ISCA ETHICS SEMINAR. Ethics Developments Knowing Where to Draw the Line. Friday, 13 April ISCA

Transcription

1 ISCA ETHICS SEMINAR Ethics Developments Knowing Where to Draw the Line Friday, 13 April 2018

2 EP 200: APB 2 of 2017 Compliance with Ethics Pronouncements on Anti-Money Laundering and Countering the Financing of Terrorism Kwok Wui San Chairman, ISCA Ethics Committee, Partner, PricewaterhouseCoopers LLP

3 Background of APB 2/2017 Compliance with Ethics Pronouncements on Anti-Money Laundering and Countering the Financing of Terrorism. Issued 13 Dec ACRA s expectations on internal policies, procedures and controls (IPPC). IPPC: Implement by 31 Dec 2017 Compliance 3

4 Serious consequences for non-compliance ACRA takes a serious view of any non-compliance with the EP 200 will not hesitate to take disciplinary.. ACRA sanctions for non-compliance: Warnings Financial penalties Restriction orders eg. no new clients, or suspension from public accountancy services Criminal prosecution Harder to defend 4

5 EP200 reminder 5

6 IPPC is compulsory, whether or not Difference is specified requirements for 1.5 Requires risk-based IPPC Additional specified requirements if services in para 1.5: - CDD - Record keeping 6

7 ACRA s expectations, reminder APB 2/2017 states:.. expected to have set up and implemented IPPCs.. regardless of whether the public accountants or firms are providing any services described in paragraph 1.5 of EP 200,.. having regard to the risks of ML and TF and the size and nature of the business 7

8 What must be in IPPC? - Under EP200 Additional specified requirements when providing services in para 1.5 8

9 What must be in IPPC? - Additional guidance in APB 2/2017 STR CDD Records keeping Reporting Procedures Ongoing training Compliance management Hiring Independent Audit Function 9

10 10

11 ACRA s expectations, reminder APB 2/2017 states:.. expected to have set up and implemented IPPCs.. regardless of whether the public accountants or firms are providing any services described in paragraph 1.5 of EP 200,.. having regard to the risks of ML and TF and the size and nature of the business 11

12 In conclusion Stay tuned.. further clarification from ACRA at Practitioners Conference on 1 June

13 13

14 fb.com/isca.official

15 EP 100: Current Developments and Pertinent Issues Tan Seng Choon Member, ISCA Ethics Committee, Partner (Assurance), Ernst & Young LLP

16 What are we covering? Current Developments EP 100 IG 2 Case Studies on Pertinent Issues in Ethics Proposed Changes to EP 100 on Long Association Provisions 16

17 17 Proposed Changes to EP 100 on Long Association Provisions

18 Timeline on Proposed Changes to EP 100 on Long Association Provisions Aug 2014 IESBA ED Feb 2016 IESBA re-ed 28 Mar - 15 May 2018 ISCA ED May 2018 Assess Key comments June 2018 Issuance of Revised EP 100 FS Audits after 15 Dec 2018 New Provisions Effective Comments sought via ISCA Accompanying Document (Mar 2016) 18

19 Long Association Provisions What it is About Same senior personnel on audit/assurance engagement over long time Familiarity threat Do Long Association provisions in EP 100 provide robust safeguards to threats? Self-interest threat 19

20 ISCA Long Association ED Proposed Key Changes What are the key changes? Longer cooling-off periods? More restriction on activities during coolingoff Who are affected? Key audit partners (KAPs) of public interest entity (PIE) audits 20

21 How Would Long Association Provisions Affect SMPs? 21

22 How Would Long Association Provisions Affect SMPs (1) The PIE Definition is wider than you think Paragraph of EP 100 defines PIEs as: (a) All listed entities; and (b) Any entities: (i) defined as PIE by law or regulation; or (ii) for which the audit is required to be conducted in compliance with the same independence requirements that apply to the audit of listed entities. Such regulation may be promulgated by any relevant regulator, including an audit regulator. PIE includes any financial institution [SG A(c)] Broad spectrum of entities Large Charities and large IPCs 22

23 How Would Long Association Provisions Affect SMPs (2) The SMP may be a Component Auditor to a PIE SMP audits a subsidiary that is significant to the PIE engagement and is identified as Other KAP by group engagement team Group engagement team instructs all component auditors to comply with the Long Association Provisions 23

24 Time-on and Cooling-off Periods for KAPs of PIEs Current Vs Proposed Current (SGX Listing Rules) 5 years 2 years Longer timeon period Longer cooling-off period Proposed* 7 years 5 years Engagement Partner Current (EP 100) 7 years 2 years No change to time-on period Longer cooling-off period Proposed 7 years 5 years * Subject to SGX/MAS Approval 24

