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An SMP Perspective on Improving the Structure of the IESBA Code of Ethics for Professional Accountants—Phase 1

Christopher Arnold  | 

Developed by the International Ethics Standards Board for Accountants® (IESBA®, the Ethics Board), the Code of Ethics for Professional Accountants (the Code) establishes ethical requirements for professional accountants. In December 2015, the Ethics Board issued an Exposure Draft, Improving the Structure of the Code of Ethics for Professional Accountants—Phase 1 (Structure ED), which represents the first application of the proposed new structure and drafting conventions for the Code, covering both a number of general application provisions, as well as sections addressing professional accountants in public practice.

Key features of the restructuring include:

  • Increased prominence of the requirement to apply the conceptual framework and comply with the fundamental principles;
  • Better demarcation of requirements versus application material—paragraphs identified with R or A, as appropriate, to better distinguish;
  • 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;
  • Increased clarity of language, where possible: simpler and shorter sentences; simplification of complex grammatical structures; increased use of the active voice; and avoidance of legalistic and archaic terms;
  • Reorganization of the Code as appropriate, to enhance clarity and usability, positioning the Code to take advantage of forthcoming electronic features;
  • An enhanced definitions section, which is now presented as a glossary and includes descriptions of terms used; and
  • A new title for the Code and the addition of a Guide to the Code.

The Exposure Draft closes for comment on April 18.

IFAC SMP Committee Response

Contributing to the development and facilitating the adoption of international standards are core elements of the IFAC Small and Medium Practices Committee (SMP Committee) Work Plan (see IFAC Engagement with IAASB and IESBA—Representing the Interests of PAIBs & SMPs). The SMP Committee has been supportive of the restructuring project since it was first included on the IESBA Work Plan. It provided a response to the IESBA November 2014 Consultation Paper and has since submitted comment letters on the Task Force’s progress ahead of the IESBA Board meetings. 

The main points in its comment letter response to the Structure ED include the following:

  • The SMP Committee supports the approach to restructuring taken by the IESBA and the general direction of the project.
  • The SMP Committee agrees with the proposals to identify requirement paragraphs with R and position application material—identified with A—next to the relevant requirements. These changes should enhance the user’s understanding of specific prohibitions.
  • The work undertaken to increase the clarity of the language will help the understandability of the Code, in particular the simpler and shorter sentences and increased use of the active voice.
  • The SMP Committee agrees that reversing the order of extant Part B (Professional Accountants in Public Practice) and Part C (Professional Accountants in Business) is logical.
  • The new overarching requirements for all Professional Accountants (PAs) to apply the Conceptual Framework should be replaced with overarching objectives for the PA, which are supported by more specific requirements. The broad requirements can be difficult in practice—using more general objectives means the requirements can be more specific and the expected actions would be far clearer.
  • It is not clear how the new Guide to the Code interacts with some elements of “Part A Introduction to the Code and Fundamental Principles” as this also contains general information. The SMP Committee also questions the inclusion of a “Guide” as part of the Code itself, as the status of it is unclear and may cause confusion.
  • The SMP Committee supports the approach for the term “audit” continuing to include “review” for the purposes of the independence standards. An alternative of specifying both terms each time would increase the length of the Code with limited benefits as the requirement to be independent applies equally to an audit and review engagement. However, this should be clear in the introduction to the section and the proposal to include the description of these terms in the footnotes is not sufficient.
  • The SMP Committee does not support the proposed new title for the Code as the International Code of Ethics Standards for Professional Accountants. The committee believes that the title could detract from the principles-based nature of the Code, and there is a risk it will be seen as a move toward a more rules-based approach.
  • The needs of the SMP community should be at the forefront as the IESBA takes this project forward in Phase 2. The IESBA needs to engage more with this important constituency as it develops the next Exposure Draft in order to ensure their views are taken into consideration.

Join the Conversation

We are keen to hear the views of professional accountants in SMPs and SMEs on the approach outlined by the IESBA. Please log in and comment below to share your thoughts on the proposals to improve the understandability of the IESBA Code of Ethics for Professional Accountants (the Code) by revising its structure and whether it will enhance its usability.

Christopher Arnold


Christopher Arnold is a Director at the International Federation of Accountants (IFAC). He leads activities on contributing to and promoting the development, adoption and implementation of high-quality international standards, including the Member Compliance Program, Intellectual Property and Translations. Christopher is also responsible for IFAC’s SME (small- and medium-sized entities), SMP (small- and medium-sized practices) and research initiatives, which include developing thought leadership, public policy and advocacy. He was previously an Audit Manager for Deloitte and qualified as a professional accountant in a mid-tier accountancy practice in London (now called PKF-Littlejohn LLP). Christopher started his career as a Small Business Policy Adviser at the Association of Chartered Certified Accountants (ACCA).