Non-assurance Services

IFAC Bard IESBA CAG Meeting (September 2018) Ref. Paper t Agenda Item C Rundtable Briefing Nte May 2018 Internatinal Ethics Standards Bard fr Accuntants Nn-assurance Services Explring Issues t Determine a Way Frward Prepared by: Diane Jules (August 2018) Page 1 f 18

This dcument has been prepared by the IESBA Nn-assurance Services Wrking Grup. The Internatinal Ethics Standards Bard fr Accuntants (IESBA) is a glbal independent standardsetting bard. Its bjective is t serve the public interest by setting high-quality ethics standards fr prfessinal accuntants wrldwide and by facilitating the cnvergence f internatinal and natinal ethics standards, including auditr independence requirements, thrugh the develpment f a rbust Internatinal Cde f Ethics fr Prfessinal Accuntants (including Internatinal Independence Standards) (the Cde). The structures and prcesses that supprt the peratins f the IESBA are facilitated by the Internatinal Federatin f Accuntants (IFAC). Cpyright May 2018 by the Internatinal Federatin f Accuntants (IFAC). Reference Paper t Agenda Item C Page 2 f 18

ROUNDTABLE BRIEFING NOTE NON-ASSURANCE SERVICES CONTENTS Page I. Backgrund... 4 II. Overview f Nn-assurance Services (NAS) Prvisins in the Cde... 5 III. General Plicy Objective... 6 IV. Summary f Specific Issues Identified by Stakehlders... 7 A. Materiality... 7 B. Public Interest Entities (PIE) and nn-pie Prvisins... 8 C. Uncnditinal NAS Prhibitins ( i.e. a Black List )... 9 D. New and Emerging Services... 9 E. Auditr Cmmunicatin with TCWG... 9 F. Disclsure and Other Matters... 10 V. Questins fr Rundtable Participants... 11 Appendix 1: Extract f NAS Prhibitins in the Cde fr PIEs Appendix 2: Imprvements t Assist in the Applicatin f the Cnceptual Framewrk in Relatin t the Prvisin f NAS t Audit Clients Reference Paper t Agenda Item C Page 3 f 18

NON-ASSURANCE SERVICES EXPLORING ISSUES TO DETERMINE A WAY FORWARD I. Backgrund 1. Auditr independence is critical t public trust in audited financial statements, and cntributes t audit quality. In recent years, there have been a number f legal and regulatry develpments aimed at respnding t issues affecting auditr independence, including audit firms prvisin f nn-assurance services (NAS) 1 t audit clients. 2 2. Sme stakehlders and the Public Interest Oversight Bard have called fr IESBA t review its Internatinal Independence Standards relating t the prvisin f NAS t audit clients. 3. Having cmpleted a number f prjects which culminated in the April 2018 release f a cmpletely rewritten and substantively revised Internatinal Cde f Ethics fr Prfessinal Accuntants (including Internatinal Independence Standards) (the Cde 3 ), the IESBA has established a Wrking Grup t further understand and respnd t thse calls. Glbal Rundtables The term nn-assurance services is used thrughut the Cde when referring t engagements that d nt meet the definitin f an assurance engagement. An assurance engagement is an engagement in which a prfessinal accuntant in public practice (PAPP) expresses a cnclusin designed t enhance the degree f cnfidence f the intended users ther than the respnsible party abut the utcme f the evaluatin r measurement f a subject matter against criteria. An audit engagement is a reasnable assurance engagement in which a PAPP expresses an pinin n whether financial statements are prepared, in all material respects (r give a true and fair view r are presented fairly, in all material respects), in accrdance with an applicable financial reprting framewrk. This includes statutry audits, which is an audit required by legislatin r ther regulatin. 4. In deciding t hld three glbal rundtables in Nrth America (Washingtn, DC, USA), Eurpe (Paris, France), and Asia Pacific (Tky, Japan), the IESBA is seeking t further understand stakehlders views abut specific issues that might arise when firms and netwrk firms prvide NAS t their audit clients and whether changes are needed t the Cde t address them. 1 Except where therwise nted, NAS in this paper is used t refer t the term nn-assurance services as used in the IESBA Cde. In sme jurisdictins the term nn-audit services is used in describing similar issues. Fr example, the term nn-audit services is used in the UK t cver any service that des nt frm part f the audit engagement (i.e., bth nn-assurance and assurance services ther than an audit).the terms nn-audit services and nn-assurance services are nt defined terms in the IESBA Cde. 2 The main fcus f this paper and the rundtable discussins is n firms prvisin f NAS t audit clients in the cntext f independence. Sme f the issues may be relevant als t circumstances where firms prvide NAS t assurance clients in the cntext f independence. 3 The references t the Cde in this paper are t the revised and restructured Cde which was released n April 9, 2018, and which will becme effective in June 2019. Reference Paper t Agenda Item C Page 4 f 18

