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The Importance and Continued Relevance of International Standards: A Focus on Ethics and Independence

Diane Jules, Sarah Gagnon  | 

Global economic, social, and environmental challenges have been testing individuals, families, organizations, the financial market, and in turn, the accountancy profession. And that was before the COVID-19 pandemic.

In response, professional accountants must now be vigilant of the heighted risks that will arise out of the pandemic and continue to ensure that their actions are anchored by the fundamental principles of integrity, objectivity, professional competence and due care, confidentiality, and professional behavior set out in the International Ethics Standards Board for Accountants’ International Code of Ethics for Professional Accountants (including International Standards) (the Code). Similarly, the important role that professional accountancy organizations (PAOs), national standards setters, accountancy educators, and in some cases, regulators play in supporting accountants in complying with the Code cannot be overstated.

The Role of an International Code of Ethics

The international business community has expressed the need for a single set of international standards which enhances consistency and quality of services provided by professional accountants, strengthens financial stability and public confidence, and reduces regulatory fragmentation across borders. Businesses, governments, and other organizations rely on and place confidence in accountants’ work because of their commitment to act ethically and in the public interest. The Code requires accountants to comply with five fundamental principles of ethics. These principles promote the standard of behavior expected of individual accountants and firms and help orient their public interest mindset.

Upholding the public interest is a long-standing responsibility of accountants irrespective of their roles, and that is ultimately the bedrock of public trust in the profession.

Compliance with the Code in preparing, presenting, and auditing financial information is key to preserving public trust and mitigating fallouts during times of crisis, including during the COVID-19 pandemic. However, for the Code to continue to meet its intended purpose, it must be adopted, implemented, and enforced. PAOs play a key role in the adoption of international standards, including the Code.

A Recap of Revisions and Restructured Changes to the Code

The Code set out in the IESBA 2018 Handbook has been effective since June 2019 and is significantly revised and restructured from previous versions that jurisdictions may have already adopted (e.g., the 2016 version or even 2009).

Key changes include: 

  • An enhanced and more prominently featured conceptual framework—the universal approach that all accountants are required to apply to identify, evaluate and address threats to compliance with the fundamental principles that might arise when undertaking professional activities.
  • Clearer and more robust provisions pertaining to safeguards that are better aligned to the specific threats. 
  • Strengthened independence provisions addressing the long association of personnel with an audit or assurance client.
  • New and revised sections dedicated for professional accountants in business (PAIBs) relating to:
    • Pressure to breach the fundamental principles; and
    • Preparing and presenting information.
  • Clear guidance for professional accountants public practice (PAPPs) that relevant PAIB provisions set out in Part 2 of the Code are applicable to them.
  • Strengthened provisions for PAIBs and PAPPs relating to offering or accepting inducements, including gifts and hospitality.
  • New application material to:
    • Emphasize the importance of understanding facts and circumstances when exercising professional judgment (PJ).
    • Explain how compliance with the fundamental principles supports the exercise of professional skepticism (PS) in an audit or other assurance engagements.
    • Package the non-compliance with laws and regulations (NOCLAR) provisions which came into effect in July 2017 in a restructured format.
    • Include a glossary of defined terms and key concepts.

Recent and Upcoming Revisions

Because of the fluid and dynamic nature of the environment in which accountants operate, it is necessary to continually review the relevance and impact of the Code to ensure that it remains fit for purpose. It is against this backdrop that the IESBA developed its 2019-2023 Strategy and Work Plan (SWP).