25 Time-on and Cooling-off Periods for EQCRs and Other KAPs of PIEs Current Vs Proposed Current 7 years 2 years EQCR Proposed No change to time-on period 7 years 3 years Longer cooling-off period Current 7 years 2 years No change to time-on period No change to coolingoff period Other KAP Proposed 7 years 2 years 25

26 More Restrictions on Activities During Cooling-off Period Responsible for leading or coordinating the firm s professional services to the audit client or overseeing the firm s relationship with the audit client Is it ok to be relationship partner if I am not leading or coordinating firm s relationship with client? Former KAP during Cooling-off period Undertake any other role or activity with audit client that results in: (a) Significant or frequent interaction with SM or TCWG; or (ii) Exerting direct influence on the outcome of the audit engagement. What does it mean by significant or frequent interaction? 26

27 What It Means for EPs 27

28 Time-on and Cooling-off Periods For EPs of Listed PIEs 3 Scenarios FY 16 FY 17 FY 18 FY 19 FY 20 FY 21 FY 22 FY 23 FY 24 FY 25 1) 5 yrs EP 2 yrs cooling 7 yrs EP 2) 5 yrs EP 1 yr cooling 4 yrs cooling 7 yrs EP to FY 29 3) 5 yrs EP 2 yrs as EP 5 yrs cooling Effective Date 5 yrs cooling 7 yrs EP to FY 30 28

29 Why Do we Want to Adopt Long Association Provisions? 29

30 Why Do We Want to Adopt Long Association Provisions? 1) Greater perceived independence Current (7/2) for PIEs EP off EP off EP Cooling- Cooling- 7 yrs 2 yrs 7 yrs 2 yrs 7 yrs Partner serves as EP of an audit client for 21/25 years in career as audit partner Proposed (7/5) for PIEs EP EP Coolingoff Coolingoff 7 yrs 5 yrs 7 yrs 5 yrs Partner serves as EP of an audit client for 14/24 years in career as audit partner 30

31 Why Do We Want to Adopt Long Association Provisions? 2) Part of Global Network or Component Auditor to a PIE Part of Global network Component Auditor of PIE Global network (aligned to IESBA) Group Engagement Team (aligned to IESBA) SG Firm Firm still needs to comply with global network s policy SG Firm Group Engagement Team instructs SG Firm to comply with IESBA requirements 31

32 32 EP 100 IG 2 Frequently Asked Questions on Key Audit Partners

33 Who is a Key Audit Partner (KAP)? Engagement Partner Other KAP Makes key decisions or judgements on significant matters in audit of FS EQCR Not easy to determine who is Other KAP May include partners responsible for significant subsidiaries or divisions 33

34 EP 100 IG 2 Frequently Asked Questions on Key Audit Partners Definition and Clarifications Illustrative Scenarios EP 100 IG 2 34

35 Guidance on Other KAP in EP 100 IG 2 Other KAP may include partners responsible for significant subsidiaries or divisions, etc Key decisions or judgments not defined in EP 100 Key test Has partner made key decision or judgement on significant matter? Significant matter not defined in EP 100 Ref to SSAs which cover similar or related concepts Professional judgment in context of audit engagements defined in SSAs Para A8 of SSA 230 provides examples of significant matters Para 28 of SSA 315 clarifies the areas to consider in exercising judgement as to which risks are significant Paras A5-A6 of SSA 600 provide application and other explanatory material on significant components. 35

36 Is X a KAP of the Group Engagement Team? Group is in business of hotels Group accounting policy determines key decisions like revaluation and impairment Holding Co. A (listed on HKSE) Judgement is made at the group engagement team level X is EP of Subsidiary B No key decisions are made at the subsidiary level Significant Subsidiary B in SG (non- PIE) No key decisions are made at component auditor level 36

37 Is X a KAP of the Group Engagement Team? KAP of Group Engagement Team? X does not make key decisions in relation to group audit Documentation of Basis? The Group Engagement Team would need to document basis as to why X is not a KAP of Group Engagement Team 37

38 Illustrative Scenarios Who is a KAP? Technical partner? Key Consideration Was there key decision or judgement on significant matter in FS audit? Working partner? Independence partner? Partner consulted before engagement? 38

39 39 For a SMP with no Listed Client, do the Long Association Provisions still Matter?