Purpse f Briefing Nte 5. This briefing nte summarizes the NAS issues that the IESBA has identified t-date, in particular, in relatin t audit clients that are public interest entities (PIEs). Sme f the issues were raised by respndents t Expsure Drafts (EDs) relating t the IESBA s recently cmpleted Safeguards and Structure f the Cde (Structure) prjects, and respndents t the IESBA s Nvember 2017 Fees Questinnaire. The paper is intended t facilitate a multi-stakehlder dialgue t explre pssible slutins t the public interest issues that have been raised in relatin t the prvisin f NAS by audit firms. The paper is rganized as fllws: Overview f NAS prvisins in the Cde; General plicy bjective; Summary f specific issues identified by stakehlders; and Questins fr rundtable participants. II. Overview f NAS Prvisins in the Cde 6. In additin t the requirement t apply the enhanced cnceptual framewrk 4 t identify, evaluate and address threats when prviding NAS t audit clients, Sectin 600 5 f the Cde cntains general and specific requirements and applicatin material that apply t firms and netwrk firms when prviding NAS t audit clients. The general prvisins set ut in paragraphs 600.1 t R600.10 apply in all situatins when a NAS is prvided t an audit client. Additinal and mre specific prvisins are set ut in subsectins 601-610 and apply when prviding certain types f NAS t audit clients. A list f the types f NAS that are dealt with in the Cde is included in Appendix 1 f this dcument. 7. As part f the general prvisins in paragraphs 600.1 t R600.10, the Cde includes: An verarching requirement that prhibits the assumptin f management respnsibilities when prviding any NAS t audit clients. 6 Management respnsibilities invlve cntrlling, leading and directing an entity, including making decisins regarding the acquisitin, deplyment and cntrl f human, financial, technlgical, physical and intangible resurces. Clarificatins and imprvements t assist firms and netwrk firms t better apply the cnceptual framewrk in relatin t identifying, evaluating and addressing threats created by prviding a NAS t an audit client. Fr example, the Cde nw states in a mre explicit manner that there are sme situatins in which safeguards might nt be The cnceptual framewrk specifies the apprach that all prfessinal accuntants, including auditrs, are required t use t identify, evaluate and address threats t cmpliance with the fundamental principles and, where applicable, independence. 4 The cnceptual framewrk is set ut in Part 1 Cmplying with the Cde, Fundamental Principles and Cnceptual Framewrk, Sectin 120, The Cnceptual Framewrk. 5 Internatinal Independence Standards, Part 4A Independence fr Audits and Reviews, Sectin 600, Prvisin f Nnassurance Services t an Audit Client 6 See Part 4, Sectin 600, paragraph R600.7 and related prvisins in paragraphs 600.7 A1 t R600.8. Reference Paper t Agenda Item C Page 5 f 18

