Technical Manager
International Accounting Education Standards Board
International Federation of Accountants
545 Fifth Avenue, 14th Floor
New York, New York 10017, USA
Dear Sirs
IAESB Exposure Draft, Proposed International Education Standard: IES 8, Professional Development for Engagement Partners Responsible for Audits of Financial Statements (Revised)
We are pleased to have the opportunity to comment on the above Exposure Draft issued by the International Accounting Education Standards Board (IAESB).
We understand the need for a framework and related guidelines for engagement partner competence areas; however, we have the following significant concerns regarding the proposed standard (as more detailed in our responses to Questions 1 and 6 of Appendix A):
· Strong, clear alignment is lacking between the proposals in IES 8 and existing requirements in ISA 220 and ISQC 1 particularly regarding competence development and practical experience requirements;
· The progressive and continuing nature of competence development needs further emphasis in the scope of the standard such that the standard sets minimum competence requirements for engagement partners and does not distinguish newly appointed engagement partners from serving engagement partners;
· The proposals and guidance regarding the “aspiring engagement partner” are confusing and lack context – we recommend that all such references be removed so that the standard focuses on engagement partner competence;
· Implementation of the proposals may not be practically executable by IFAC member bodies;;
· The additional assessment and monitoring requirements of this standard are unnecessary as partner competence assessment is not the domain of IFAC member bodies (it is the existing accountability of audit firms in meeting their requirements under ISQC 1) and, IES 6 and IES 7 adequately cover assessment and monitoring of IPD and CPD respectively;
Our responses to specific questions posed by the IAESB in the Explanatory Memorandum to the Exposure Draft and paragraph-level comments are set out in the Appendix. Please contact Linda Nower at +1 (416) 777 8354 or if you wish to discuss any of the issues identified in this letter.
Yours truly,
Linda B. Nower, CA (signed)
Partner-in-Charge, Global Audit Learning & Development
cc: Eileen Walsh, CPA
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Appendix - Our responses to specific questions posed by the IAESB and paragraph level comments
A. Response to specific questions
1. Does the proposed change to focus on the engagement partner provide greater clarity, improve the effectiveness and implementation of the proposed IES 8 (Revised)? If not, explain the nature of the deficiencies.
We agree that the engagement partner is an appropriate focus for this standard as the engagement partner is the one common role within the engagement team irrespective of the nature, complexity, size, or type of audit and the person held responsible for the quality of an audit.
We understand the need for a framework and related guidelines for engagement partner competence areas. However we believe these should be presented for the engagement partner only with no need for distinguishing between the newly appointed engagement partner and the serving engagement partner.
We appreciate the Board’s intention to address the progressive nature of competency development by including in the scope of this standard those aspiring to become engagement partners but we believe the definition of “aspiring engagement partner” is ambiguous, and creates confusion in the rest of the standard as to whom the competence focus applies to. Accordingly, for clarity and to streamline the standard, we recommend that the Board remove all references to the aspiring engagement partner in IES 8 and instead, within the scope of the standard,:
· Explain that the standard requires IFAC member bodies to set out the learning outcomes underlying the competence areas pertinent to engagement partners;
· Align IES 8 to the key principle in ISA 220 which states that the engagement partner’s responsibility is to be satisfied that the audit team collectively has the appropriate competence to perform the audit in accordance with professional standards and enable the issuance of the appropriate auditors’ report.
· Clarify that professional development to become an engagement partner, for both aspiring professional accountants and professional accountants, is progressive in nature and on-going throughout one’s career in the profession; and,
· Clarify that assessment for those who are also still aspiring professional accountants is guided by the IPD requirements of IES 6, while professional accountants who are not yet engagement partners must comply with the CPD requirements and monitoring provisions of IES 7.
