The International Ethics Standards Board for Accountants (IESBA, the Ethics Board) today released final changes to the definition of “those charged with governance” in its Code of Ethics for Professional Accountants (the Code).

The changes are intended to more closely align the definition of “those charged with governance” in the Code with that in the International Auditing and Assurance Standards Board (IAASB)’s International Standard on Auditing (ISA) 260, Communication with Those Charged with Governance, thereby eliminating any potential confusion. The Ethics Board does not expect any changes will be necessary to accounting firms’ systems and methodologies or common practice.

The changes clarify that a subgroup of those charged with governance of an entity, such as an audit committee, may assist the governing body in meeting its responsibilities. In those cases, if a professional accountant or firm communicates with such a subgroup, the Code requires the professional accountant or firm to determine whether communication with all of those charged with governance is also necessary so that they are adequately informed.

“The changes to the definition reflect the Ethics Board’s ongoing commitment to eliminate unnecessary differences with the IAASB’s standards, which serves to enhance our shared stakeholders’ understanding of our standards and guidance,” said Jörgen Holmquist, chair of the IESBA. “Furthermore, by clarifying the definition, the Ethics Board aims to promote more consistent application of the Code, which is critical to its mission to ultimately foster a consistent and high level of ethical behavior by professional accountants around the world.”

As with all revisions to the Code, the changes have been approved following confirmation by the Public Interest Oversight Board that due process in developing the changes was followed. The changes, effective on July 1, 2014, will be printed in the 2014 Handbook of the Code of Ethics for Professional Accountants. The 2013 Handbook is currently available to download or purchase.

About the IESBA
The International Ethics Standards Board for Accountants (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 173 members and associates in 129 countries and jurisdictions, representing approximately 2.5 million accountants in public practice, education, government service, industry, and commerce.

#   #   #

The changes to this pronouncement are intended to more closely align the definition of “those charged with governance” in the Code of Ethics for Professional Accountants with that in the International Auditing and Assurance Standards Board (IAASB)'s International Standard on Auditing (ISA) 260, Communication with Those Charged with Governance, thereby eliminating any potential confusion. The Ethics Board does not expect any changes will be necessary to accounting firms’ systems and methodologies or common practice.

The International Ethics Standards Board for Accountants (IESBA, the Ethics Board) today released its 2012 Annual Report, Connecting and Engaging with Our Global Stakeholders.

The report introduces Jörgen Holmquist, the first independent chair of the Ethics Board, and details the board’s ongoing commitment to developing high-quality ethics standards for the global accountancy profession. It emphasizes the board’s further commitment to promoting and facilitating the adoption and effective implementation of these standards around the world, thus supporting professional accountants in their commitment to act in the public interest within their diverse roles in business and practice.

The report summarizes the progress made on the IESBA's Work Plan, which in 2012 included finalizing three pronouncements—breach of a requirement of the Code of Ethics for Professional Accountants (the Code), conflicts of interest, and a revised definition of the term “engagement team.” The report also highlights the board’s efforts in exploring appropriate ethics standards for professional accountants in one of the most challenging projects the board has undertaken so far—responding to a suspected illegal act.

“The Annual Report is one of the ways through which the board demonstrates the transparency of its activities. This year’s report focuses on our activities in further building on the strong base of ethics standards contained in the revised Code released in 2009. Additionally, it elaborates on the renewed focus we’ve placed on stakeholder outreach,” said Mr. Holmquist. “As the first independent chair of the board, I see it as an important priority to increase the trust of stakeholders, particularly the regulatory community, in the board’s work, and extending and deepening the board’s engagement with them.”

The Annual Report also includes a report from Richard Fleck, outgoing chair of the IESBA Consultative Advisory Group (CAG), which outlines the work of the CAG in providing input to the IESBA.

To access and download the 2012 IESBA Annual Report, visit www.ethicsboard.org.

About the IESBA
The International Ethics Standards Board for Accountants (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 173 members and associates in 129 countries and jurisdictions, representing approximately 2.5 million accountants in public practice, education, government service, industry, and commerce.

###

The 2012 IESBA Annual Report  introduces Jörgen Holmquist, the first independent chair of the Ethics Board, and details the board’s ongoing commitment to developing high-quality ethics standards for the global accountancy profession. It also emphasizes the board’s further commitment to promoting and facilitating the adoption and effective implementation of these standards around the world.

Interview translated into English by IFAC and conducted by El País in Spanish. For original in Spanish, see: Entrevista con Jörgen Holmquist Presidente del Comité Internacional de Ética del Sector de Auditoría (IESBA)

English translation: 

Jörgen Holmquist is the chair of the International Ethics Standards Board for Accountants (IESBA).

Question. Why is IESBA working on a revision of the Code of Ethics for Professional Accountants (the Code)?