available, r capable f reducing threats created by prviding a NAS t an acceptable level and that in such situatins, the firm r netwrk is required t decline r end the NAS r the audit engagement. Highlights f the clarificatins and imprvements t the cnceptual framewrk is included in Appendix 2 f this dcument. New applicatin material t emphasize the need fr firms and netwrk firms t cnsider the cmbined effect f threats created when multiple NAS are prvided t the same audit client. 8. The Cde als includes explicit prhibitins relating t the prvisin f certain types f NAS in certain circumstances. In such circumstances, the IESBA has determined that the threats created by prviding thse NAS t audit clients cannt be eliminated r safeguards cannt be applied t reduce thse threats t an acceptable level. A list f the prhibitins that apply when prviding certain types f NAS t audit clients that are PIEs is included in Appendix 1 f this dcument. 9. The apprach used in develping the NAS prvisins in the Cde is based n the premise that it is impracticable fr a glbal Cde t cver an exhaustive list f the types f services that might be prvided by a firm r netwrk firm t its audit clients. This is because services are cntinually being created as business practices and financial markets evlve, and due t advancing technlgies. Accrdingly, the general prvisins in the Cde, in particular thse set ut in the cnceptual framewrk als apply when a specific type f NAS is nt explicitly dealt with in the Cde. III. General Plicy Objective 10. NAS prvisins at the jurisdictinal level frequently include specific requirements t accmmdate jurisdictinal laws, regulatins, nrms and custms. These als range frm principles-based t explicit rules-based prvisins. As a result, there are a myriad f different appraches relating t NAS prvisins at the jurisdictinal level. 11. The IESBA believes that it is in the public interest that its NAS prvisins are nt nly sufficiently rbust, but als principles-based in rder that they remain relevant and applicable at the internatinal level. In explring an apprach t assess the varius NAS issues raised, the IESBA s bjective is t take a leadership psitin in determining enhancements t glbal NAS prvisins, where necessary in the public interest. 12. Against this backgrund, the first step is t determine the general plicy bjective that the Cde shuld seek t achieve. Questins have been raised abut whether the Cde shuld: Include, t the extent pssible, cnsistent NAS prvisins that meet the bjective and expectatins f all stakehlders (a glbally harmnized apprach); r Recgnize that individual jurisdictinal circumstances need t be accmmdated, but that steps shuld be taken t enhance NAS prvisins as apprpriate in the public interest? In either circumstance, it will be imprtant t ensure that the cnceptual framewrk cntinues t prvide a strng fundatin t deal with NAS, including new and emerging services. 13. Stakehlder engagement will play an imprtant part in the prcess f recnciling the differing views abut the verarching plicy bjective. Infrmed by the feedback frm its glbal rundtables, targeted utreach, and ther related fact-finding, the IESBA will determine hw best t respnd t the issues relating t NAS. The NAS fact-finding will include a cmparisn f the NAS prvisins in Reference Paper t Agenda Item C Page 6 f 18

the Cde (i.e., thse intended fr glbal applicability) t the natinal ethics and independence prvisins that apply at the jurisdictinal level. IV. Summary f Specific Issues Identified by Stakehlders 14. Regardless f the verarching plicy apprach t be adpted, stakehlders have identified a number f specific NAS issues t be addressed. Thse issues have been characterized in different and ften interrelated ways, and will require a cnsideratin f whether: Judgments abut materiality shuld be a factr in determining whether a particular NAS is permissible. There is a need fr different NAS prvisins fr different types f entities (e.g., PIE and nn- PIE prvisins). The Cde shuld include additinal uncnditinal 7 NAS prhibitins ( i.e. additins t the current prhibitins/ black list in the Cde ). There is a need t develp additinal guidance fr new and emerging types f services. There needs t be imprved cmmunicatin between auditrs and thse charged with gvernance (TCWG). Suggestins fr disclsure and ther matters shuld be addressed. A. Materiality 15. With respect t PIEs, the Cde allws fr the prvisin f certain NAS that wuld therwise be prhibited prvided that the firm r netwrk firm determines that such NAS are immaterial r nt significant. 8 Fr example, the Cde prhibits the prvisin f: Accunting and bkkeeping services, including preparing financial statements n which the firm will express an pinin r financial infrmatin which frms the basis f such financial statements, except where they are f a rutine and mechanical nature fr divisins r related entities f an audit client that is a PIE if the persnnel prviding the services are nt audit team members and: 9 The divisins r related entities fr which the service is prvided are cllectively immaterial t the financial statements n which the firm will express an pinin; r The service relates t matters that are cllectively immaterial t the financial statements f the divisin r related entity. Valuatin services, including tax services invlving valuatin, that have a material effect n the financial statements n which the firm will express an pinin. Internal audit services relating t: A significant part f internal cntrl ver financial reprting (ICFR); 7 The term uncnditinal NAS prhibitins is used in this paper t refer situatins in which a prhibitin is nt qualified by a specific circumstance r cnditin (e.g., materiality cnsideratins r whether the audited entity is a PIE). 8 See Appendix 1 fr a list f the NAS prhibitins ( black list ) in the Cde that apply t audits f PIEs. 9 See Internatinal Independence Standards, Part 4A, Sectin 600, paragraphs R601.5 t R601.7. Reference Paper t Agenda Item C Page 7 f 18