While we agree that IFAC member bodies should establish expected learning outcomes relating to the professional competence of engagement partners, we do not agree that IFAC member bodies are in a position to assess the achievement of such competence areas by aspiring engagement partners. This is not consistent with ISQC 1.29 which requires audit firms to establish policies and procedures to provide it with reasonable assurance that it has sufficient personnel with the necessary competence, capabilities and commitment to ethical principles. Also, we view such assessment by member bodies as impractical, if not impossible, because the nature of such assessment involves qualitative considerations demonstrated by engagement partners in working with clients, colleagues and mentoring staff. We therefore recommend that paragraph 17 and the related explanatory material (Para A33 - A35) be deleted.
We believe the CPD requirements and monitoring requirements of IES 7 are sufficient for the maintenance of professional competence for engagement partners and recommend that paragraph 18 make this reference to IES 7.
2. Does Table A of the proposed IES 8 (Revised) on learning outcomes provide clarity with respect to the competence areas and levels of proficiency you would expect to see of a newly appointed engagement partner? Are there any learning outcomes you would expect to see included or eliminated?
We support the move to a learning outcomes-based approach, as this is aligned with a principles-based approach. We particularly support the integration of technical and professional competence areas along with professional values, ethics and attitudes.
We believe that learning outcomes should be designed to achieve those competence areas that are expected of engagement partners (both newly appointed and serving) relative to the audit of financial statements. However, we see the learning outcomes set out in Table A as representing more of a guiding framework rather than “requirements”.
We also believe the minimum levels of proficiency as set out in Table A are implicit in the descriptions of the learning outcomes (i.e. in the verbs used) and that assigning a proficiency level in the third column not only creates difficulty in applying the outcomes when a full range of application scenarios is considered but may also unintentionally overstep the provisions of ISQC 1 on audit firms regarding competence development and maintenance.
We therefore recommend that paragraph 13 be re-written as guidance, not requirements, regarding learning outcomes demonstrating professional competence of engagement partners without distinction between newly appointed engagement partners and serving engagement partners; we also recommend removing the right hand column on proficiency level in Table A and inserting a new paragraph in the Explanatory Material which sets out that:
· the learning outcomes expected of the engagement partner are set at a minimum level;
· certain factors and circumstances result in a higher proficiency level needed by engagement partners (e.g. complex accounting standards or reporting requirements);
Lastly, we find that the learning outcome in Table A (p) (iii) “Act as a role model to aspiring engagement partners” involves subjective judgement and is difficult to be consistently applied across IFAC member bodies or other stakeholders. We recommend deleting this learning outcome.
3. Does Appendix 1 of the proposed IES 8 (Revised) Exposure Draft provide adequate clarifications to assist in the interpretation of the learning outcomes that are listed in Paragraph 13 of the proposed IES 8 (Revised)? If not, what changes do you suggest?
For the reasons set out in our response to Question 2, we recommend removing the minimum levels of proficiency from Table A of IES 8 and related thereto, removing Appendix 1.
4. Do the revised requirements in respect of more complex audits provide greater clarity and assist with implementation of the proposed IES 8 (Revised)?
As per our response to Question 1, we believe the CPE requirements and monitoring provisions of IES 7 adequately cover the maintenance of professional competence by the engagement partner.
While we appreciate the need for CPD to be relevant to complex areas such as transnational audits, we see the need for more clarity and guidance than is currently provided regarding the definition of “complex” audit engagements and the relevant CPD intended for engagement partners on these audits. More emphasis is also needed on the importance of work experience and coaching/mentoring as essential to maintaining professional competence.
5. Does the inclusion of a number if reference to Small and Medium Practitioner (“SMP”) engagement partners and their context provide appropriate coverage of their professional development needs? Do you have any further recommendations in respect of how the proposed IES 8 (Revised) could be more aligned towards the needs of SMPs?
We believe the guidance regarding deploying and monitoring compliance for small- and medium-sized entities (SMPs) requires additional clarity. We are also concerned that some of the guidance (e.g. paragraph A32) may be interpreted as the professional competence required for engagement partners of SMPs and sole practitioners is in some way less than that required for engagement partners of larger public auditing firms.
