IESBA Proposes Changes to the Code of Ethics for Professional Accountants to Address a Breach of a Requirement in the Code

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    Oct 24, 2011
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    IESBA Proposes Changes to the Code of Ethics for Professional Accountants to Address a Breach of a Requirement in the Code

    The International Ethics Standards Board for Accountants (IESBA) today released for exposure  Proposed Changes to the Code of Ethics for Professional Accountants Related to Provisions Addressing a Breach of a Requirement of the Code. The IESBA believes that any breach of a provision of the Code of Ethics for Professional Accountants (IESBA Code) should be treated as a matter of utmost importance. Therefore, the IESBA has proposed changes to the IESBA Code that will provide guidance to a professional accountant on the action to be taken in such situations. This includes a robust framework for addressing a breach of an independence requirement that will result in greater transparency. This Exposure Draft is the result of a project that commenced in 2010.*

    The proposed changes to the IESBA Code include a requirement that a professional accountant take whatever actions that might be available as soon as possible to satisfactorily address the consequences of a breach of a provision of the Code.  For a breach of an independence requirement in the IESBA Code, a detailed framework is provided setting out the action to be taken. Specifically, the proposed changes would require a firm to:

    • terminate, suspend, or eliminate the interest or relationship that caused the breach;
    • evaluate the significance of the breach and determine whether action can be taken to satisfactorily address the consequences of the breach;
    • communicate all breaches with those charged with governance and obtain their agreement with the proposed course of action; and
    • document the actions taken and all the matters discussed with those charged with governance and, if applicable, any relevant regulators.

    “The proposed changes to the IESBA Code should help to ensure that the significance of any breach of an independence requirement is discussed with those charged with governance, and that professional judgment is taken into account when taking action,” stated Ken Dakdduk, IESBA Chair. “An auditor resignation due to an independence violation—regardless of the magnitude of the violation—has potential consequences to the company, its investors, and the capital markets.  The proposed framework will guide accountants, and those charged with governance, in determining whether resignation is an appropriate outcome or whether a different outcome can be supported. In addition, disclosure will enhance transparency, and the proposed documentation requirement adds a degree of rigor to the process that will be very useful.”

    How to Comment
    The IESBA invites all stakeholders to comment on its proposals. To access the exposure draft and submit a comment, visit the IESBA’s website at www.ifac.org/Ethics/publications-resources. Comments on the exposure draft are requested by January 23, 2012.

    *Note to Editors:
    In 2010, the IESBA assessed the provisions in the IESBA Code that address a breach of an independence requirement, and concluded that a project should be undertaken to reconsider those provisions, including determining whether the provisions are needed and, if so, how the guidance can be enhanced with regard to scope and application. As a result of this project, the IESBA concluded that it is in the public interest to have an appropriate mechanism that can be consistently applied across all jurisdictions in order to provide companies, auditors, regulators, and similar authorities with a framework to evaluate the impact of an independence violation and determine whether the auditor's resignation is the only appropriate outcome.


    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.

    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. It is comprised of 164 members and associates in 125 countries and jurisdictions, representing approximately 2.5 million accountants in public practice, education, government service, industry, and commerce.

     

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