Financial accunting systems that generate infrmatin that is, individually r in the aggregate, material t the client s recrds; r Amunts r disclsures that are, individually r in the aggregate, material t the financial statements. 16. Sme stakehlders, in particular thse wh suggested the need fr a mre restrictive and clearer NAS black list (see subsectin C belw), have questined the apprpriateness f an apprach that allws cnsideratin f materiality and significance. Thse stakehlders believe that allwing cnsideratin f materiality and significance in determining permissibility leads t incnsistencies in hw firms and netwrk firms apply the NAS prvisins in the Cde. These stakehlders have suggested the need fr an apprach that is clearer and easier t enfrce. Fr example: Sme have suggested that the reference t materiality r significance in such circumstances shuld be remved. Others have suggested that the IESBA shuld prvide additinal guidance t explain hw the cncepts f materiality and significance shuld be applied. In this regard, questins have been raised abut whether the new applicatin material relating t materiality in the Cde prvides sufficient additinal guidance, r whether there is a need fr ther actins t ensure that prfessinal accuntants apply the cncepts f materiality and significance in a cnsistent manner in the cntext f the Cde. 10 B. PIE and nn-pie Prvisins 17. Sme stakehlders have questined the IESBA s ratinale fr having differential prvisins fr audits f entities that are PIEs versus nn-pies. Thse stakehlders believe that n distinctin shuld be drawn between the requirements in the Cde fr PIEs and nn-pies i.e., that NAS prvisins in the Cde shuld be the same fr all entities. 18. Others have suggested that the IESBA shuld cnsider adpting a different apprach t categrize the prvisins in the Cde. Thse stakehlders (particularly small- and medium-sized practices (SMPs)) believe that greater cnsideratin shuld be given t the specific circumstances f smalland medium-sized entities (SMEs) / SMPs and suggested that the IESBA shuld instead establish prvisins fr audits f SMEs versus nn-smes; r wner-managed enterprises (OMEs) versus nn-omes. 19. Because the current stakehlder debate abut NAS has been centered n prhibiting auditrs frm prviding certain NAS t audit clients that are PIEs, as a first step, the IESBA is fcusing n explring the NAS issues that relate t PIEs nly. Cnsequently, thse issues and suggestins relate t the variatin in the prvisins in the Cde fr PIEs and nn-pies. 10 Paragraph 600.5 A3 f the Cde cntains new applicatin material relating t materiality in relatin t an audit client s financial statements. This new applicatin material explains that the determinatin f materiality invlves the exercise f prfessinal judgment; is impacted by bth quantitative and qualitative factrs; and is affected by perceptins f the financial infrmatin needs f users. The new applicatin material als refers readers t relevant the IAASB standard that deals with materiality. Reference Paper t Agenda Item C Page 8 f 18