Answer. The issue is not to modify the content of the Code but its structure. It is difficult to read and the purpose of the revision is to make it more accessible, particularly for the small and medium size audit firms. We are in consultation within the sector and regulators to see how we can improve the structure of the Code.

Q. Would you say auditors bear some responsibility for the financial crisis?

A. There are many parties responsible for this crisis: bankers, politicians, supervisors … Auditors also bear their share of responsibility. It is not as much a problem of independence or of ethics in front of their clients but rather of failures in the way audits were performed since the work of auditors should have resulted in better information to judge what was going on.

Q. Have lessons been drawn from the recent mistakes?

A. Auditors are reflecting on how to improve their work. It is still an ongoing process. From point of view of Ethics there are several things to be considered: how to strengthen independence, how to improve rotation rules, how to proceed when irregularities are identified…

Q. Are auditors contributing to restore confidence in the markets?

A. Confidence in auditors is important and necessary since one of the services they render is to make it possible for investors to trust corporate information. This service has not changed and I believe it is generally well accomplished, although in the cases where the role of the auditor is at question it is obviously necessary to find a solution.

Q. Revenues from services other than audit are increasing in many cases, does this put the auditor’s independence at risk?

A. We cannot generalise. It is clearly stated in the Code of Ethics that there are certain services that the auditor cannot provide. We are now reviewing these rules to see if they need to be strengthened.

Q. Would you be in favour of setting a limit to such services?

A. The real challenge is to find a balance between the different sources of income. Revenues from other services should not subsidise audit, rather audit fees should fully cover the cost of audit services. In cases where revenues from other services are very significant there could be a problem, but it is very difficult to say where to set the limit, since the appropriate limit differs depending on the circumstances. Transparency is very important in these cases: let the market know what pays what and then the Audit Committee of the company should decide on such matters.

Q. The European Union has been trying to increase competition in the market for years, what do you think about this?

A. The rotation of the audit firms is not the panacea, it has advantages but also disadvantages. To improve the way the sector works there are more important issues at stake. Moreover, we have to take into account that in the course of the auditor’s engagement with the company audit partners and directors of the company usually change.

Q. Do you believe there is real competition in this industry? How do you explain the increase of revenues of the big companies year after year despite the crisis?

A. It doesn’t surprise me that revenues are stable or increasing because the crisis brings forward demand for more services. If we take a close look to the sector we see a fair amount of competition between small and medium firms. It is maybe less so in the case of the big four where there is more concentration There should be a few more players at that level, but how can this be achieved? There is no easy answer to this question.

Q. There is the feeling that auditors profited from the problem and now they profit from the solution…

A. I see what you are saying but for me the issue is whether the auditors conduct themselves in an ethical manner and whether they produce quality work. Auditors’ workload has significantly increased because of the crisis which has led to more hours worked. The trend points to a reduction of hourly fees. I don’t believe that auditors as a general rule are profiting from the crisis.

Q. The big four are all Anglo-Saxon; do you think it would be interesting to promote a big European firm?

A. It is difficult to create a brand new company that can compete with the big four because what the clients require is a worldwide network that can provide services in any country where they have a presence. 

Entrevista con Jörgen Holmquist, presidente del Comité Internacional de Ética del Sector de Auditoría (IESBA), en El País

Kristian Koktvedgaard has been appointed chair of the Consultative Advisory Group (CAG) to the International Ethics Standards Board for Accountants (IESBA or the Ethics Board). The Ethics Board is an independent standard-setting board that develops and issues, in the public interest, the Code of Ethics for Professional Accountants for global application by professional accountants operating both in business and in practice.

The IESBA CAG^* is an independent body that provides the forum in which the representatives of its various member organizations—including regulators, preparers, and others with an interest in international ethics standards for professional accountants, including auditor independence—provide advice on technical and public interest matters relating to the drafts of the Ethics Board’s standards and strategy.

As a senior advisor focusing on auditing and accounting with the Confederation of Danish Industry, Kristian Koktvedgaard currently represents BUSINESSEUROPE on the IESBA CAG and the CAG of the International Auditing and Assurance Standards Board. He was elected by the IESBA CAG membership to succeed the current chair, Richard Fleck, who has served as the first independent chair of the IESBA CAG since May 2006. Kristian Koktvedgaard’s appointment—a three-year term effective July 1, 2013—has been approved by the Public Interest Oversight Board (PIOB), which oversees the activities of the Ethics Board and of the CAG.

The chair of the CAG acts as the primary representative of those who use or rely on the Ethics Board’s standards and guidance and encourages a deeper understanding by the Ethics Board of the public's needs and expectations. The chair of the IESBA CAG provides leadership direction to the CAG, overseeing the achievement of the CAG's objectives. As the CAG’s liaison with the PIOB, the Ethics Board, and identified key stakeholders, the chair is also responsible for communicating the views of the CAG to these bodies and conveying the views of these bodies to the CAG.