We recommend revising Para A32 and providing more explicit guidance for how SMP compliance with the requirements would differ from larger public auditing firms, for example in the use of Specialists. Practical examples in the form of implementation guidance would be particularly helpful in this regard.
6. Do you anticipate any impact or implications for your organization, or organizations with which you are familiar, in implementing the new requirements included in this proposed IES 8 (Revised)?
Professional development for engagement partners responsible for audits of financial statements is already regulated in many of our jurisdictions under existing quality assurance, professional and licensing standards. Such regulation includes monitoring of engagement partners’ CPD as part of quality assurance programs, both internally at KPMG and externally by regulators and licensing authorities. In this connection, we have concerns that the requirements of IES 8 may create redundant activities, trigger confusion when compared to the requirements of existing IFAC standards such as ISQC 1 and result in unnecessary additional administrative burden and cost.
As we note in our response to Question 1 above, we do not agree that IFAC member bodies are in a position to assess the achievement of such competence areas by aspiring engagement partners. This is not consistent with ISQC 1.29 which requires audit firms to establish policies and procedures to provide it with reasonable assurance that it has sufficient personnel with the necessary competence, capabilities and commitment to ethical principles.
Also, we view such assessment by member bodies as impractical, if not impossible, because the nature of such assessment involves qualitative considerations demonstrated by engagement partners in working with clients, colleagues and mentoring staff. We recommend explicitly stating in IES 8 (revised) that IES 8 is aligned with the principles of ISA 220 and ISQC 1 – this will alleviate the concerns we identify above and will facilitate the consistent deployment and application of IES 8 by all IFAC member bodies.
7. If the IAESB was to issue implementation guidance together with IES 8 (Revised) what would you envisage the guidance to look like?
As noted in our response to Questions 3, 4 and 5, the guidance could separate and contrast (through the use of illustrative examples) the competence areas and learning outcomes that would be required of engagement partners working (1) as SMPs and sole practitioners, (2) on medium sized engagements and (3) on engagements where the entities have complex industries, operations and accounting/reporting requirements.
As recommended in our response to Question 5, more implementation guidance is needed for SMPs, specifically how to comply with the requirements of the standard given their limited resources.
8. In respect of your jurisdiction, which area of the proposed IES 8 (Revised) would you consider it useful to have implementation guidance to help you meet the requirements of this IES?
Please see our answer to question 7.
9. Would you consider examples of current practice in developing competency models useful in helping you meet the requirements of the proposed IES 8 (Revised)?
As set out in our responses to the questions above, we see the need for additional clear guidance including examples in respect of applying IES 8 for (1) SMPs and sole practitioners, (2) medium sized engagements and (3) engagements where the entities have complex industries, operations and accounting/reporting requirements.
10. Is the objective to be achieved by a member body, as stated in the proposed revised IES 8, appropriate?
We have a concern regarding the way this paragraph is worded, particularly the use of the word “provide”. Paragraph 12 suggests that IFAC member bodies will actually provide the professional development.
We recommend rewording paragraph 12 to state “the objective of an IFAC member body is to establish minimum professional development requirements that are necessary for engagement partners to perform their role relative to the audit of historical financial statements.”
11. Have the criteria identified by the IAESB for determining whether a requirement should be specified been applied appropriately and consistently, such that the resulting requirements promote consistency in implementation by member bodies?
Please refer to our overarching comments where we express our concern that the criteria in IES 8 (Revised) for determining the requirements of the standard may not be met. Further, to achieve consistent implementation across all IFAC member bodies, we recommend that the standard be reworded to reflect the proposals as more of a framework of guidelines rather than “requirements”.
12. Are there any terms within the proposed IES 8 (Revised) which require further clarification? If so, please explain the nature of the deficiencies.
Paragraph 1 states “...engagement partners who provide assurance services for audits of financial statements”. However we don’t perform assurance services for audits, we perform services for clients. We recommend amending the text to read “... engagement partners who perform audits of financial statements.
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