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Part C Review Jim Gaa, Chair, Part C Task Force IESBA Meeting New York July 8, 2014 Page 1 | Confidential and Proprietary Information Background

March 2013: Project Proposal approved by IESBA. July 2014: First read of Phase I October 2014: Second read of Phase I Jan 2015: Exposure Draft scheduled As soon as practicable: Begin Phase II (issues) Page 2 | Confidential and Proprietary Information

Presenting Information: Key Points One high level requirement for fair and honest information Many of the previous requirements have become guidance in support of the above requirement Added 4 high level categories of ways in which it is possible to mislead with one example of each TF reviewed the changes from the extant Code and consider them to be significant Page 3 | Confidential and Proprietary Information Misuse of discretion

Board supported enhanced guidance on misuse of discretion but not too detailed, including a few examples. Proposed categories : Determining estimates to manipulate income Selecting accounting method to manipulate income Timing of transactions to manipulate income Structuring transactions to manipulate balance sheet Page 4 | Confidential and Proprietary Information Matter for Consideration

Does the Board agree that the categories and examples of the use of discretion to mislead are useful and appropriate? Are there other categories or examples where PAIBs use discretion to mislead that should be added to paragraph 320.3? Page 5 | Confidential and Proprietary Information Requirement and Guidance Overarching requirement for presenting information in a

fair and honest manner Focus on guidance of meaning of fair and honest manner: No intention to mislead Not omitting information In accordance with an applicable reporting framework, and Includes taking reasonable steps: Accurately and completely, true nature, timely and proper manner Page 6 | Confidential and Proprietary Information

Significant changes from extant Code Guidance on meaning of fairly and honestly added. Pressure now addressed in s.370. Four ways discretion may be used to mislead added. How to disassociate added. Guidance on presenting non-reporting-framework information. Includes matters no longer in Code after July 1 (310, 320)

Page 7 | Confidential and Proprietary Information Pressure: Key Points Diverse views from Board on appropriateness of language of threats and safeguards TF recommend not to use language of threats and safeguards Proposed text prepared on that basis

Pros and cons presented in issues paper Page 8 | Confidential and Proprietary Information Description and Examples Change description to pressure to breach fundamental principles. PAIB shall not allow pressure to result in breach of fundamental principles. PAIB shall not place pressure on others. Examples categorized by 310/320/330/340/350/360.

Page 9 | Confidential and Proprietary Information Requirements Board questioned requirement: shall not yield to pressure. New proposal: When faced with pressure, the professional accountant shall not allow such pressure to result in a breach of the fundamental principles. Remains a strong requirement but is limited to the PAs responsibility for their own actions.

Page 10 | Confidential and Proprietary Information Language of threats and safeguards Diversity of views on Board on use of threats and safeguards in s.370. Safeguards is potential future project. TF considered merits of both views. Page 11 | Confidential and Proprietary Information In favor of threats and safeguards language

Conceptual Framework applies to whole Code S.310 and s.320 use threats and safeguards Safeguards presented in September 2013 are consistent with other safeguards in Code and comply with definition in 100.13 Page 12 | Confidential and Proprietary Information Against threats and safeguards language Threats and safeguards is only one part of Conceptual Framework

Terminology does not work well with pressure, because pressure is beyond a PAIBs control. Proposed section 360 does not use language of threats and safeguards. Page 13 | Confidential and Proprietary Information Threats and safeguards Task Force strongly believe the public interest is better served by not using language of threats and safeguards. However proposed Section does require PAIB to decline

or discontinue activity where pressure cannot be alleviated or eliminated. Page 14 | Confidential and Proprietary Information Matters for Consideration Do Board members agree that: Proposed Section 370 should, or should not, be drafted using the threats and safeguards language?

The provisions in Section 370 are helpful guidance in implementing paragraphs 100.19-100.24? Page 15 | Confidential and Proprietary Information Other matters Factors to consider in determining whether pressure would lead to a breach have been revised to address Board comments in April. Paragraphs on creating an ethics based culture are to be moved to s.300 because of its more general applicability.

Page 16 | Confidential and Proprietary Information The Ethics Board www.ethicsboard.org

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