C. Uncnditinal NAS Prhibitins ( i.e. a Black List ) 20. As nted in Sectin II abve, the Cde includes an verarching prhibitin n firms and netwrk firms assuming management respnsibilities when prviding NAS t audit clients, as well as specific prhibitins regarding the prvisin f certain types f NAS either in all, r sme circumstances, fr example: When the utcme f the NAS is material r significant t the financial statements n which the firm will express an pinin (see subsectin A abve). Depending n whether the NAS is being prvided t an audit client that is a PIE r a nn-pie (see subsectin B abve). 21. Sme stakehlders, in particular, regulatrs believe that firms and netwrk firms shuld nt be permitted t prvide certain NAS t audit clients in all circumstances, inter alia because f the issues summarized in paragraphs 15 t 19 abve. There is als a view that the Cde shuld include the fllwing uncnditinal NAS prhibitins s that it can be mre clsely aligned t the 2014 EU audit legislatin: Accunting and bkkeeping services such as preparing accunting recrds and financial statements, including thse NAS f a rutine r mechanical nature prvided t divisins r related entities. Designing and implementing IT systems, internal cntrl r risk management prcedures. Services related t the audited entity s internal audit functin. Services linked t the audited entity s financing, capital structure and allcatin, and investment strategy. Litigatin supprt services when used fr the purpse f advancing the entity s interest in a legal prceeding r investigatin with respect t amunts that are material t the financial statements subject t audit r review. Valuatin services, including tax services invlving valuatin. Certain types f tax services. D. New and Emerging Services 22. Advancing technlgies and new business mdels give rise t new NAS that are nt dealt with in the Cde and may nt als be addressed in natinal ethics and independence prvisins. These new NAS include, fr example, services related t blck chain, cyber-security and clud cmputing. 23. The Cde includes general prvisins, including the enhanced cnceptual framewrk and general NAS prvisins, t assist firms evaluate and address threats created by the prvisin f NAS that are nt explicitly dealt with in the Cde. 24. Sme stakehlders have suggested that the IESBA shuld cnsider establishing new prvisins t supplement the general NAS prvisins in the Cde t deal with the ethics and independence implicatins f prviding these new types f NAS. E. Auditr Cmmunicatin with TCWG 25. Effective versight by TCWG, including audit cmmittees cntribute t supprting audit quality and increasing market cnfidence in the quality f infrmatin in financial reprting. The IAASB s Internatinal Standards require auditr cmmunicatin abut certain ethics and independence Reference Paper t Agenda Item C Page 9 f 18

matters in the case f listed entities. 11 The Cde states that even when nt required by the Cde, applicable prfessinal standards, laws r regulatins, regular cmmunicatin is encuraged between a firm and TCWG regarding relatinships and ther matters that might, in the firm s pinin, reasnably bear n independence. 12 It des nt repeat the prvisins that are included in the IAASB s standards. 26. Sme stakehlders have questined whether: The Cde shuld, at a minimum, reflect the prvisins relating t auditr cmmunicatins with TCWG abut independence and NAS specific matters that are established in the IAASB s Internatinal Standards. Auditr cmmunicatins with TCWG shuld be limited t audits f listed entities nly, as is the case in the IAASB s Internatinal Standards, r whether there is merit t explring extending the applicability f thse prvisins t either audits f entities that are PIEs, r t all entities. 27. A few stakehlders have suggested that the IESBA shuld cnsider establishing prvisins dealing with the cmmunicatin r apprval f the NAS t be perfrmed; as well as the fees charged by the audit firm fr prviding the NAS an apprach that already exists in sme jurisdictins. Mre bradly, questins have been raised abut whether TCWG, fr example audit cmmittee members are in need f mre guidance r best practices t prmte and supprt audit quality. 13 F. Disclsure and Other Matters 28. Sme stakehlders believe that: Mre rbust disclsure requirements are needed bth in relatin t auditr cmmunicatin with TCWG r in the auditr s reprt abut the nature f NAS that are prvided t audit clients and the related fees charged. 11 Paragraph 17 f ISA 260, Cmmunicatin with Thse Charged with Gvernance requires that in the case f listed entities, the auditr cmmunicate with TCWG abut ethics and independence matters in relatin t the engagement team and thers in the firm and netwrk firm as apprpriate. This cmmunicatin is required t include a statement abut: (i) (ii) All relatinships and ther matters between the firm, netwrk firms, and the entity that, in the auditr s prfessinal judgment, may reasnably be thught t bear n independence, including ttal fees charged during the perid cvered by the financial statements fr audit and nn-audit services prvided by the firm and netwrk firms t the entity and cmpnents cntrlled by the entity. These fees shall be allcated t categries that are apprpriate t assist TCWG in assessing the effect f services n the independence f the auditr; and The related safeguards that have been applied t eliminate identified threats t independence r reduce them t an acceptable level. 12 See Part 4A, Sectin 400, Applying the Cnceptual Framewrk t Independence fr Audit and Review Engagements, paragraphs 400.40 A1 t 400.40 A2. The Cde als ntes that such auditr cmmunicatin with TCWG enables TCWG t: (a) (b) (c) Cnsider the firm s judgments in identifying and evaluating threats; Cnsider hw threats have been addressed including the apprpriateness f safeguards when they are available and capable f being applied; and Take apprpriate actin. Further, the Cde ntes that cmmunicatin with TCWG abut the abve matter can be particularly helpful with respect t intimidatin and familiarity threats. 13 Fr example, see the Internatinal Organizatin f Securities Cmmissins (IOSCO) Cnsultatin Reprt n Gd Practices fr Audit Cmmittees in Supprting Audit Quality that was released in April 2018. Reference Paper t Agenda Item C Page 10 f 18