40 Do Long Association Provisions Matter to K? I do not have any listed or PIE clients It Depends Hence the LA provisions do not concern me Partner K 40

41 Do Long Association Provisions Matter to K? Is K an Other KAP of a PIE Audit Engagement conducted by Another Audit Firm? Yes Yes No Partner K is auditing a subsidiary that is significant to the PIE engagement and is identified as Other KAP by group engagement team Partner K receives group engagement team s instructions to comply with the Long Association Provisions No group instructions are given, with regards to compliance with the Long Association Provisions 41

42 fb.com/isca.official

43 Corruption and Inducements From a Legal Perspective Hamidul Haq Partner, Rajah & Tann Singapore LLP

44 Introduction

45 Introduction - Singapore is ranked as one of the least corrupt countries in the world, and the least corrupt country in the whole of Asia. - In 2016, Singapore ranked 7 th out of 176 countries in Transparency International s Corruptions Perceptions Index. - Ahead of it in the ranking is (in descending order) Denmark, New Zealand, Finland, Sweden, Switzerland and Norway. - In 2015, Singapore ranked 8 th, and prior to 2014, Singapore had finished in the No. 5 spot for 3 years, when it slid to 7 th place. 45

46 BODIES RESPONSIBLE FOR INVESTIGATING AND COMBATING CORRUPTION IN SINGAPORE Main body charged with investigating corruption in Singapore is the Corrupt Practices Investigation Bureau (the CPIB ), under the charge of the Prime Minister s Office. Note: When investigation is concluded, the PP's consent must be obtained before prosecution. Cases against public officers with insufficient evidence to support a court prosecution are referred (with the PP s concurrence) to the head of the department concerned for disciplinary action. CPIB is granted wide and far-reaching powers Section 15 PCA: any CPIB investigator may arrest without a warrant any person who has been concerned in any offence under the PCA or against whom a reasonable complaint or suspicion has been made or credible information has been received. Sections 18, 20 and 21 PCA: the inspection of bank accounts, share accounts, purchase accounts, banker s books, properties and income tax under prescribed conditions. Section 27, PCA: suspect not entitled to refuse answering incriminating questions. 46

47 CPIB ANNUAL REPORT

48 CPIB ANNUAL REPORT

49 SOURCE OF ANTI-CORRUPTION LAWS IN SINGAPORE Prevention of Corruption Act ( PCA ) (Cap. 241) o o o o The primary anti-corruption legislation in Singapore The CPIB derives its powers from this statute. Applies to BOTH public sector and private sector employees and officers Corrupt transactions, including the illegal provision or receipt of unauthorised commissions, are prohibited under sections 5 and 6 of the PCA 49

50 SOURCE OF ANTI-CORRUPTION LAWS IN SINGAPORE The Penal Code (Cap. 224) also creates various specific corruptionrelated offences involving Singaporean public officials (Sections 161 to 165). The Corruption, Drug Trafficking and Other Serious Crimes (Confiscation of Benefits) Act (Cap. 65A) ("CDSA") criminalises any dealing with proceeds from criminal conduct (which is defined to include corruption offences) and/or benefits derived therefrom. Most recently, the Criminal Law (Temporary Provisions) Act (Cap. 67), which allows for administrative detention in the interests of public safety, peace and good order, was utilised in relation to alleged cross-border corruption. 50

51 Overview of Corruption Laws in Singapore

52 What constitutes a bribery/corruption offence under the PCA/Penal Code? (a) Soliciting, receiving, agreeing to receive, giving, promising or offering of gratification (Actus reus). (b) As an inducement or reward (for the conferment of a benefit) (Mens Rea). (c) There was an objective corrupt element in the transaction (an objective test). (Mens Rea) (d) The offender s guilty knowledge that what he was doing was corrupt by the ordinary and objective standard (a subjective test). (Mens Rea) 10

53 What constitutes a bribery/corruption offence under the PCA/Penal Code? Bribes are referred to as gratification and entail the following: Money or any gift, loan, fee, reward, commission or other property of any description Any office, employment, or contract Any payment, release, discharge or liquidation of any loan, obligation or other liability Any other service, favour or advantage of any description Any offer, undertaking or promise of any gratification Section 5 PCA deals with general corruption: it is a private and public offence to corruptly offer and/or accept gratification by both individuals and corporations as an inducement. Section 6 PCA deals with corruption involving agents: it is an offence to corruptly offer and/or accept gratification by an agent that pertains to the performance of the principal s affairs or for the purposes of misleading the principal. 11

54 Scope of the PCA The PCA has extraterritorial effect There is a presumption of corruption against the offender if it is proved in any legal proceedings that gratification has been paid to or received by a government official Punishment for corrupt transactions: A fine not exceeding $100,000 or to imprisonment for a term not exceeding 5 years or to both Where the matter or transaction in question was a contract or a proposal for a contract with the Government or any department thereof or with any public body, there is an increased maximum term of imprisonment of 7 years instead of 5. Industry practice is not likely to be a defence 54

