Objective(s) of project
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.
Although the independence requirements contained in the Code were modified in 2009, that year also marked the advent of the global financial crisis. As a result of the crisis, a number of major jurisdictions around the world have initiated, or have been actively engaged in, policy debates regarding ways to enhance audit quality. Among several policy initiatives that are currently actively being pursued in these jurisdictions are proposed changes to national requirements relating to the provision of non-audit services by audit firms to their audit clients.
Given these developments, the IESBA initiated a discussion at its February 2012 meeting regarding whether the Code should include additional restrictions on auditors providing non-assurance services. As a result of this discussion, the IESBA decided to add a new work stream to its 2012 strategy and work program to consider whether the Code should include additional restrictions on auditors providing non-assurance services to their audit clients, and whether the use of materiality as the basis for prohibiting certain non-assurance services remains appropriate.
Task Force progress / Board discussions to date
At its December 2012 meeting, 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.
At its March 2013 meeting, the IESBA received a brief update on the Task Force’s approach to information gathering for purposes of scoping out the project.
At its June 2013 meeting the IESBA considered the findings from a survey of a number of jurisdictions that the project Task Force had carried out for purposes of narrowing the scope of the project. The IESBA also considered the Task Force’s recommendations for the way forward. The IESBA 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 both to accounting and bookkeeping services, and to taxation services.
The IESBA also supported the development of a paper to, among other matters, raise awareness of the Code’s approach to NAS and of the robustness of the Code’s NAS provisions, highlight supplementary ways by which the threats and safeguards approach to independence in the Code may be enhanced, and generally increase the visibility and transparency of the relevant provisions in the Code.
At its September 2013 meeting, the IESBA approved a project proposal to review the NAS provisions in Section 290,
Independence – Audit and Review Engagements, and Section 291, Independence – Other Assurance Engagements, of the Code as these relate to the following three areas:
• Management responsibilities;
• Services of a routine or mechanical nature; and
• Emergency exceptions for bookkeeping and taxation services.
The IESBA also discussed possible elements of a paper that would set out its views and positions on NAS and related matters.
At its December 2013 meeting the IESBA considered issues and Task Force proposals with respect to:
- The emergency exception provisions for bookkeeping and taxation services in Section 290 of the Code;
- Clarification of the “Management Responsibilities” subsection of Section 290; and
- Clarification of the provisions in the “Preparing Accounting Records and Financial Statements” subsection of Section 290 dealing with services of a “routine or mechanical” Nature.
At its April 2014 meeting the IESBA approved for exposure the following proposed changes to the Code pertaining to the provision of non-assurance services to an audit client:
- Withdrawal of the emergency exception provisions for bookkeeping and taxation services provided to audit clients that are public interest entities (PIEs) in Section 290 of the Code;
- Provisions addressing management responsibilities in Section 290; and
- Clarifications regarding the concept of “routine and mechanical” services relating to the preparation of accounting records and financial statements in Section 290.
With respect to the latter two areas, the IESBA also approved for exposure corresponding changes in Section 291 of the Code pertaining to non-assurance services provided to an assurance client.
At its July 2014 meeting the IESBA agreed that the work stream on safeguards should be completed before determining the nature and scope of the “position paper” on NAS to be developed and what the timing of that paper might be. The IESBA asked the Task Force to scope out the issues to be addressed in a project on safeguards and to present a project proposal for Board consideration at the earliest opportunity.
At its October 2014 meeting, the IESBA considered significant comments received on its exposure draft Proposed Changes to Certain Provisions of the Code Addressing Non-Assurance Services for Audit Clients, and related Task Force proposals in response to those comments. The discussion focused on the three areas covered by the exposure draft, i.e., the proposed withdrawal of the emergency exception provisions pertaining to bookkeeping and taxation services provided to audit clients that are public interest entities (PIEs); the additional guidance on safeguards on and clarification regarding what constitutes management responsibility; and the enhanced guidance and clarification on the concept of “routine or mechanical” services relating to the preparation of accounting records and financial statements for non-PIE audit clients.
At its January 2015 meeting, the IESBA unanimously approved for issuance, subject to approval by the PIOB, the following changes to the Code pertaining to the provision of NAS to audit clients:
- Withdrawal of the exception provisions that permit an audit firm to provide certain bookkeeping and taxation services to public interest entity (PIE) audit clients in emergency situations;
- Additional guidance and clarification regarding what constitutes management responsibility; and
- Enhanced guidance and clarification regarding the concept of “routine or mechanical” services relating to the preparation of accounting records and financial statements for audit clients that are not PIEs.
The IESBA also approved corresponding and conforming changes to Section 291 of the Code pertaining to the provision of NAS to assurance clients that are not audit clients.
The changes will be effective approximately one year after the release of the final pronouncement.