Fee caps shuld be established in relatin t NAS in rder t address the issue f independence in appearance. Thse stakehlders pinted ut that fee cap restrictins are already established in certain jurisdictins (e.g. in the Eurpean Unin). 29. Als, questins have been raised abut whether the IESBA has a rle t play in respnding t brader cncerns abut audit quality and auditr independence that might arise frm the multidisciplinary cnsulting and advisry services prvided by firms and netwrk firms (i.e., firms business mdel). This IESBA initiative n NAS is nt intended t deal with issues r cncerns relating t firms prvisin f such services t nn-audit clients. V. Questins fr Rundtable Participants 30. The IESBA s glbal rundtables as well as its meetings with key stakehlders, such as natinal standards setters, firms and regulatrs will prvide imprtant perspectives abut each f the NAS issues identified in this paper. 31. At the rundtables, participants will be asked t share their views and ratinale in relatin t the fllwing questins: General Plicy Objective 1. Shuld the IESBA s apprach t the develpment f the Cde be t: (a) Include, t the extent pssible, cnsistent NAS prvisins that take int accunt the bjective and expectatins f all stakehlders (a glbally harmnized apprach)? r (b) Recgnize that individual jurisdictinal circumstances need t be accmmdated, but that steps shuld be taken t enhance NAS prvisins as apprpriate in the public interest? Is there anther apprach that the IESBA shuld explre? Materiality 2. Shuld the Cde retain materiality r significance as a qualifier in determining whether a firm r netwrk firm prvides a NAS t an audit client? If materiality r significance is retained as a qualifier in the Cde s NAS prhibitins (see Appendix 1), is additinal guidance beynd what is already included in paragraph 600.5 A3 needed (see paragraphs 15-16 f this paper)? PIE and Nn-PIE Prvisins 3. In an audit cntext, is there merit t having the same glbal ethics and independence prvisins fr all entities, irrespective f their nature and size? 4. What changes, if any, are required in the Cde t acknwledge the unique infrmatin needs, and the degree f reliance f users f audited financial statements f entities that are PIEs versus nn-pies? Reference Paper t Agenda Item C Page 11 f 18

Uncnditinal NAS Prhibitins (i.e., a Black List) 5. Shuld there be uncnditinal NAS prhibitins in the Cde? If s, what criteria shuld be used t determine whether a NAS shuld be prhibited? Are there ther service(s) that shuld be prhibited? New and Emerging Services 6. Are there specific types f NAS, including new r emerging services that are nt already addressed in the Cde and shuld be dealt with in an explicit manner? If yes, please identify which NAS and indicate the nature f the requirement r applicatin material that wuld be required. Cmmunicatin between Auditrs and TCWG 7. What additinal requirements, if any, relating t auditr cmmunicatin with TCWG shuld be included in the Cde? Fr example: (a) (b) Shuld the requirement in ISA 260 relating t prvisin f NAS in the cntext f cmpliance with ethics and independence requirements be reflected in the Cde? Shuld the Cde include brader prvisins t deal with the circumstances warranting apprval by TCWG fr the prvisin f NAS t audit clients, including the level f fees invlved? Disclsure and Other Matters 8. What disclsure requirements abut NAS, if any, shuld be included in the Cde? 9. Shuld the Cde establish fee restrictins in relatin t NAS (e.g., fee caps)? What factrs, if any, shuld be cnsidered? 10. What actins, if any, shuld be taken by IESBA in respnse t the brader cncerns abut audit quality and auditr independence that might arise frm the multi-disciplinary cnsulting and advisry services prvided by firms and netwrk firms (i.e., issues relating t the firm business mdel)? What rle shuld thers play? Reference Paper t Agenda Item C Page 12 f 18