55 Other Related Offences Lack of reasonable diligence under s 157(1), Companies Act Fine not exceeding $5,000 or jail not exceeding 12 months Lim Weng Kee v Public Prosecutor [2002] SGHC 193 (High Court) - $4000 fine on each of three charges Public Prosecutor v Chang Cheow Teck (DAC944355/2016) - Short detention order of 14 days 55

56 Other Related Offences Falsification of accounts: s477a, Penal Code Criminal Breach of Trust: ss 405, 406 and 409, Penal Code Public Prosecutor v Lam Leng Hung [2017] SGHC 71 (High Court) o Kong Hee (CBT) 3 years and 6 months o John Lam (CBT) 1 year and 6 months o Chew Eng Han (CBT & account falsification) 3 years and 4 months o Tan Ye Ping (CBT & account falsification) 3 years and 2 months o Serina Wee (CBT & account falsification) 2 years and 6 months o Sharon Tan (CBT & account falsification) 7 months 56

57 What about gifts, meals and hospitality?

58 Gifts, Meals, and Hospitality Gifts should be Made for the right reason (token of respect) Given with no obligation Made openly In accordance with stakeholder perception Of reasonable value (general business practice) Appropriate (under general business practice and local customs) Legal (depends on jurisdiction) Infrequent Documented 58

59 Gifts, Meals, and Hospitality Beware of local custom General rule is that gifts, meals and hospitality should be reasonable What would the regulator think Cash, precious metals, or luxury goods =Trouble Reasonable meals are fine Lobster + Caviar + Chateau Petrus = Trouble Sporting events are fine Olympics + first class airfare + 5-star hotel = Trouble KTV or hostess bars = Could be Trouble Remember the Newspaper Rule 59

60 Gifts, Meals and Hospitality If you think something gives the impression of imparting an obligation, might look bad in a newspaper, or is unreasonable, ask for advice and permission Many companies set thresholds, which vary depending on industry and country You should always seek approval for long distance travel, overnight accommodation, and anything that might be considered luxurious Many companies ban gifts of cash and cash equivalents Gifts to spouses or children of business contacts are strongly discouraged Difficult to justify lack of obligation 60

61 What to Avoid Generally: DO NOT place yourself in a position where your duty to the company and your personal interests may conflict. DO NOT make improper use of any information acquired by virtue of your position to gain advantage for yourself or for any other person or to cause detriment to the company DO NOT under any circumstances offer, promise, give or authorise the giving, directly, indirectly or through third parties or otherwise, of any bribe, kickback, illicit payment, benefit in kind or any other advantage to a public or government official, private sector customer, supplier, contractor, or any other person or entity, as an inducement or reward for an improper performance or non-performance of a function or activity 61

62 What to Avoid DO NOT give or receive entertainment or gifts which is excessive in value, given too frequently to a specific entity, or leaves you or the other person in a position of obligation or possible perceived obligation. DO NOT provide donations or sponsorships for purposes of influencing any act, omission or decision of such business partner in order to obtain any improper benefit or benefit in respect of any matters relating to the company. DO ensure the relevant approvals are obtained in relation to any form of entertainment, gift, donation or sponsorship. DO ensure that all third parties/ agents certify compliance with ABC requirements DO report immediately to management in writing if you suspect corruption If under investigation, DO cooperate with the authorities, but DO NOT answer any questions or provide any information or documents, without first consulting Legal/ Compliance 62

63 Specific Red Flags for Audit / Accounting Employees Management override of accounting controls Payments without contracts Payments to non-contractual bank accounts Payments in the absence of an invoice (or against an inadequate invoice) Customer/JV partner/investor requests to hold funds Especially combined with requests to pay on to third parties Overuse of suspense or miscellaneous accounts (or similar) Seemingly excessive expenses in certain categories (subjective) Sales expenses, entertainment expenses, travel expenses, etc. Chinese travel agencies Benford s law (unusual distribution of PO or invoice amounts) 63

64 Pay to Play (Lava Jato) A company can be guilty of bribery even where it legitimately wins business In Brazil, companies bidding for contracts with the state oil company were expected to pay bribes to oil company managers and a political party in order to be considered for bidding Actual bids were run in a commercial manner among those who qualified Still a bribe Difference between extortion and loss of business opportunity Extortion = imminent threat to the physical safety of you, your employees, or your property Pay a bribe or lose a contract is not extortion 64

