Thank you for signing up to receive eNews from the International Ethics Standards Board for Accountants (IESBA). This edition of IESBA eNews provides a summary of decisions made at the IESBA’s meeting held December 10-12, 2012, in New York, USA. See the Meeting Page for more information.

IN THIS ISSUE:

1. Emerging Issues and Strategic Plan
2. Breach of a Provision of the Code
3. Conflicts of Interest
4. Definition of Engagement Team
5. Long Association of Senior Personnel with an Audit Client
6. Non-Assurance Services
7. Review of Part C of the Code
8. Suspected Illegal Acts
9. Next Meetings
10. New Technical Director
11. 2013 IESBA Handbook

1. Emerging Issues and Strategic Plan

IESBA members shared information and views about significant national and international developments or emerging issues of potential relevance to the IESBA’s current and future strategy and work plan.

In addition, the IESBA agreed to the scope of, and general approach to, the survey of stakeholders to be used to facilitate the development of its Strategy and Work Plan, 2014-2016. 

The survey is now open through March 15, 2013. The IESBA encourages all stakeholders to participate. For the strategy and work plan currently in effect, see Strategy and Work Plan, 2011–2012, and the additional work streams added in mid-2012.

2. Breach of a Provision of the Code

The IESBA approved for issuance, subject to due process confirmation by the Public Interest Oversight Board (PIOB), changes to the Code of Ethics for Professional Accountants (the Code) related to provisions addressing a breach of a requirement of the Code.

The changes will be effective approximately one year after issuance of the final pronouncement, which is expected by the end of March 2013. The final pronouncement will be included in the 2013 Handbook of the Code of Ethics for Professional Accountants (see below).

3. Conflicts of Interest
The IESBA approved for issuance, subject to due process confirmation by the PIOB, changes to the Code addressing conflicts of interest. The final pronouncement is expected to be released by the end of March 2013, with the changes becoming effective on July 1, 2014. The final pronouncement will be included in the 2013 Handbook of the Code of Ethics for Professional Accountants (see below).

4. Definition of Engagement Team

The IESBA considered the significant comments received on the Exposure Draft (ED) of its proposed change to the definition of the term “engagement team.” The IESBA also considered further amendments to the proposed definition, taking into account limited amendments proposed by the International Auditing and Assurance Standards Board (IAASB) to the material in ISA 610 (Revised), Using the Work of Internal Auditors, dealing with the use of internal auditors to provide direct assistance on the external audit (Direct Assistance).

The IESBA will consider approving the revised definition of “engagement team” after consulting with its Consultative Advisory Group (CAG) on January 21, 2013.

5. Long Association of Senior Personnel (Including Partner Rotation) with an Audit Client

The IESBA approved a project proposal to review the long association provisions in Section 290 of the Code to ensure that they continue to provide robust and appropriate safeguards against the familiarity and self-interest threats arising from long association with an audit client.

The IESBA will consider preliminary issues relating to the project at its March 2013 meeting, including the approach to the project.

6. Non-Assurance Services

The IESBA approved in principle, subject to confirmation of scope, a project proposal to review the non-assurance services provisions in Sections 290 and 291 of the Code to ensure that they continue to support a rigorous approach to independence for assurance services, particularly audits of financial statements.

The IESBA will consider the outcome of a benchmarking exercise for purposes of narrowing the scope of the project at its March 2013 meeting.

7. Review of Part C of the Code

Part C of the Code addresses how the conceptual framework of threats and safeguards in Part A of the Code applies in certain situations to professional accountants in business (PAIBs). The IESBA agreed to the recommendations of the Part C Working Group, including that priority attention be given to the following areas in a review of Part C of the Code:

• Pressure by superiors and others to engage in unethical or illegal acts;
• The responsibility of PAIBs to produce financial reports that are faithful representations of the economics of transactions, and associated matters; and
• Facilitation of payments and bribes.

The IESBA agreed that the Part C work stream should proceed on an accelerated basis under the current strategy and work plan rather than be subject to further consideration of relative prioritization as part of the upcoming consultation on its Strategy and Work Plan, 2014-2016. Accordingly, the IESBA directed the Working Group to develop a project proposal for its consideration at the March 2013 IESBA meeting.

8. Suspected Illegal Acts

The IESBA received a brief update on initial stakeholder reactions to its August 2012 Exposure Draft (ED), Responding to a Suspected Illegal Act, which closed on December 15, 2012.

The IESBA will consider the significant comments from the nearly 70 responses received on the ED at its March 2013 meeting.

9. Next Meetings

Meetings of the IESBA and the IESBA CAG are open to the public. The IESBA CAG will next meet via teleconference on January 21, 2013. The IESBA is expected to next meet via teleconference in the latter part of January 2013. The next face-to-face IESBA meeting will be held in New York, USA, on March 11–13, 2013. For more information and to register to attend an IESBA meeting as an observer, visit IESBA Meetings. For more information and to register to attend an IESBA CAG meeting as an observer, visit IESBA CAG Meetings.

