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