Final Restructuring Proposal for the Code of Ethics: What Do You Think?

Johnny Yong, Robyn Erskine | May 17, 2017 |

The International Ethics Standards Board for Accountants (IESBA) issued the Exposure Draft (Structure ED-2) Improving the Structure of the Code of Ethics for Professional Accountants – Phase 2 in January 2017, with a public comment period that closes on May 25, 2017.

Structure ED-2 comprises the restructuring of the majority of the remaining extant Code that was not included in Phase 1 of the Structure project.

  • Chapter 1: Proposed Restructured Text of Provisions in Part C of the Extant Code, as revised in the Close-off Document for Part C Phase 1 (Part 2 – Professional Accountants in Business, sections 200-270)
  • Chapter 2: Proposed Restructured Text of the Final NOCLAR(Responding to Non-compliance with Laws and Regulations) Pronouncement (sections 260-360)
  • Chapter 3: Proposed Restructured Text of the Long Association Close-off Document (section 540 and 940)
  • Chapter 4: Proposed Restructured Text of the Provisions Addressing Restricted Use Reports (section 800)
  • Chapter 5: Proposed Restructured Text Relating to Independence – Other Assurance Engagements (part 4B, except for material relating to the provision of non-assurance services to assurance clients)

The IESBA issued Structure ED-2 with the belief that the content would be consistent with, and meet the overall objectives of, the restructuring established in Phase 1 of the 2015 Structure project. Consistent with those objectives, the proposed changes improve the understandability and usability of the Code by restructuring it, without changing its meaning. The IESBA has taken significant steps to avoid inadvertent changes in the meaning of the extant Code. It has also sought to avoid any weakening of the extant Code.

Phase 1 of the Structure project established the following drafting conventions:

  • increased prominence of the requirement to comply with the fundamental principles and apply the conceptual framework;
  • requirements in paragraphs identified with an “R”, distinguished from other materials;
  • application material generally positioned next to the relevant requirements in paragraphs identified with “A”;
  • increased clarity of responsibility—more clearly enabling identification, where relevant, of a firm’s responsibilities and, together with firms’ policies and procedures, the responsibilities of particular professional accountants, specific references to network firms to clarify when the Code applies to them, and; reduction of the use of the word “generally”;
  • increased clarity in drafting: where possible, simpler and shorter sentences, simplifying complex grammatical structures, increased use of the active voice, avoiding legalistic and archaic terms; and
  • organization of the material into more self-contained sections and sub-sections with each section having its own introduction that broadly describes the context, including the threats that might exist and making references to the fundamental principles. The revised numbering convention should facilitate future revisions.

A Call to Action

Contributing to the development and facilitating the adoption of international standards is a core element of the IFAC Small and Medium Practices (SMP) Committee’s activities, and has been since its formation in 2005 (for more detail see previous article). As we coordinate and compile our comments, we strongly encourage SMP constituents worldwide to share your thoughts as well—either on your own or through your professional accountancy organization.

Areas for SMPs to consider:

  • Possible inadvertent changes in the meaning of the extant Code during the restructuring process, with example(s), if any. For example, the inadvertent placement of a requirement in application material.
  •  The slight changes in terminology that may lead to unintended work-effort. For example, the term “evaluate the significance of the threat” has been revised to “evaluate the level of the threat” (paragraph 200.6 A3 & A4). Will professional accountants feel compelled to use a multi-level approach to assess perceived threats?
  • Paragraph 210.7 A1, which states the more direct the connection between professional activity and the matter on which the parties’ interests conflict, the more likely that the level of the threat is not at an acceptable level. The inclusion of some plausible examples to rebut such presumption may be beneficial to SMPs.
  • Any suggestions on the ease of use of the Code—especially its navigability. It should be noted that the Board will eventually be looking into the development of “new” electronic features and tools to assist navigability and facilitate implementation of the restructured Code. Such features will include filtering options and other enhancements to the navigability of the overall Code. Terms in the Glossary will also be electronically linked to the body of the Code at a later stage.

While expressing support for the proposals in the first Structure ED, some respondents requested that the complete proposed restructured Code be made available when the Phase 2 of each of the Structure and Safeguards projects are well underway. In response to this request, and to assist respondents in better understanding how the provisions in the texts of Phases 1 and 2 of the Structure project relate to each other, and to the work on the Safeguards Project, two staff-prepared resources are now available at on the Ethics Board website.

  • Basis for Agreement in Principle documents to explain the rationale for the IESBA’s decisions following exposure of the proposals included in the first Structure ED and in the December 2015 Exposure Draft, Proposed Revisions Pertaining to Safeguards in the Code—Phase 1
  • A mapping table to facilitate tracking of the changes from the extant Code to the proposed restructured Code. The mapping table complements the compilation of the proposed restructured Code as of January 2017.

We believe these two documents will be of a great assistance when reviewing the current Structure ED-2.

Effective Date

Finally, a question that all SMPs and their PAOs must consider: the proposed effective date of the restructured Code is on or after June 15, 2019, a little over two years from today (early adoption will be permitted). The Long Association provisions will be effective even earlier—by December 15, 2018. With translation and other learning needs, member organizations will have to consider how best to use their resources to prepare their members for adoption of the re-structured Code. The IESBA will welcomes feedback on this and the other proposals in the ED.

Final reminder: the due date for the comments is May 25, 2017.

We are keen to hear the views of professional accountants in SMPs and small- and medium-sized entities on the approach outlined by the IESBA in this ED. Please share your thoughts accordingly.


Johnny Yong

Head of Capital Market & Assurance, MIA

Johnny Yong is head of capital market and assurance at the Malaysian Institute of Accountants (MIA). He was previously a technical manager with IFAC. Prior to his role at IFAC, he was a partner of a training provider in Malaysia, specializing in provision of training to accounting firms and for accountants in general. He qualified as an accountant following his articleship with BDO Malaysia and also lead MIA's public practice department. See more by Johnny Yong

Robyn Erskine

Robyn is a partner in Brooke Bird, a specialist restructuring insolvency and turnaround firm located in Melbourne Australia and has been actively involved in the public practice sector for over 30 years. In January 2015, Robyn was appointed to the International Federation of Accountants (IFAC) Small and Medium Practices Committee on the nomination of CPA Australia and Chartered Accountants Australia and New Zealand. She is currently the Deputy Chair of the SMPC and the Chair of its Ethics Task Force. Robyn is a director of CPA Australia having been appointed to the board in 2017.  She has served on CPA Australia’s Victorian Division and Victorian Public Practice Committee and in 2014 Robyn was awarded the Henry Fox Award for outstanding service to Public Practice in Victoria. In 2011 Robyn became the first female to be appointed as the National President of the Insolvency Practitioners Association of Australia, now known as the Australian Restructuring Insolvency and Turnaround Association (ARITA) and served as a director of ARITA until May 2019. In 2017 Robyn was awarded Life Membership to ARITA for long, dedicated and distinguished service to ARITA and the Profession. Robyn is a current councilor of the Australian Institute of Credit Management’s Victorian Tasmanian Division. See more by Robyn Erskine


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