10. New Technical Director

Ken Siong has assumed the role of technical director of the IESBA effective January 1, 2013. Ken brings over 10 years of experience working with the International Auditing and Assurance Standards Board (IAASB), most recently as deputy director. In that capacity, his responsibilities included managing a number of key IAASB standard-setting projects and other initiatives—including audit quality, quality control, and related parties—overseeing the IAASB’s liaison with major national standard setters, and coordinating the IAASB’s strategic and operational activities. Prior to joining the IAASB, Ken worked as a senior manager in the assurance practice of PwC in Hong Kong. He is a member of the Institute of Chartered Accountants in England and Wales.

11. 2013 IESBA Handbook

The IESBA is developing the 2013 Handbook of the Code of Ethics for Professional Accountants. It will contain the final pronouncements addressing breaches of provisions in the Code and conflicts of interest. It is also expected to contain the revised definition of “engagement team.” The 2013 Handbook is expected to be released in the second quarter of 2013. For the current edition, see 2012 IESBA Handbook.   

The staff of the International Ethics Standards Board for Accountants (IESBA) today released additional questions and answers (Q&As) to support the adoption and implementation of the IESBA’s Code of Ethics for Professional Accountants (the Code). The new Q&As cover issues related to materiality, partner rotation, public interest entities, and network firms, among several other topic areas.

To aid consistent application of the Code, the IESBA monitors the adoption and implementation of the Code to identify areas where support is needed. These Q&As respond to the needs identified.

The 141 member organizations of the International Federation of Accountants (IFAC), the global organization for the accountancy profession, are required to apply ethical standards at least as stringent as those stated in the Code. (IFAC associates are progressing toward this status.) In addition, under their membership obligations, members of the Forum of Firms, an association of international networks of accounting firms, agree to have policies and methodologies for transnational audits which conform to the Code.

“This publication reinforces the IESBA’s public interest mandate to support the global adoption and implementation of the Code. Globally adopted, high-quality ethics standards, including independence requirements, are vital to promoting sustainable, efficient capital markets,” said IESBA Chair Jörgen Holmquist. “Inconsistent application of the Code could undermine not only our efforts to promote global adoption but also the credibility of the Code itself,” he added. “So promoting consistent implementation is of critical importance.”

The new publication builds on a previous set of Q&As released in 2010 that includes support on the application of the conceptual framework approach, taxation services, related entities, and the definition of key audit partner, among a number of other topics. 

About the IESBA
The IESBA 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.

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 167 members and associates in 127 countries and jurisdictions, representing approximately 2.5 million accountants in public practice, education, government service, industry, and commerce.

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This questions and answers (Q&As) publication was released by the staff of the International Ethics Standards Board for Accountants (IESBA) to support the adoption and implementation of the IESBA’s Code of Ethics for Professional Accountants (the Code). These Q&As cover issues related to materiality, partner rotation, public interest entities, and network firms, among several other topic areas.

Welcome to the International Ethics Standards Board for Accountants (IESBA) eNews.

In This Issue:

1. IESBA Welcomes New Chair
Technical Updates
2. Responding to a Suspected Illegal Act
3. Proposed Change to the Definition of “Those Charged with Governance”
4. Review of Part C of the Code
5. Breach of a Requirement of the Code
6. Reformatting of the Code
7. Strengthening Safeguards against Familiarity Threats
8. Conflicts of Interest
9. Other Matters
Additional News
10. IFAC Is Hiring
11. IESBA Handbook Now Available
12. Upcoming Meetings
13. Share IESBA eNews with Your Colleagues

1. IESBA Welcomes New Chair

Jörgen Holmquist recently began his three-year appointment as the first independent chair of the IESBA. A public member of the IESBA since 2011, he served as director general, DG Internal Market and Services, European Commission from 2007 to 2010, where he was responsible for developing the European Union (EU) regulatory response to the financial crisis, including legislation and policy concerning accounting and auditing.

A key function of the chair is to enable, encourage, and promote a deeper understanding by stakeholders and the public of the strategies and activities of the IESBA. Mr. Holmquist will be active in developing and maintaining effective relationships with national standard setters, regulators, and other key stakeholders.

Mr. Holmquist joined IFAC President Göran Tidström in acknowledging the exemplary contribution and commitment his predecessor Ken Dakdduk brought to the role, and to his position on the board, over the past seven years. To learn more, see Mr. Holmquist's interview in IFAC News and the press release announcing his appointment.

Technical Updates
This section provides an update on recent developments on key projects and a summary of decisions made at the IESBA’s last meeting in June 2012. 

