This is an active project
Objective(s) of project
The objective of the project is to review Part C to ensure that its provisions remain appropriate and are robust.
The scope of the project encompasses Part C and its relationship with other parts of the Code.
In February 2012, the IESBA established a Working Group to study reported accounting irregularities at certain companies and determine whether Part C should be strengthened to better promote ethical behavior by PAIBs. In addition, Part C had received less attention than other parts of the Code in recent years and, therefore, the IESBA considered that a review of the Part C provisions would be timely.
To understand the ethical issues about which PAIBs contact their member bodies, the Working Group undertook in Q2 2012 a survey of a number of IFAC member bodies with large proportions of PAIBs in their memberships. This survey identified a list of issues for the IESBA’s potential consideration. To prioritize the issues identified, the Working Group undertook in Q3 2012 a broader survey of IFAC member bodies.
On the basis of the input from those surveys as well as from the IESBA CAG, the Working Group identified a number of key recommendations for a review of Part C that were presented at the December 2012 IESBA meeting. The IESBA agreed to the recommendations and commissioned the working group to develop a project proposal.
Task Force progress / Board discussions to date
At its March 2013 meeting, the IESBA approved a project to review Part C of the Code. Phase I of the project will review Sections 300, 320, 330 and 340 of the Code. This phase will, in particular, address 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. Phase II of the project will address Section 350, which is related to facilitation payments and bribes.
The IESBA CAG considered the project proposal at its April 2013 meeting.
At its June 2013 meeting the IESBA considered issues in the project to review Part C of the Code addressing professional accountants in business (PAIBs). Topics discussed included: the application of Part C to all professional accountants and pressure. The IESBA agreed to defer consideration of matters relevant to professional accountants in public practice in this project until after PAIB-specific issues have been addressed by the board.
At its September 2013 meeting the IESBA discussed a straw man of a proposed new section to the Code to address the topic of pressure from superiors and others to engage in unethical or illegal acts, and related issues. Amongst other matters, the IESBA discussed the scope of the guidance and the application of the threats and safeguards approach to the topic.
At its December 2013 the IESBA considered issues and Task Force proposals regarding a revised Section 320 of the Code addressing the preparation and reporting of information. Among other matters, the IESBA discussed a proposal to strengthen the requirement to prepare or present information fairly, honestly and in accordance with relevant professional standards; whether to deal separately with management and external information in Section 320; and whether to prohibit professional accountants in business from preparing or presenting misleading financial information that complies with the applicable reporting framework.
At its April 2014 meeting the IESBA considered issues and Task Force proposals regarding a revised Section 320 of the Code addressing the preparation and reporting of information, and a proposed Section 370 of the Code addressing pressure to breach the fundamental principles. Among other matters, the IESBA discussed possible guidance to help professional accountants in business (PAIBs) better understand their responsibilities regarding the issues of misuse or abuse of discretion under the applicable reporting framework, and transaction-based misrepresentation. The IESBA also provided input on proposed guidance to help PAIBs address the issue of pressure from superiors and others to breach the fundamental principles.
At its July 2014 meeting the IESBA considered proposed changes to Section 320 of Part C of the Code addressing the topic of preparation and reporting of information, and a proposed new Section 370 addressing the topic of pressure by superiors and others to breach the fundamental principles. Among other matters, the IESBA discussed Task Force proposals addressing the misuse of discretion in a reporting framework to mislead. The IESBA also provided input on the construct and content of the proposed Section 370.
At its October 2014 meeting the IESBA approved for exposure the following proposed changes to Part C of the Code addressing professional accountants in business (PAIBs):
- Revisions to Section 320 dealing in particular with the topic of misuse of discretion when preparing or presenting financial information. The revisions include enhanced guidance on how discretion can be misused in a manner intended to mislead; and the PAIB’s actions when faced with misleading information.
- A new Section 370 to guide PAIBs on responding to pressure from superiors or others to breach the fundamental principles, and on not placing pressure on others that would result in a breach of the fundamental principles.
Conforming changes have been proposed to other sections of Part C of the Code.
At its January 2015 meeting, the IESBA received a presentation from representatives of Transparency International (TI) UK regarding the topic of corruption and bribery, TI’s work in general, and the role of accountants relating to corruption.
At its April 2015 meeting, the IESBA then considered preliminary matters regarding Phase 2 of the Part C project. Topics discussed included: scope and objectives of this second phase; and use of terminology, including translatability of terms.
The IESBA received an update regarding the progress of the Task Force’s analysis of areas of Section 350, Inducements where improvements could be made to provide more robust and comprehensive guidance to PAIBs on the topic of inducements.
At its June/July 2015 meeting, the IESBA considered significant comments received on proposed revised Section 320 included in the Exposure Draft, Proposed Changes to Part C of the Code Addressing Presentation of Information and Pressure to Breach the Fundamental Principles, and related Task Force proposals. Topics discussed included: the meaning of the concept of “fair and honest” and its relationship to the fundamental principles; the appropriateness of certain examples of misuse of discretion in preparing or presenting financial information; the nature and extent of guidance to be provided regarding the purpose, context and audience when information is prepared in the absence of a reporting framework; the nature and extent of guidance to be provided regarding “reasonable steps” the professional accountant in business (PAIB) should take when relying on work performed by others; the need to differentiate the guidance between “senior PAIBs” and other PAIBs; and the approach towards disassociation from misleading information for different levels of PAIBs.
At its September 2015 meeting, the IESBA considered significant comments received on proposed revised Section 370 included in the Exposure Draft, Proposed Changes to Part C of the Code Addressing Presentation of Information and Pressure to Breach the Fundamental Principles, and a number of matters common to Sections 320 and 370 that were raised by respondents to the Exposure Draft. Topics discussed included: how to evaluate and respond to pressure to breach the fundamental principles, including in a conflict of interest situation; whether the proposed guidance should distinguish between “senior” professional accountants in business (PAIBs) and other PAIBs; and the adequacy of the guidance in Section 300 in highlighting the greater expectations of “senior” PAIBs.
At its November/December 2015 meeting, the IESBA unanimously approved to close off its deliberations on changes to extant Part C of the Code addressing professional accountants in business (PAIBs). The changes include revisions to extant Section 320 dealing with the preparation and presentation of information, a new Section 370 dealing with pressure to breach the fundamental principles, and related consequential and conforming amendments to other sections of extant Part C.
At its March 2016 meeting, the IESBA considered a draft restructured text of the Part C Phase 1 close-off document. The IESBA broadly supported the direction of the restructuring and provided structural and drafting feedback to the Part C Task Force for further consideration, including with respect to maintaining the substance and focus of some of the provisions.
As part of Phase 2 of the project, the IESBA considered Task Force proposals regarding how best to address the issue of the applicability of Part C to professional accountants in public practice. The IESBA supported the inclusion of an explanatory paragraph in the Code clarifying how Part C applies to professional accountants in public practice and provided suggestions for how the proposed wording of such a paragraph could be enhanced.
The IESBA will consider a second-read draft of the restructured Part C Phase 1 close-off document, a revised explanatory paragraph regarding the applicability issue, and matters relating to extant Section 350, Inducements under Phase 2 at its June 2016 meeting.