65 Facilitation Payments Small payments to obtain or speed up routine non-discretionary governmental action, such as licenses, visas, police protection, telephone service, scheduled inspections, loading or unloading cargo, or similar actions Technically legal under US FCPA and some other laws, but illegal under the laws of most countries US authorities have never publicly recognized that payments are facilitation payments Most companies prohibit Difference between facilitation payments and extortion Extortion = imminent physical threat to personal safety or property Does not involve loss of business opportunities 65

66 Individual & Corporate Liability

67 Individual and Corporate Liability In most jurisdictions, corporate liability can be imposed on companies for crimes committed by their employees, agents etc. Risk of corporate liability if it can be shown that the individual(s) who committed corruption can be regarded as the embodiment of the company or its directing mind and will or whose acts are within the scope of the function of management properly delegated to him. Traditionally, Singapore authorities have prosecuted individuals, and not companies. See e.g. ST Marine (7 senior executives, including CEO, CFO). 67

68 Individual and Corporate Liability Post Keppel? - First case of a Singapore company entering into DPA with DOJ global resolution announced on 23 December 2017 with authorities in the US, Brazil and Singapore. - Implementation of DPA in Singapore? "It's about time we had DPAs here where corporates can be taken to task and (where) they could pay a much higher sum compared to what the criminal law provides - Avoid criminalisation of companies Minister for Home Affairs and Law K. Shanmugam (15 Jan 2018) - Huge fines (e.g. US$422m in Keppel) c.f S$100,000 under PCA - Improved compliance culture - Self report and swift resolutions 68

69 Case Studies

70 TAC CONTRACTS (2017) 4 employees of water-proofing services company, TAC contracts, were jailed for giving kickbacks to building managers, supervisors, technicians and engineers of condominiums and commercial buildings here. Bribes given generally ranged from $31,076 to $59,074.50; jail terms from 19 weeks to 46 weeks. Mastermind gave $461,634 in bribes to 89 recipients; 2.5 years jail. 10% of the contract value was given as corrupt referral fees to people such as management staff responsible for obtaining approval to award contracts to TAC. 70

71 SP POWERGRID (2015) On 26 November 2015, three former employees of SP Powergrid Limited and one former employee of SP Services Limited were charged for corruptly obtaining or accepting gratification ranging from $50 to $450 as an inducement or reward from an employee of China Construction South Pacific Pte Ltd ( CCSP ) for not creating difficulties for CCSP during an installation inspection, an offence under s6(a), PCA. Three of them were sentenced to jail terms ranging from one to six weeks, and ordered to pay penalties for the amount received, whereas one of them received a warning. The employee from CCSP was also charged but the case outcome has not been made public. 71

72 PEH CHEW SENG (2013) The accused was a Deputy Director (Projects & Development) of the Tan Tock Seng Hospital ( TTSH ) in early February, He was charged under section 6(a), PCA, for attempting to obtain a gratification of an unspecified sum from one P, Executive Director of M/s PBT Engineering Pte Ltd through one S, in relation to his principal s affairs, i.e. awarding a contract to the said M/s PBT Engineering Pte Ltd for the construction of a temporary office at a vacant plot next to the Tan Tock Seng Hospital s main building. No money changed hands. The Court found that the evidence confirmed that the accused had told Sim that he would expect something in return if PBT is successful in being awarded the project with the accused s assistance. S confirmed that the expectation by the accused was a commission ie 1 to 2 per cent of the contract sum. P corroborated S that the accused had expected something (ie in monetary terms) in return for the accused s help in securing the project for PBT. The accused claimed trial to the charge and at the end of the trial, he was found guilty and convicted. He was sentenced to 6 weeks imprisonment. 72

73 PETER LIM Facts: Accused, former SCDF Commissioner, faced one charge under s6(a), PCA for obtaining oral sex from the general manager of Nimrod Engineering, a vendor to the SCDF as an inducement for showing favour by advancing Nimrod s business interests. Held: Accused failed to rebut presumption triggered under s8, PCA. Court found that it was obviously corrupt for the accused to obtain oral sex from a general manager of SCDF s vendor with an ongoing business relationship, when he was never in any intimate or romantic relationship with her. 73

74 TEO CHU HA Facts: Accused (employee of Coy A) agreed with a third party to influence the tender exercise in favour of Coy B, which was formed solely for the receipt of financial benefits from Coy A if successful in tender exercise. Coy B won the exercise in 2004, 2005 and Accused received a total of 11 dividend payments from his Coy B shares, for which he had earlier paid $6,000. Held (criminal reference before SGCA): While the consideration paid by an accused was a factor which the court could consider, prosecution does not have to prove that consideration was inadequate or that transaction was a sham before an offence under s 6, PCA is made out. Shares can be considered gratification notwithstanding that they were paid for. 74