2. Responding to a Suspected Illegal Act

Last month, the IESBA issued Responding to a Suspected Illegal Act. The Exposure Draft (ED) proposes that:

• A professional accountant in public practice providing professional services to an audit client be required to disclose, where the client has not done so, to an appropriate authority, suspected illegal acts that affect financial reporting or fall within the expertise of the professional accountant, and that are of such consequence that reporting would be in the public interest.
• An accountant performing a professional service for a non-audit client and an accountant in business be required to disclose suspected illegal acts to the entity’s external auditor, if any, where the accountant is unable to escalate the matter, or the client/employing organization respectively has failed to take appropriate action, and the matter is of such consequence that the professional accountant determines that disclosure would be in the public interest. If the response to the matter is not appropriate, the professional accountant will have a right to disclose certain suspected illegal acts to an appropriate authority. The accountant would be expected to exercise the right to disclose. An accountant performing a non-assurance service for a non-audit client would have a right to disclose a suspected illegal act that related to the subject matter of the professional service being provided. A professional accountant in business would have a right to disclose a suspected illegal act that affects the financial reporting of the employing organization.
• In exceptional circumstances, a professional accountant would not be required or expected to disclose the suspected illegal act. Exceptional circumstances would arise where a reasonable and informed third party might conclude that the consequences to the professional accountant or others of disclosure are so severe as to justify not complying with the requirement to disclose, for example, where there would be threats to the physical safety of the professional accountant or other individuals. Consequences that are of a commercial nature, such as the loss of a client or income, would not constitute exceptional circumstances.
• Terminating the professional relationship or resigning from the employing organization is not a substitute for disclosure to an appropriate authority.

Visit www.ethicsboard.org to access the ED and submit a comment. Comments are requested by December 15, 2012.

3. Proposed Change to the Definition of “Those Charged with Governance”

The IESBA has issued an Exposure Draft (ED) to revise the definition of the term “those  charged with governance” to more closely align with the definition in ISA 260, Communication with Those Charged with Governance. The ED recognizes that, consistent with ISA 260, communication may be with a subgroup of those charged with governance. Visit www.ethicsboard.org to access the ED and submit a comment. Comments are requested by October 31, 2012.

4. Review of Part C of the Code

At its June meeting, the IESBA discussed the preliminary recommendations of a Working Group formed to review Part C of the Code of Ethics for Professional Accountants (the Code) and identified areas where further development might be appropriate. For consideration in the IESBA’s next Strategy and Work Plan, the Working Group recommended guidance on two additional issues:

• The responsibility of professional accountants in business (PAIBs) to produce financial reports that are faithful representations of the economics of transactions and to avoid association with misleading information and reports; and
• Situations in which PAIBs are pressured by superiors to violate laws or ethical standards.

The IESBA agreed that the review be extended to identify any other related issues that the IESBA may wish to address in its Strategic Plan for 2014/15.

5. Breach of a Requirement of the Code

At its June meeting, the IESBA discussed amended wording in its proposal to address a breach of the Code. The changes reflect board and CAG members’ comments at meetings held earlier this year. The IESBA’s discussion also benefitted from feedback provided in response to a recent survey of those charged with governance. The IESBA concluded:

• The firm shall discuss all breaches and the action it has taken, or proposes to take, with those charged with governance. The communication shall be as soon as possible, unless those charged with governance have specified an alternative timing for less significant breaches;
• The firm shall communicate the breach in writing to those charged with governance; and
• In addition to complying with any legal or regulatory requirements, the firm shall consider reporting a breach to a member body, relevant regulator, or oversight authority when such reporting is common practice or encouraged in the particular jurisdiction by the member body, regulator, or oversight authority.

The IESBA anticipates publishing the final standard in December with an effective date of January 1, 2014.

6. Reformatting of the Code

At its June meeting, the IESBA reviewed a possible alternative approach to formatting the Code to raise the visibility of its requirements and prohibitions. The IESBA found the possible alternative helpful and requested the proposals be developed further and consideration be given to the views of regulators and those who implement the Code.

7. Strengthening Safeguards against Familiarity Threats

At its February 2012 meeting, the IESBA tentatively agreed it is important to have a position on the key regulatory proposals in Europe, the US, and other jurisdictions that are within the board’s purview. At its meeting in June, the IESBA received a report to assist it in determining its position on mandatory audit firm rotation and other possible safeguards as a means of reducing to an acceptable level the familiarity and self-interest threats that can be created as a result of an auditor’s long association with an audit client. It did not yet form an opinion on these matters and determined that it would continue to monitor developments and the debate in this area.