“I congratulate Mr. Koktvedgaard on his appointment to this important role,” said Mr. Fleck. “His broad knowledge and experience working on ethics, audit, and accounting issues will be great assets to the CAG as it provides public interest input to the Ethics Board.”

Commenting on the appointment, Jörgen Holmquist, chair of the Ethics Board, said, “Kristian’s experience and expertise as a senior advisor on policy matters relating to the accountancy profession will serve him well in leading the CAG to provide effective public interest input to the development of our standards and guidance. I very much look forward to working with him in his role as chair of the CAG.”

Kristian Koktvedgaard is a member of the Danish Accounting Council and the Danish disciplinary tribunal for State Authorized and Certified Public Accountants. He is also actively involved in the Danish Accounting Forum, a body that brings together Danish stakeholders to discuss accounting issues. In addition, he is a member of the BUSINESSEUROPE Accounting Sounding Board and has represented BUSINESSEUROPE in audit matters on numerous occasions. Previously, he served on the Danish Supervisory Authority on Auditing.

Kristian Koktvedgaard stated, “The IESBA CAG plays a vital role in enabling all those concerned in the work of, or services provided by, professional accountants—regulators, preparers, users of financial information, and other participants in the financial reporting supply chain—to have a voice in the development and maintenance of standards that ensure a high level of ethical conduct by professional accountants. It is critical for the credibility of professional accountants to have these constituents involved in the setting of high-quality ethics standards for the profession. I am truly honored that my colleagues on the CAG have appointed me to lead the CAG in this role, and I look forward to the challenge. I also would like to take this opportunity to recognize the vision, leadership, and commitment that Richard Fleck brought to the CAG over the past seven years.”

About the IESBA

The International Ethics Standards Board for Accountants (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 173 members and associates in 129 countries and jurisdictions, representing approximately 2.5 million accountants in public practice, education, government service, industry, and commerce.

^*IESBA CAG Members (As at July 1, 2013)

Asian Financial Executives Institutes

Basel Committee on Banking Supervision

BUSINESSEUROPE

CFA Institute

European Commission

European Federation of Accountants and Auditors for SMEs

European Financial Executives Institutes

Fédération des Experts-Comptables Européens

Gulf States Regulatory Authorities

Institute of Internal Auditors

International Association of Insurance Supervisors

International Corporate Governance Network

International Organization of Securities Commissions

International Organization of Supreme Audit Institutions

National Association of State Boards of Accountancy

North American Financial Executives Institutes

Organisation for Economic Co-operation and Development

Sri Lanka Accounting and Auditing Standards Monitoring Board

UK Financial Reporting Council

World Bank

World Federation of Exchanges

IESBA CAG Observers (As at July 1, 2013)

IFAC Small and Medium Practices Committee

US Public Company Accounting Oversight Board

Thank you for signing up to receive eNews from the International Ethics Standards Board for Accountants (IESBA, the Ethics Board). This edition of IESBA eNews provides a summary of decisions made at the board’s meeting held June 10-12, 2013, in New York, USA. See the Meeting Page for the meeting highlights podcast, meeting summary, and agenda papers.

IN THIS ISSUE:

1. Responding to a Suspected Illegal Act
2. Definition of Those Charged with Governance
3. Structure of the Code
4. Future Strategy and Work Plan
5. Review of Part C of the Code
6. Provision of Non-Assurance Services to an Audit Client
7. Long Association of Senior Personnel (Including Partner Rotation) with an Audit Client
8. Emerging Issues and Outreach
9. Next Meetings
10. Ethics Board is Hiring
11. 2013 IESBA Handbook
12. Registration Now Open for World Congress of Accountants 2014; Sponsorship Opportunities Available

1. Responding to a Suspected Illegal Act

The Ethics Board considered a proposed alternative to the approach set out in the Exposure Draft, Responding to a Suspected Illegal Act, regarding a professional accountant’s responsibilities when encountering a suspected illegal act. Among other matters, the Ethics Board discussed the concept of a permission in the Code of Ethics for Professional Accountants (the Code) for both professional accountants in public practice and professional accountants in business to override confidentiality in specific circumstances when responding to a suspected illegal act. In addition to considering the various elements of the proposed alternative approach, the Ethics Board discussed the thresholds for actions, the types of suspected illegal acts to disclose, and documentation. The Ethics Board will continue its deliberation of the proposed alternative approach at its September 2013 meeting.

2. Definition of Those Charged with Governance

The Ethics Board approved for issuance, subject to confirmation by the Public Interest Oversight Board (PIOB) in September 2013 that due process has been followed, a revised definition of “those charged with governance” and related changes to the Code. The changes will be effective on July 1, 2014.