Since the release of the 2018 Handbook, the IESBA has finalized the following changes to the Code:

  • Alignment of Part 4B to ISAE 3000 (Revised). Part 4B comprises the independence provisions for assurance engagements other than audit and review engagements. The revisions to Part 4B of the Code are to reflect terms and concepts used in the IAASB’s ISAE 3000 (Revised) and were developed in close coordination with the IAASB. The final pronouncement was released in January 2020 and will come into effect in June 2021. Early adoption is permitted.
  • Role and Mindset Expected of Professional Accountants. The final pronouncement with revisions to promote the role and mindset expected of professional accountants was released in October 2020. The revisions reaffirm the accounting profession’s responsibility to act in the public interest and the fundamental role of the Code in meeting that responsibility. Among other matters, the revisions:
    • Raise behavioral expectations of all professional accountants and require them to have an inquiring mind as they undertake their professional activities.
    • Emphasize the need for accountants to be aware of the potential influence of bias in their judgments and decisions.
    • Highlight the supportive role that organizational cultures can play in promoting ethical conduct and business.

The role and mindset revisions will come into effect in December 2021. Early adoption is permitted.

  • Objectivity of an Engagement Quality Reviewer (EQR). The IESBA approved a new section of the Code providing guidance to address the objectivity of an EQR based on the conceptual framework in September 2020. The EQR final pronouncement was released on January 14, 2021. It will be effective for audits of financial statements for periods beginning on or after December 15, 2022. Early adoption will be permitted.

The IESBA’s EQR project was closely coordinated with the International Auditing and Assurance Standards Board (IAASB) in the context of the IAASB’s project to develop International Standard on Quality Management (ISQM) 2, Engagement Quality Reviews, which was released in December 2020.

  • Non-Assurance Services (NAS) and Fees. The IESBA approved revisions to strengthen its International Independence Standards with respect to its NAS and fee-related provisions in December 2020. Subject to the Public Interest Oversight Board’s, the final pronouncements will be released by May 2021 and will be effective for audits of financial statements for periods beginning on or after December 15, 2022. Early adoption will be permitted.

IFAC’s Role in Adoption and Implementation of the Code  

Resulting from the collaborative approach that IESBA and IFAC has taken in relation to awareness raising, stakeholder outreach and adoption and implementation support, many jurisdictions either have adopted, or have stated plans to consider adopting, the more robust 2018 edition of the Code. It is important that this momentum continue.

IFAC membership requires a commitment of PAOs to use their authority and influence to adopt the international standards and best practices in their jurisdictions. IFAC member organizations around the world are required to adopt and implement ethics standards, including independence requirements, that are no less stringent than those in the IESBA Code. If law, regulation, or national ethics standards differ from or go beyond those set out in the IESBA Code, accountants need to be aware of these differences and comply with the more stringent provisions unless prohibited by law or regulation.  This means that national standard setters can include additional or more stringent provisions to meet the needs of their local jurisdictions.

PAOs that are not authorized to adopt the Code have an essential role in raising awareness of the importance of adopting the most current version of the Code. Further, all PAOs have an important role in educating accountancy professionals and relevant stakeholders about the revisions that are periodically made to international standards, including the Code. This aids in developing jurisdiction-specific implementation support to foster the right cultures within organizations and broader business communities to help professional accountants apply the Code’s requirements.

Status of Adoption of International Standards, including the Code

IFAC members regularly report on the status or progress of their adoption efforts. This makes IFAC well-positioned to maintain, monitor, and report unique information related to the global adoption status of international standards, including the Code. It also helps IFAC facilitate greater engagement and enhanced collaboration among stakeholders in the accountancy profession. IFAC’s 2019 International Standards Global Status Report represented the first baseline for global adoption status and also outlines the different adoption approaches and procedures. For the majority of jurisdictions, adoption of international standards takes a significant amount of time and resources. The process typically involves extensive local stakeholder consultations, coalition-building, and advocacy. In some jurisdictions, there is also additional time needed to translate the standards as part of the adoption process.   

Has your jurisdiction adopted the latest Code of Ethics? Explore on IFAC’s Global Impact Map.

