IESBA eNews: September 2012

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    Sep 25, 2012
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    IESBA eNews: September 2012

    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.
     

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