75 SYED MOSTOFA ROMEL Facts: 2 charges of corruption under s6(a), PCA. After a safety inspection of a vessel, Mr Syed Mostofa Romel sought payments from the shipmaster, in order to omit the high-risk observations from the final printed report of the vessel. Held (in the High Court): Jail term increased by Chief Justice from 4 months (2 months per charge) to 12 months (6 months per charge). (1) Offending acts carried out over a period of three months and involved a sum totalling US$7,200. (2) Maritime industry is a strategic one accounting for up to 7% of Singapore s gross domestic product and 170,000 jobs. Potential loss of confidence in the maritime industry and considerable economic ramifications. (3) Safety of the terminal as well as that of the workers at the terminal was compromised. (4) Acts were premeditated and deliberate. 75

76 ST MARINE Cases of former ST Marine Senior Executives Facts: Former Singapore Technologies (ST) Marine senior executives made thousands of false entries in ST Marine petty cash vouchers relating to more than S$6.5 million in entertainment expenses (such expenses were actually not incurred), which were allegedly bribes. 76

77 ST MARINE Developments: See Leong Teck (s477apc, s6(b) PCA, s157(1) CA) 10months imprisonment,$100,000 fine Tan Mong Seng(s477APC,s6(b) PCA) 16weeks imprisonment Han Yew Kwang(s477APC,s6(b)PCA) 6months imprisonment, $80,000fine Mok Kim Whang(s477APC, s6(b)pca) 5months imprisonment,$100,000fine Patrick Lee(s477APC) $210,000fine Ong Tek Liam(s477APC,s6(b)PCA) $300,000fine 77

78 Conclusion Sharing of information and mutual legal assistance can only be further enhanced in a world where anti-corruption legislation is becoming increasingly extra-territorial in nature. PCA has extraterritorial effect by virtue of section 37; wide reach is further broadened by presumptions in sections 8 and 9 of the PCA Companies doing business in Asia using Singapore as their regional headquarters should take note of both local laws as well as international laws -- Singapore laws clearly apply to corporate bodies Companies must assess the bribery risks that they face and take steps to mitigate such risks through implementing adequate compliance frameworks designed to prevent and detect corrupt activities in business transactions, and effectively respond to bribery incidents as and when they occur. 78

79 Hamidul Haq Partner DID: (65) Rajah & Tann Singapore LLP 9 Battery Road #25-01 Singapore

80 IESBA Update Caroline Lee, IESBA Member April 13, 2018 Page 80 Proprietary and Copyrighted Information

81 Agenda Revised and Restructured Code Architecture Effective Date Current Projects and Initiatives Inducements Professional Skepticism NAS Fees Technology Page 81 Proprietary and Copyrighted Information

82 Revised and Restructured Code Overall Architecture Part 1 (All Professional Accountants) Complying with the Code, Fundamental Principles and Conceptual Framework (Sections 100 to 199) Part 2 Professional Accountants in Business (Sections 200 to 299) Part 3 Professional Accountants in Public Practice (Sections 300 to 399) International Independence Standards (Parts 4A & 4B) Part 4A Independence for Audits & Reviews (Sections 400 to 899) Part 4B Independence for Assurance Engagements Other than Audit and Review Engagements (Sections 900 to 999) Glossary (All Professional Accountants) Page 82 Proprietary and Copyrighted Information

83 Revised and Restructured Code Part 1 Complying with Code, FPs and CF Objectivity Confidentiality Integrity Professional Behavior Professional Competence and Due Care The Conceptual Framework Independence Page 83 Proprietary and Copyrighted Information

84 Safeguards What is the Conceptual Framework? Not possible to include a complete and all-inclusive list of facts and circumstances that might trigger ethics issues Important to have a set of principles to assist all PAs deal with ethics issues not explicitly dealt with in Code More robust and explicit provisions as a result of Safeguards project Page 84 Proprietary and Copyrighted Information

85 Safeguards Identifying and Evaluating Threats Understand facts and circumstances Professional activities, interests and relationships Conditions, policies and procedures are not safeguards Impact the identification of threats Relevant factors in PA s evaluation of whether a threat is at an acceptable level When threats are not at an acceptable level, PAs are required to address them Eliminate circumstance; Apply safeguards; or Decline/End professional activity Page 85 Proprietary and Copyrighted Information

86 Safeguards Categories of Threats Selfinterest Self-review Advocacy Familiarity Intimidation Page 86 Proprietary and Copyrighted Information

87 Safeguards Revised, Clearer Definitions of Key Concepts Reasonable and Informed Third Party (new) Conditions, Polices and Procedures (new) Safeguards (revised) Acceptable Level (revised) Appropriate Reviewer (new) Page 87 Proprietary and Copyrighted Information