All of these nuances contribute to our immense pride in celebrating that more than 80 of the 134 IFAC member jurisdictions have either already adopted or have stated plans to adopt the 2018 Code! In addition, the Forum of Firms—an independent association of international networks of accounting firms—adopt policies and methodologies that align to the IESBA Code when performing transnational audits

Looking Forward

The 2018 edition of the Code provides a solid foundation to preserve the relevance and public-interest focus of the global accountancy profession. We encourage stakeholders in jurisdictions that have not started the adoption process to do so now.

Coming soon!
The 2020 IESBA Handbook will be released by January 2021. It will include the final pronouncements that come into effect in 2021.

We also encourage professionals that are responsible for establishing governance policies and organization-wide Code of Conducts to consider and leverage the Code’s fundamental principles and its conceptual framework. These provisions are relevant in cultivating the ethical values and organization-wide culture required to develop and execute sound, and sustainable business strategies.

We look forward to seeing the number of jurisdictions and organizations using and adopting the current edition of the Code continue to increase!

How to Access the Code and Related Resources?

Visit the Standards & Pronouncements section of the IESBA website to:

  • Access the eCode
  • Access the current IESBA Handbook

Visit the Support & Resources section of the IESBA’s website to access:

  • IESBA staff-prepared publications (e.g., Basis for Conclusions, Q&As) and recorded webinars
  • IFAC-produced support material, including quick links to:
    • The Exploring the IESBA Code publication series
    • A Guide for Professional Accountancy Organizations - Developing Good Practices for Members Providing Tax Advice
  • IESBA-issued surveys and questionnaires
Diane Jules

Former Director, IESBA

Diane Jules is a former director of the International Ethics Standards Board for Accountants (IESBA). Since assuming the role in 2016, Ms. Jules worked to advance IESBA's strategic goals and priorities. She was integral to developing ethics and independence standards for global application and works closely with the chair and the IESBA to promote awareness, use and adoption of the International Code of Ethics for Professional Accountants (including International Independence Standards). Ms. Jules’ responsibilities included building and strengthening IESBA’s relationships with its stakeholders which include investors, regulators, academics, firms and national standards setters. She oversaw IESBA’s operational activities, specifically in relation to its communication initiatives.

Ms. Jules was the key staff on the IESBA’s Non-Assurance Service Task Force and currently oversees the Board’s workstreams on technology and sustainability. Following the successful development and June 2019 launch of the IESBA eCode — a digital platform for accessing and navigating the IESBA Code. Prior to joining the IESBA, Ms. Jules was a Senior Technical Manager at the International Auditing and Assurance Standards Board, and before that an Assistant Chief Auditor at the U.S. Public Company Accounting Oversight Board (PCAOB). Prior to her career in standard-setting, Ms. Jules held various audit and professional practice positions, including as an Assurance Manager at Grant Thornton, LLP.

Ms. Jules was among the 77 women listed as Crain’s New York Business 2019 Notable Women in Accounting and Consulting. She is an active member of the New York State Society of CPAs and the American Institute of CPAs. Ms. Jules has been featured in industry publications, including the Strategic Finance Magazine and the Journal of Accountancy. She conducts editorial reviews on technical submissions to the Advances in Accounting Education: Teaching and Curriculum Innovations Series and the CPA Journal She holds a Bachelor of Science degree in Accounting and Finance from the University of Maryland College Park and is a licensed certified public accountant (CPA). She is also a chartered global management accountant (CGMA).

Sarah Gagnon

Senior Manager, IFAC

Sarah Gagnon is a Senior Manager at IFAC where she provides membership and development services for IFAC's member organizations across Central, Southern, and Eastern Europe. Sarah also leads IFAC's Member Compliance Program and spearheads the external & internal strategic communications and reports on adoption & implementation of global accountancy standards. Prior to joining IFAC, Sarah worked at the SEEP Network in Arlington, VA to support research and membership services for SEEP's global membership of microfinance associations. She holds a bachelor's degree from Union College in Political Science and a graduate degree in Latin American Studies/Development from Georgetown University’s School of Foreign Service.