At its June meeting, the IESBA agreed that it was appropriate to review the provisions in the Code that address partner rotation and requested that a project proposal be prepared to initiate this. The project should address the period that a partner can serve as a key audit partner, the time-out period required, the individuals who should be subject to rotation, and other safeguards that could address the threats created by long association with an audit client. The IEBSA will review a project proposal on these issues at its next meeting in December 2012.

8. Conflicts of Interest

The IESBA discussed a summary of responses (as follows) to the Exposure Draft (ED) addressing conflicts of interest:

• Respondents were generally supportive of the application of the reasonable and informed third-party test and the basis on which threats arising from network firm interests and relationships are addressed in the ED;
• Respondents were supportive of proposals to deal with situations when consent cannot be obtained because it would breach confidentiality; and
• Respondents were supportive of the proposed requirements for professional accountants in business.

The IESBA reached tentative conclusions on the following matters:

• The description of a conflict of interest should be redrafted to provide a linkage between the professional activity and the matters that are in conflict, thus making it clear that a conflict of interest is not created merely because the interests of two clients are in conflict; and
• The guidance on managing conflicts of interest, and obtaining and documenting consent, could be clarified by addressing disclosure and consent separately and providing additional guidance on the types of consent—general, explicit, and implied.

The IESBA will consider revised wording at its December 2012 meeting.

9. Other Matters 

In June, IFAC released a new policy position paper setting out guidance on defining the “public interest.” At its June meeting, the IESBA noted the IFAC Board’s approval of the paper. The IESBA also noted that in its response to the Exposure Draft addressing conflicts of interest, the International Organization of Securities Commissions (IOSCO) had encouraged the IESBA to consider the concept of the public interest as outlined in the Code and whether it should be a fundamental principle. The IESBA agreed that it would consider both of these matters at its December 2012 meeting.

The IESBA has been trial testing an approach to assessing the impact of its proposals and to date has received comments from respondents on three different approaches to developing its impact assessment. The IESBA agreed that it would consider its experience with impact assessment, and the experience of the other standard-setting boards supported by IFAC, at its December 2012 meeting with a view to considering whether there is a favored model to use for future IESBA impact assessments.

Additional News

10. IFAC Is Hiring

The International Federation of Accountants, which supports the operations of the IESBA, is searching for a Technical Director to supervise and coordinate the work of the IESBA. Qualified candidates will have senior level accounting experience, including significant technical experience and a deep working knowledge of ethical and independence standards, in particular, the Code of Ethics for Professional Accountants. Visit Working at IFAC to learn more. Qualified candidates should send a resume and salary requirements to jobs@ifac.org.   

11. IESBA Handbook Now Available

The 2012 Handbook of the Code of Ethics for Professional Accountants is now for sale on the IFAC website. Discounts for bulk orders, students, educators, and those in World Trade Organization developing countries are available.

12. Upcoming Meetings

Meetings of the IESBA and the IESBA Consultative Advisory Group are open to the public. The IESBA plans to next meet by conference call on October 15, 2012, 7:00–9:00 AM Eastern Daylight Time and October 16, 2012, 7:00–8:00 AM Eastern Daylight Time. The next face-to-face meeting of the IESBA is scheduled for December 10–12, 2012 in New York, USA. For more information and to register to attend an IESBA meeting as an observer, visit IESBA Meetings.

13. Share IESBA eNews with Your Colleagues

The IESBA issues regular eNews updates to help keep you informed of its activities and recent developments. Please forward this eNews to any interested colleagues and advise them that they can subscribe to receive IESBA eNews by following these simple steps:

• Register a new account or log in to your existing IFAC web account.
• Go to My Subscriptions to manage your subscription preferences.
• Select "Ethics eNews" from the checklist, as well as any other newsletters or press releases that you would like to receive.

Ken Siong became technical director of the International Ethics Standards Board for Accountants (IESBA) in January 2013, and program and senior director in January 2018. In his role, Mr. Siong manages and oversees the work of the IESBA, including its strategic and operational activities and its work program. As program and senior director, Mr. Siong also plays a key role in developing and strengthening the IESBA’s relationships with its stakeholders.

Mr. Siong previously served as deputy director of the International Auditing and Assurance Standards Board (IAASB). In this capacity, he provided technical direction and support on the development of IAASB standards. He also played a key role in managing the IAASB’s strategic and operational activities, and the IAASB’s relationship with major national auditing standard setters.

Mr. Siong joined the staff of the IAASB in July 2002. Previously, he worked as a senior manager in the assurance practice of PwC in Hong Kong SAR, where he managed a number of transnational audits in various industries.

Mr. Siong graduated from the University of Bristol in the UK with a bachelor’s degree in computer science. He is a member of the Institute of Chartered Accountants in England and Wales, and a member of the Hong Kong Institute of Certified Public Accountants.

Stuart Gittleman of Thomson Reuters reports on the release of the IESBA's Exposure Draft, Responding to a Suspected Illegal Act.