The International Ethics Standards Board for Accountants® (IESBA®, the Ethics Board) today released for public comment the Exposure Draft (ED), Proposed Changes to Certain Provisions of the Code Addressing the Long Association of Personnel with an Audit or Assurance Client. The proposals respond to stakeholder concern about the appearance of independence and the need to ensure that the threats created by the long association of audit firm personnel with an audit client are appropriately addressed on all audit engagements.
"The IESBA has not received evidence that the current provisions in the IESBA Code™ addressing long association, including partner rotation, have not been working effectively in practice," notes interim IESBA Chair Wui San Kwok. "However, developments in key jurisdictions and substantive stakeholder feedback indicate that expectations are shifting on what are considered acceptable safeguards to effectively address long association risks. The IESBA is responsive and is proposing to strengthen certain safeguards in the Code, such as the engagement partner ‘cooling-off’ provisions, to ensure continued public confidence in the independence of the audit process."
Among the proposed changes are:
- Strengthened general provisions applicable to all audit engagements regarding the threats created by long association;
- With respect to partner rotation, an increase in the mandatory “cooling-off” period, from two to five years, for the engagement partner on the audit of a public interest entity;
- Strengthened restrictions on the type of activities that can be undertaken with respect to the audit client and audit engagement by any former key audit partner during the cooling-off period; and
- A requirement to obtain the concurrence of those charged with governance regarding the application of certain exceptions to the rotation requirements.
The Ethics Board is also proposing strengthened provisions in Section 291 of the Code dealing with assurance engagements.
“The issues that the board considered are complex and interconnected, particularly given that knowledge of and experience with the audit client and its business are important contributors to audit quality,” noted IESBA Technical Director Ken Siong. “The proposals reflect extensive and careful board deliberations into the options, weighing audit quality, cost, and practicality considerations.”
The development of the proposals was informed by wide-ranging research, which included a benchmarking exercise of jurisdictional requirements, stakeholder outreach, and a survey that yielded more than 400 responses from standard setters, audit committees, regulators, and firms.
How to Comment
The Ethics Board invites all those with an interest in international ethics standards for the accountancy profession to respond to the Exposure Draft. To access the ED and submit a comment, please visit the Ethics Board’s website at www.ethicsboard.org. Comments are requested by November 12, 2014. The Ethics Board encourages national and regional professional accountancy organizations to share the ED and encourage participation from their members and employees.
About the IESBA
The International Ethics Standards Board for Accountants (IESBA, the Ethics Board) is an independent standard-setting board that develops and issues, in the public interest, high-quality ethical standards and other pronouncements for professional accountants worldwide. Through its activities, the IESBA develops the Code of Ethics for Professional Accountants, which establishes ethical requirements for professional accountants. The structures and processes that support the operations of the IESBA are facilitated by IFAC. Please visit www.ethicsboard.org for more information, and follow us on Twitter @Ethics_Board.
About IFAC
IFAC is the global organization for the accountancy profession dedicated to serving the public interest by strengthening the profession and contributing to the development of strong international economies. IFAC is comprised of 179 members and associates in 130 countries and jurisdictions, representing approximately 2.5 million accountants in public practice, education, government service, industry, and commerce.