Non-Assurance Services

1. Non-Assurance Services Caroline Gardner IESBA December 2013 New York, USA

2. Non-Assurance Services Conclusions from September 2013 IESBA Meeting • At the September 2013 IESBA meeting the Board: • Unanimously approved the project proposal as presented, with a focus on: • Clarifying the NAS provisions in the Code concerning management responsibilities; • Clarifying the phrase “routine or mechanical” as it pertains to the provision of accounting and bookkeeping services; and • Examining the “emergency exception” provisions related to bookkeeping and taxation services • Provided feedback concerning the NAS Position Paper.

3. Non-Assurance Services Key Dates • Key dates: • Board approval of final enhancing edits to the Code: April 2014 • Final Board approval of NAS position paper: July 2014

4. Non-Assurance Services To Be Discussed • The Task Force requests feedback from the Board concerning: • Proposal to remove the “emergency exception” from the Code • Proposed changes to “Management Responsibilities” (Agenda Items 7-B and 7-C) • Proposed changes to “Preparing Accounting Records and Financial Statements” (Agenda Items 7-D and 7-E)

5. Non-Assurance Services Emergency Exception • Emergency Exception factors considered: • Terms “emergency” and “unusual situations” are subjective such that it may be difficult to gauge what a reasonable and informed third party may consider, thus creating unnecessary threats to independence; • “Impractical” is not robust enough to fully describe the extreme conditions intended for the emergency exception to be acceptable • Use of the exception should not be the decision of the auditor and/or the client • Securities and Exchange Commission’s (SEC) elimination of the exception • SEC’s release “Bookkeeping Services Provided by Auditors to Audit Clients in Emergency or Other Situations” – September 14, 2001 • If a regulator were to permit the exception and the auditor declined, the public interest may not be served

6. Non-Assurance Services Emergency Exception • Two options considered: • Revised language permitting an emergency exception that is subject to an appropriate third party, such as a regulator; and • Deletion of the provision entirely

7. Non-Assurance Services Emergency Exception • Conclusion: • Emergency exception related to bookkeeping and taxation services be deleted due to: • Situations in which the exception should be allowable should be so rare and extraordinary that is should be addressed by the Code, should be addressed by a local regulator; • Removal of the exception strengthens Code by removing potential for misuse of the exception; • Code would be strengthened by fact that if regulator permits the exception, firm would implement provision addressing breaches which would address threats to independence

8. Non-Assurance Services Management Responsibilities • Proposed changes included in Agenda Item 7-B • Proposed change of order of first three paragraphs to follow that of the guidance concerning internal audit: • 1st paragraph contains description of a management responsibility (290.162) • 2nd paragraph contains threats associated with assuming a management responsibility (290.163) • 3rd paragraph contains examples of activities that would generally be considered a management responsibility (290.164)

9. Non-Assurance Services Management Responsibilities • Proposed changes to paragraph 290.162: • First sentence of extant paragraph 290.163 proposed to be moved to 290.162 as it is descriptive in nature • The term “significant” be deleted in the following sentence: • However, management responsibilities involve controlling, planning, leading and directing an entity, including making significant judgments and decisions regarding the acquisition, deployment and control of human, financial, physical, technological and intangible resources. • Audit firm should not assume any management responsibility

10. Non-Assurance Services Management Responsibilities • Proposed changes to paragraph 290.163 (newly renumbered 290.164): • New examples of management responsibilities added to assist in identifying and clarifying what would constitute a management responsibility • Final sentence of the paragraph note that providing advice or recommendations to management is not considered a management responsibility

11. Non-Assurance Services Management Responsibilities • Custody of client assets • Considered to be included as an example of an activity that would generally be considered a management responsibility • Addressed in paragraph 270 – but not as it relates to independence • Board is asked for feedback concerning addressing the topic in independence • Task Force will continue to deliberate

12. Non-Assurance Services Management Responsibilities • Administrative Services • Extant paragraph 290.164 includes activities that are of an administrative nature in support of management(i.e. monitoring dates for filing statutory returns) • As currently located under “management responsibilities” it appears as if the accountant may assume “some” management responsibilities • Proposal – Subsection of the Code entitled “Administrative Services” addressing the respective services • Topic already addressed in 290.149 – may not be correct location

13. Non-Assurance Services Management Responsibilities • Extant paragraph 290.166 amended to ensure that the requirement of the firm to be satisfied that a member of management accepts responsibilities for the actions of the service is robust and defined • Professional accountant ensures client management: • Provides oversight of the service and evaluates the adequacy and results of the services performed; • Accepts responsibility for the actions to be taken arising from the results of the service; and • Designates and individual, preferably within senior management who possesses suitable skill, knowledge and experience to be responsible at all times of the client’s decisions and to oversee and acknowledge responsibility for the services. A suitable individual would understand the services, but not required to possess the expertise to perform or re-perform the services

14. Non-Assurance Services Routine or Mechanical • Proposed enhancements to clarify “routine or mechanical” are included in Agenda Item 7-D • Terms “routine or mechanical” are appropriate, however, require more explanatory language • Proposed changes to paragraph 290.171: • “Services that are routine or mechanical in nature require little to no professional judgments from the professional accountant” • Reminder that performance of such services is subject to the provisions on management responsibilities in proposed paragraph 290.165 • Newly proposed examples of services that would be considered routine or mechanical • Newly proposed examples of services that would not be considered routine or mechanical

15. Non-Assurance Services Routine or Mechanical • Source documents • “Invoicing or generating statements of account to customers of the client” was considered to be included in examples of services that are not considered to be routine or mechanical • Defining a source document was considered by the Task Force • An audit firm may provide permitted bookkeeping services and enter sales information as determined and coded by the client into the accounting system, this may result in the generation of invoices to be sent or transmitted to customers of the client • Task Force requests feedback from the Board

16. Non-Assurance Services Questions?