Appendix 1 Extract f NAS Prhibitins in the Cde fr Public Interest Entities As discussed in Sectin II, subsectin C f this paper, the Cde includes an verarching requirement that prhibit firms and netwrk firms frm assuming management respnsibilities when prviding NAS t audit clients; and specific requirements t prhibit certain types f NAS either in all circumstances; r in certain circumstances. The specific NAS prvisins in the Cde relate t: Accunting and bkkeeping services. Administrative services. Valuatin services. Tax services, including activities such as Tax return preparatin. Tax calculatins fr the purpse f preparing the accunting entries. Tax planning and ther tax advisry services. Tax services invlving valuatins. Assistance in the reslutin f tax disputes. Internal audit services. Infrmatin technlgy (IT) systems services. Litigatin supprt services. Legal services. Recruiting services. Crprate finance services. This Appendix lists the NAS prhibitins that apply t audit clients f entities that are PIEs. 14 1. Accunting and bkkeeping services, including preparing financial statements. The Cde includes an exceptin t this prhibitin fr accunting and bkkeeping services that is f rutine and mechanical nature fr divisins and related entities if the divisins and the service are immaterial (see paragraphs R601.6 and R601.7). 2. Valuatins services, including tax services invlving valuatin that have a material effect n the financial statements n which the firm will express an pinin (see paragraph R603.5). 3. Preparing tax calculatins f current and deferred tax liabilities (r assets) fr the purpse f preparing accunting entries that are material (see paragraph R604.6). 14 The requirements and applicatin material that apply when prviding NAS t audit clients is set ut Sectins 600, the full text f which is available at the IESBA s website. Reference Paper t Agenda Item C Page 13 f 18

4. Tax planning and ther tax advisry services when the effectiveness f the tax advice depends n a particular accunting treatment r presentatin in the financial statements, and audit team has reasnable dubt as t the apprpriateness f the related accunting treatment r presentatin and the utcme f the tax advice is material (see paragraph R604.8). 5. Tax services that invlve assisting in the reslutin f tax disputes if the services invlve acting as an advcate fr the audit client befre a public tribunal r curt, and the amunts invlved are material (see paragraph R604.11). 6. Internal audit services relating t (see paragraph R605.5): (a) (b) (c) A significant part f the ICFR; Financial accunting systems that generate infrmatin that is, individually r in the aggregate, material t the client s recrds; r Amunts r disclsures that are, individually r in the aggregate, material t the financial statements. 7. Infrmatin technlgy (IT) system services invlving designing r implementing IT that frm a significant part f the ICFR r generate infrmatin that is, individually r in the aggregate, significant t the client s recrds (see paragraph R606.5). 8. Legal services that invlve acting as General Cunsel fr legal affairs, and acting in an advcacy rles fr an audit client in reslving a dispute r litigatin when the amunts invlved are material (see paragraphs R608.5 and R608.6). 9. Recruiting services that invlve acting as a negtiatr n the client s behalf (see paragraph R609.6). 10. Recruiting services relating t searching fr r seeking ut candidates; r undertaking reference checks f prspective candidates, with respect t (see paragraph R609.7): (a) (b) A directr r fficer f the entity; r A member f senir management in a psitin t exert significant influence ver the preparatin f the client s accunting recrds r the financial statements n which the firm will express an pinin. 11. Crprate finance services that invlve prmting, dealing in, r underwriting the audit client s shares (see paragraph R610.4) 12. Crprate financial advice where the effectiveness f such advice depends n a particular accunting treatment r presentatin in the financial statements and the audit team has reasnable dubt as t apprpriateness; and the utcme r cnsequences f the advice will have a material effect n the financial statements (see paragraph R610.5). Reference Paper t Agenda Item C Page 14 f 18