88 Safeguards NAS Safeguards Related Revisions Introduction and General Provisions Evaluate and address threats from providing any NAS to audit client, even those not specified Explains materiality in relation to an audit client s financial statements Firm/network firm to consider combined effect of threats from providing multiple NAS to same client Prohibition of assuming management Page 88 Proprietary and Copyrighted Information

89 Safeguards Avoiding Management Responsibility More prominent provisions to prohibit auditors from assuming management responsibilities when providing NAS to audit clients Clarification that prohibition applies in all circumstances Firms/network firms may provide advice and recommendations to assist management of an audit client discharge its responsibilities More prominent provisions to emphasize the prerequisite client responsibilities that need to be in place when a firm or network firm provides advice and recommendations to assist management of an audit to avoid assuming management responsibility Page 89 Proprietary and Copyrighted Information

90 Safeguards Revisions to Recruiting Services Several revisions and refinements made to clarify provisions relating to recruiting services New description of recruiting services New req t to establish prerequisite client responsibilities for when a firm or network firm provides recruiting services to an audit client New subheadings to emphasize the types of recruiting services that are prohibited Page 90 Proprietary and Copyrighted Information

91 Safeguards Prohibitions Relating to Recruiting Services Firms and network firms shall not act as a negotiator on the client s behalf when providing recruiting services to an audit client Firms and network firm shall not providing recruiting services to audit clients that involve: 1. Searching for or seeking candidates; and 2. Undertaking reference checks for (a) directors and officers; or (b) a member of senior management in a position to exert significant influence over the preparation of the client s accounting records or financial statements for audit clients Page 91 Proprietary and Copyrighted Information

92 Revised and Restructured Code Professional Skepticism and Professional Judgment For all PAs New AM to emphasize importance of obtaining an understanding of facts and circumstances when exercising professional judgment For auditors and assurance practitioners New AM to explain how compliance with fundamental principles supports professional skepticism Page 92 Proprietary and Copyrighted Information

93 Revised and Restructured Code Professional Accountant in Business Include PAs employed, engaged or contracted in an executive or non-executive capacity in, for example: Commerce, industry or service Public sector Education Not-for-profit sector Regulatory or professional bodies Legalities of PA s relationship with the employing organization has no bearing on ethical responsibilities Page 93 Proprietary and Copyrighted Information

94 Revised and Restructured Code Professional Accountant in Public Practice PA, irrespective of functional classification (for example, audit, tax or consulting) in a firm that provides professional services The term PAPPs is also used to refer to a firm of PAPPs Professional activity is a broad umbrella term Requires accountancy or related skills undertaken by a PA, including accounting, auditing, tax, management consulting, and financial management Professional services are professional activities performed for clients Page 94 Proprietary and Copyrighted Information

95 Revised and Restructured Code Applicability of Part 2 Provisions to PAPPs Questions about whether PAIB provisions in Code should apply to PAPPs Revised provisions clarify that: PAs have a responsibility to consider the context of ethics issue and consider all provisions in the Code, irrespective of its location There are situations where the provisions in Part 2 will also be relevant to PAPPs Page 95 Proprietary and Copyrighted Information

96 Revised and Restructured Code Example of Applying CF to Part 2 Acting with Sufficient Expertise Identify Self-interest threats to FPs of professional competence and due care Facts and circumstances include: insufficient time, incomplete information, lack of experience, inadequate resource Evaluate Factors for evaluating level of threat include: single vs team, seniority, supervision Address Examples of safeguards include: get assistance/training, or allocate more time Page 96 Proprietary and Copyrighted Information

97 Revised and Restructured Code International Independence Standards (IISs) Part 4A Audit and Review Engagements Provisions apply to both audits and reviews Reference to ISQC 1 to clarify responsibility for independence Some req ts explicitly refer to firms and network firms Part 4B Other Assurance Engagements Closely aligned to provisions in Part 4A Consistent with extant Part 4B apply to firms only (does not apply to network firms) Page 97 Proprietary and Copyrighted Information

98 International Independence Standards (Parts 4A and 4B) Example of Applying CF to Independence Long Association Identify Familiarity and self-interest threats to independence Evaluate Examples of factors include: individual, audit client Address Example of action to eliminate: Rotation Examples of safeguards include: change role/nature of tasks, appropraite reviewer, QRs IESBA determined that certain threats cannot be at acceptable level Specific req ts for PIEs with respect to certain individuals (rotation) Page 98 Proprietary and Copyrighted Information

