair

IESBA Meeting

January 12-14, 2015

London, England

• ED issued August 4, 2014• 77 responses received by December 31, 2014• Looking at the responses in two parts

• Significant issues on which TF requires directional feedback in January 2015

• Remaining issues on which TF will seek feedback in April 2015

BackgroundLong Association

• General support– General provisions (Qs 1-3) – Time on period remaining at seven years (Q4)– If cooling-off extended to five years, provisions to apply to all PIES

(Q 6)– Cooling-off for KAP and EQCR remaining at two years (Q7)

Overview of Responses (1)Long Association

• General support– Considering whether a KAP should serve for seven years

290.150C (Q9)– Long Association of audit team members other than KAPs

290.150D (Q9)– Concurrence with TCWG regarding 290.152 (Q12)– Corresponding changes to Section 291 (Q13)


• Mixed support– Limited consultation by EP with audit team when cooling-off (Q10)– Additional restrictions on activities when cooling-off (Q11)

• General lack of support– Extending the EP’s cooling-off period to 5 years (Q5)– EP cooling-off for five years if served time as EP during 7-year

period as KAP (Q8)


• Impact on SMPs• Impact on audit quality• Lack of empirical evidence for change• Interaction with local requirements• Moving away from a principles-based approach• Complexity of application

General Themes (1)Long Association

• Need for there to be confidence in the independence of auditors, including perceived independence

• Public Interest– Board should act, and be seen to be acting in the public interest

General Themes (2)Long Association

1. Do IESBA members have any views on general themes?

2. Do IESBA members have any views on: – The interaction with local requirements, which may differ but be

equally robust– Whether the Code can provide for local differences?

General Themes - QuestionsLong Association

The Rotation of KAPs on the Audit of PIEs

• ED proposed no change to seven-year time-on period all KAPs on PIEs

• Most of those who commented supported no change:– Supported rationale in ED– No evidence of need for change

• Those who did not support suggested reduction to five years

Length of Time-On all KAPsLong Association

3. Do IESBA members have any views on respondents’ comments and suggestions?

4. Do IESBA members continue to support the proposal that there be no change to the seven-year time-on period for KAPs with respect to the audit of a PIE?

Length of Time-on all KAPs- QuestionsLong Association

• ED proposed increase in cooling-off period from two to five years

• Many agree that two years is too short • Reasons for lack of support included

– Lack of empirical evidence– Complexity in overlaying the provisions with local laws– Adverse effect on SMPs and increase in costs – Reduction in expertise, competition, de facto rotation

Length of Cooling-Off EPLong Association

• A few respondents commented that no change needed• Many agreed on an increase because two years is not

enough• Many respondents suggested an increase from two to

three years• Some respondents asked for a principles based approach• A respondent suggested that TCWG be involved in review

Respondents’ Alternative SuggestionsLong Association

• EM asked respondents whether they agreed with cooling-off remaining at two years for other KAPs including EQCR

• Most respondents supported:– No evidence of need for change – EQCR doesn’t have same influence as EP

• Some respondents did not support:– Five years is in the public interest– Board should take into account EU changes – now three years in EU

• A few comments EQCR/EP to cool-off for same time period

Length of Cooling-Off Other KAPs including EQCRLong Association

5. Do IESBA members have any views on, and reactions to respondents comments and suggestions ?

6. Do IESBA members still support the ED proposals that: – EP on PIE audit to cool-off for five years after seven years service?– Other KAPs and EQCR continue to be required to cool-off for two

years after seven years service?

7. If not what alternatives would IESBA members support?

8. Other suggestions IESBA members think Board should adopt?

Length of Cooling-Off Period - QuestionsLong Association

• ED proposed five-year cooling-off period for EP should apply to audit of all PIEs

• Three quarters of respondents supported application to all PIEs– PIEs are, by their nature, of public interest– No previous distinction between listed/PIE

• Those who did not support:– Differing definition of PIEs across jurisdictions– Only listed entities as they generally have more restrictive provisions– Principles based approach should apply

Longer Cooling-Off for all PIEsLong Association

• 9. Do IESBA members have views on respondents’ comments?

• Do IESBA members continue to support ED proposal that no distinction be made in the application of the proposals between listed and unlisted PIEs?

• 10. If not, do IESBA members support any views from ED respondents?

Longer Cooling-Off for Listeds/all PIEs - QuestionsLong Association

• ED proposed a KAP who served as EP at any time during seven-year period of service should be required to cool-off for five years.

• Two-thirds of respondents did not support:– Too restrictive, inappropriate, inconsistent, unclear– Adverse effect on SMPs

• Those who supported commented:– Any other provisions would be too complicated– Provide application guidance

EP for only Part of the 7-year Time-On PeriodLong Association

• Respondents’ alternative suggestions:– More appropriate to use conceptual framework and allow

discretion– Approach should be more proportionate using a sliding scale– Using a “trigger” point such as serving a majority of the time i.e.

more than three years out of seven

EP for only Part of the 7-year Time-On Period (2)Long Association

11. IESBA members are asked for views on respondents’ comments.

Do IESBA members still support ED proposal that a KAP who served as a EP at any time during the seven-year period of service be required to cool-off for a period of five years?

12. If not, do they support any views expressed by ED respondents?

EP for Part of 7-year Time-On Period- Questions

Long Association

• Rotation requirements should apply to key partners involved in audits of major operating subsidiaries of a PIE, including where partner becomes EP for PIE or vice versa

• Clarification of meaning/calculation of time-on• No distinction in rotation requirement for group audits• EQCR rotation provisions allow self-review threat• Look at non-partner involvement of staff “growing up” on

the audit

Other Related Comments – Rotation of KAPs on PIEsLong Association

13. Do IESBA members have any views on the other related comments from respondents?

Other Related Comments - QuestionLong Association

• Other Matters– Suggestion from regulatory respondent that professional

skepticism may warrant dedicated section in the Code and be included in future project on audit quality

– IESBA members are asked for views and whether the matter should be addressed in conjunction with IAASB

• Project Timetable– Will depend on Board’s views on respondents’ responses

Other Matters/Project TimetableLong Association

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page 1 long association task force marisa orbea, task force chair iesba meeting january 12-14, 2015...

Documents

years q5ep cooling

years q4if cooling

years length of time

years q7overview of

iesba members

eps cooling

year period

year time