Appendix 2 Imprvements t Assist in the Applicatin f the Cnceptual Framewrk in Relatin t the Prvisin f NAS t Audit Clients This Appendix summarizes the imprvements that were made t the Cde in relatin t the applicatin f the cnceptual framewrk in the cntext f prviding NAS t audit clients. 15 1. The Cde includes new and revised prvisins t assist firms and netwrk firms apply the prvisins in the cnceptual framewrk in a cnsistent manner. The cnceptual framewrk specifies the apprach that all prfessinal accuntants are required t apply t identify, evaluate and address threats t cmpliance with the fundamental principles and, where applicable, be independent. 2. The fllwing are highlights f the revisins made t assist firms and netwrk firms better apply the cnceptual framewrk when identifying, evaluating and addressing threats that might be created when prviding NAS t audit clients. New applicatin material fr evaluating threats, including a list f examples f factrs that firms and netwrk firms might cnsider in ding this evaluatin (see paragraph 600.5 A1). Thse factrs include: The nature, scpe and purpse f the service. The degree f reliance that will be placed n the utcme f the service as part f the audit. The legal and regulatry envirnment in which the service is prvided. Whether the utcme f the service will affect matters reflected in the financial statements n which the firm will express an pinin, and, if s: The extent t which the utcme f the service will have a material effect 16 n the financial statements. 15 The requirements and applicatin material that apply when prviding NAS t audit clients is set ut Sectins 600, the full text f which is available at the IESBA s website. 16 Drawing frm the IAASB s auditing standards, the Cde als includes new applicatin material t explain materiality in relatin t an audit client s financial statements. Refer t Sectin IV f this dcument fr a further discussin n materiality. Reference Paper t Agenda Item C Page 15 f 18

The degree f subjectivity invlved in determining the apprpriate amunts r treatment fr thse matters reflected in the financial statements. The level f expertise f the client s management and emplyees with respect t the type f NAS prvided. The extent f the client s invlvement in determining significant matters f judgment. The nature and extent f the impact f the service, if any, n the systems that generate infrmatin that frms a significant part f the client s: Accunting recrds r financial statements n which the firm will express an pinin. Internal cntrls ver financial reprting. Whether the client is a public interest entity. Fr example, prviding a nn-assurance service t an audit client that is a public interest entity might be perceived t result in a higher level f a threat. New and revised requirement and applicatin material fr addressing threats: Clarificatin that threats are addressed either by: 1. Eliminating the circumstance, interest r relatinship creating the threat; 2. Applying safeguards, where available and capable f being applied t reduce the threat(s) t an acceptable level; 17 r 3. Declining r ending the specific prfessinal service. Clarificatin that there are sme situatins in which safeguards might nt be available r capable f reducing threats created by prviding a NAS t an acceptable level. In such situatins, the firm r netwrk is required t decline r end the NAS r the audit engagement. Revised descriptin f safeguards that clarify that they are actins that individually r in cmbinatin effectively reduce the threats t independence that have been identified t an acceptable level [emphasis added]. Clearer examples f safeguards that are aligned mre clsely t the specific type f threats that they are intended t respnd t. New applicatin material relating t materiality in relatin t an audit client s financial statements explain that the determinatin f materiality invlves the exercise f prfessinal judgment, and is impacted by bth quantitative and qualitative factrs, and is affected by perceptins f the financial infrmatin needs f users. 18 Clearer guidance fr dealing with advcacy threats, including: 17 Paragraph 120.7 A1 f the Cde defines an acceptable level as the level at which a prfessinal accuntant using the reasnable and infrmed third party test wuld likely cnclude that the accuntant has cmplies with the fundamental principles. 18 There have been calls fr the IESBA t include mre guidance t explain the cncept f materiality and significance in a brader cntext, fr example in relatin t financial interests. Cnsideratins f these brader materiality issues will be explred as part f a separate initiative. Reference Paper t Agenda Item C Page 16 f 18

Clarificatins abut hw t evaluate and address advcacy threats that are created when prviding certain NAS i.e., valuatin, tax, litigatin supprt, legal and crprate finance services. Increased emphasis n the fact that assuming a management respnsibility creates advcacy threats, in additin t familiarity threats because the firm r netwrk firm becmes t clsely aligned with the views and interests f management. Reference Paper t Agenda Item C Page 17 f 18