3. Structure of the Code

The Ethics Board approved the terms of reference for the working group formed to advise the board on ways to improve the usability of the Code. The board also supported the working group’s research plan and proposed timeline for the initiative, and provided suggestions for the working group to consider as it begins research. The Ethics Board will receive an update on the research at its September 2013 meeting.

4. Future Strategy and Work Plan

The Ethics Board considered the responses to its survey on the 2014-2016 IESBA Strategy and Work Plan. It also considered the Planning Committee’s preliminary analysis of the survey results and recommendations for the way forward. Among other matters, the Ethics Board agreed to extend its 2011-2012 Strategy and Work Plan through the end of 2014. The Ethics Board also identified a short list of topics for possible inclusion in its next Strategy and Work Plan (2015-2017) for further consideration. The board will continue its deliberation on these topics at its September 2013 meeting.

5. Review of Part C of the Code
Discussion around the project to review Part C of the Code, which addresses professional accountants in business (PAIBs), included the application of Part C to all professional accountants and pressure by superiors and others to engage in unethical or illegal acts. Consideration of matters relevant to professional accountants in public practice has been deferred until after PAIB-specific issues have been addressed. The Ethics Board will continue its consideration of pressure issues at its September 2013 meeting.

6. Provision of Non-Assurance Services to an Audit Client

The Ethics Board considered the findings from a survey of a number of jurisdictions, conducted by the project Task Force, to narrow the scope of the project on non-assurance services. The Ethics Board also considered the Task Force’s recommendations and agreed that the project proposal should be refined to focus on the following:

• Clarification of the provisions in Section 290, Independence—Audit and Review Engagements, addressing management responsibilities;
• Clarification of the concept of “routine and mechanical” services relating to the preparation of accounting records and financial statements; and
• A review of the emergency exception provisions in the Code pertaining to both accounting and bookkeeping services, and taxation services.

The Ethics Board also supported the development of a paper with the aim of, among other matters: raising awareness of the Code’s approach to non-assurance services and of the robustness of the related provisions in the Code; highlighting supplementary ways by which the threats and safeguards approach to independence in the Code may be enhanced; and generally increasing the visibility and transparency of the relevant provisions in the Code. The Ethics Board will receive an update on the project at its September 2013 meeting.

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

The Ethics Board received an update on the project 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 Ethics Board will consider the findings from the survey and other research being undertaken for this project at its September 2013 meeting.

8. Emerging Issues and Outreach

The Ethics Board approved the terms of reference for the working group formed to advise the board in relation to emerging issues and international developments of relevance to the board’s work and outreach to stakeholders. The Ethics Board will consider at its September 2013 meeting preliminary recommendations from the working group with respect to processes by which the board may consider emerging issues and its strategy for outreach.

9. Next Meetings

Meetings of the IESBA and the IESBA Consultative Advisory Group (CAG) are open to the public. The IESBA CAG will next meet in New York, USA, on September 11, 2013. The next meeting of the IESBA will be in Sydney, Australia, September 16–18, 2013.

For more information and to register to attend an IESBA or IESBA CAG meeting as an observer, visit IESBA Meetings  and IESBA CAG Meetings respectively.

10. Ethics Board is Hiring

The Ethics Board is seeking a technical manager to join its staff team based in New York. Qualified candidates will currently be, or have had experience, at the manager or senior manager level in professional practice, a professional accounting body, the office of a public sector auditor, or similar. For a complete job description and required skills and experience, see Working at IFAC. Qualified candidates should send a resume to jobs@ifac.org. 

11. 2013 IESBA Handbook

The 2013 Handbook of the Code of Ethics for Professional Accountants is now available to download or purchase. The 2013 edition contains the final revised pronouncements addressing breaches of provisions in the Code and conflicts of interest, and the revised definition of “engagement team.” These changes will be effective in 2014; see the individual pronouncements for details. To place an order for this, in addition to the 2013 handbooks for public sector accounting and auditing and assurance standards, visit Handbook of the Code of Ethics for Professional Accountants.   

12. Registration Now Open for World Congress of Accountants 2014; Sponsorship Opportunities Available

The next World Congress of Accountants (WCOA) will be hosted by the Consiglio Nazionale dei Dottori Commercialisti e degli Esperti Contabili (CNDCEC) in Rome, Italy in 2014. Themed 2020 Vision: Learning from the Past, Building the Future, the 2014 WCOA will be held November 10-13 at the Auditorium Parco della Musica. More than 4,000 professionals from around the world will convene at this quadrennial IFAC event. WCOA 2014 will look back to explore the evolution of the accountancy profession and forward to showcase the innovations that will shape the future of the profession. Register Now.

The WCOA also provides a global platform for organizations and firms to share their projects and visions via various sponsorship opportunities.