99 Independence and NAS Structure of NAS Subsections All audit clients Type of threats created Scope of NAS Examples of factors to consider Example of actions to address, including safeguards if any Specific situations (PIEs/non PIEs) Prohibitions and other requirements Additional factors and/or actions to address threats if any Page 99 Proprietary and Copyrighted Information

100 Revised and Restructured Code Effective Dates NOCLAR: July 15, 2017 Long Association Audits and reviews: f/s periods beginning Dec 15, 2018 Other assurance engagements covering periods: periods beginning Dec 15, 2018; otherwise Dec 15, 2018 Restructured Code (including Safeguards revisions) Parts 1, 2 and 3: June 15, 2019 Part 4A (independence for audits and reviews): f/s periods beginning June 15, 2019 Part 4B (independence for other assurance engagements): engagements covering periods: periods beginning June 15, 2019; otherwise June 15, 2019 Page 100 Proprietary and Copyrighted Information

101 Current Projects and Initiatives Inducements 2017 proposals to revise inducements provisions Clarify appropriate boundaries for offering, accepting, or encouraging others to offer or accept inducements Explicit prohibition for inducements with intent to improperly influence behavior (bribery and corruption included) Improved guidance to assist PAs apply the conceptual framework in other circumstances Feedback to ED was considered and IESBA anticipates finalization in June 2018 Page 101 Proprietary and Copyrighted Information

102 Current Projects and Initiatives Professional Skepticism Consultation paper anticipated Q Will explore key questions: Behavioral characteristics inherent in PS? Should those characteristics be exercised by all PAs? Should the Code be further developed as a result? Aim includes supporting and reinforcing effective exercise of PS in audit and assurance context Close coordination with IAASB and IAESB Page 102 Proprietary and Copyrighted Information

103 Current Projects and Initiatives Non-assurance Services WG formed December 2017 Fact finding underway to scope out project Updating G-20 benchmarking Three global roundtables being planned for June-July 2018 in Paris, Washington and Tokyo Taking holistic view of the issues Leveraging revised safeguards provisions Page 103 Proprietary and Copyrighted Information

104 Current Projects and Initiatives Fees IESBA seeks to determine whether there is a relationship between fees and threats to independence and compliance with FPs Fees questionnaire released in Nov 2017 Tailored questions for each stakeholder group Feedback to survey being analysed and WG will report final recommendations in Q Page 104 Proprietary and Copyrighted Information

105 On the Horizon Trends and Developments in Technology Exponential, disruptive technology (e.g. Emergent AI and robotics, blockchain, big data, cloud computing, mobile, social networks) Emerging or newer models of work and service delivery (e.g. contingent workforce; managed and outsourced services) Profession and others recognizing pressing need to understand and address transformative effects Firms strategically adapting business models and investing heavily in new digital capabilities for audit Leveraging data analytics, bots, etc New skills required Clear strategic priority for IESBA Page 105 Proprietary and Copyrighted Information

106 Revised and Restructured Code Revised and Restructured Code Safeguards NOCLAR Long association Professional skepticism and professional judgment Applicability of extant Part C to PAs in public practice Pressure and other enhancements to PAIB provisions Inducements (coming June 2018) Page 106 Proprietary and Copyrighted Information

107 Revised and Restructured Code Rollout Initiatives Coming in 2018 Basis for Conclusions documents IESBA Staff Q&A publications Video Q&As At-a-Glance and fact sheets Presentation slides Other support Outreach and communication Page 107 Proprietary and Copyrighted Information

108 The Ethics Board

109 fb.com/isca.official

110 Important disclaimer This Presentation (the Presentation) has been prepared by ISCA for the exclusive use of the recipients to whom it is addressed. Each recipient agrees that it will not permit any third party to, copy, reproduce or distribute to others this Presentation, in whole or in part, at any time without the prior written consent of ISCA, and that it will keep confidential all information contained herein not already in the public domain. The Preparers expressly disclaim any and all liability for representations or warranties, expressed or implied, contained in, or for omissions from, this Presentation or any other written or oral communication transmitted to any interested party in connection with this Presentation so far as is permitted by law. In particular, but without limitation, no representation or warranty is given as to the achievement or reasonableness of, and no reliance should be placed on, any projections, estimates, forecasts, analyses or forward looking statements contained in this Presentation which involve by their nature a number of risks, uncertainties or assumptions that could cause actual results or events to differ materially from those expressed or implied in this Presentation. In furnishing this Presentation, the Preparers reserve the right to amend or replace this Presentation at any time and undertake no obligation to update any of the information contained in the Presentation or to correct any inaccuracies that may become apparent. This Presentation shall remain the property of ISCA.