Long Association Task Force
Marisa Orbea,
Task Force Chair
IESBA Meeting
January 12-14, 2015
London, England
Page 1
Long Association
Background
• 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
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Long Association
Overview of Responses (1)
• 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)
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Long Association
Overview of Responses (2)
• 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)
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Long Association
Overview of Responses (3)
• 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)
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Long Association
General Themes (1)
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•
•
•
•
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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
Page 6
Long Association
General Themes (2)
• 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
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Long Association
General Themes - Questions
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?
Page 8
The Rotation of KAPs on the Audit of PIEs
Page 9
Long Association
Length of Time-On all KAPs
• 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
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Long Association
Length of Time-on all KAPs- Questions
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?
Page 11
Long Association
Length of Cooling-Off EP
• 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
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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
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Long Association
Respondents’ Alternative Suggestions
• 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
Page 13
Long Association
Length of Cooling-Off Other KAPs including EQCR
• 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
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Long Association
Length of Cooling-Off Period - Questions
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?
Page 15
Long Association
Longer Cooling-Off for all PIEs
• 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
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Long Association
Longer Cooling-Off for Listeds/all PIEs - Questions
• 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?
Page 17
Long Association
EP for only Part of the 7-year Time-On Period
• 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
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Long Association
EP for only Part of the 7-year Time-On Period (2)
• 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
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Long Association
EP for Part of 7-year Time-On Period- Questions
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?
Page 20
Long Association
Other Related Comments – Rotation of KAPs on PIEs
• 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
Page 21
Long Association
Other Related Comments - Question
13. Do IESBA members have any views on the other related
comments from respondents?
Page 22
Long Association
Other Matters/Project Timetable
• 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
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