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The International Ethics Standards Board for Accountants (IESBA) has been busy recently, even since the start of the pandemic in 2020, with several upcoming changes to the International Code of Ethics for Professional Accountants (including International Independence Standards) (the “Code”) on the horizon. It can be challenging for small- and medium-sized practices (SMPs) to keep up with these changes, and this has been consistently ranked as one of the top challenges in surveys conducted by IFAC.  The IFAC SMP Advisory Group continues to actively monitor all ethics proposals and has formally responded to the multiple consultations and engaged with the IESBA often to provide input and suggestions with a focus on matters that impact SME and SMP constituents.

Below is a summary of the key changes to the Code that have been approved since early 2020 as well as the effective dates so SMPs and small and medium-sized entities (SMEs) can be prepared.

Alignment of Part 4B to ISAE 3000 (Revised)

Part 4B of the Code 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 International Auditing and Assurance Standards Board’s (IAASB) International Standard on Assurance Engagements (ISAE) 3000 (Revised), Assurance Engagements Other than Audits or Reviews of Historical Financial Information and were developed in close coordination with the IAASB.

The main revisions include:

  • Changes in key terminology, including a revised definition of the term “assurance client”
  • Amendments to certain independence requirements in light of the revised assurance client definition
  • Greater clarity as to the parties to an assurance engagement and their roles and responsibilities, and the related independence requirements that apply
  • A clearer distinction between the types of assurance engagements covered in Parts 4A (addressing independence for audit and review engagements) and 4B of the Code

The final pronouncement was released in January 2020 and just became effective on June 15, 2021.

Role and Mindset Expected of Professional Accountants

In October 2020, IESBA issued revisions to the Code to promote the role and mindset expected of professional accountants. A fact sheet outlines some of the key provisions and changes from the extant Code. Of particular importance are the following changes:

  • Applying the conceptual framework requires that all Professional Accountants (PAs) have an inquiring mind when identifying, evaluating, and addressing threats to the fundamental principles. This perquisite for applying the conceptual framework applies to all accountants regardless of the professional activity undertaken. Practitioners are also required to exercise professional skepticism when performing audits, reviews, and other assurance engagements under the IAASB standards.
  • Clarification that compliance with the Code does not mean a professional accountant will have always met their responsibility to act in the public interest
  • A clear message that compliance with the Code means not only compliance with the letter of the Code, but also with its spirit
  • Strengthening of the fundamental principle of integrity through requiring professional accountants to have the strength of character to act appropriately, i.e., standing one’s ground when facing dilemmas and difficult situations, or challenging others as circumstances warrant
  • Expansion to the other fundamental principles of objectivity, professional competence and due care, and professional behavior, including some enhancements that reflect the impact of technology
  • Emphasis on the importance of being aware of one’s bias in the exercise of professional judgment, along with a list of 8 common examples of potential bias to be aware of
  • A clear recognition of the importance that a positive internal organizational culture has on the effective application of the conceptual framework
  • An explicit recognition that professional accountants have a role in promoting ethical behavior and culture in their organizations

These changes are effective as of December 31, 2021. Early adoption is permitted.

Please note the eleventh installment of the Exploring the IESBA Code series addresses bias and the role and mindset of the professional accountant.

Non-Assurance Services

In April 2021, IESBA released revisions to the Non-Assurance Services (NAS) provisions of the International Independence Standards. The revised NAS provisions clarify and address circumstances in which firms and network firms may or may not provide a NAS to an audit or assurance client. IESBA put together a mapping document that outlines the revisions by section of the extant Code and is helpful in understanding the key changes, which include the following:

  • A new general prohibition on the provision of a NAS to an audit client that is a PIE if the provision of that service might create a self-review threat to the firm’s independence
  • New provisions to assist firms and network firms in identifying and evaluating self-review threats that might be created by the provision of a NAS to an audit client
  • New guidance indicating that the provision of advice and recommendations might create a self-review threat and explaining the circumstances in which a firm or a network firm may provide advice and recommendations to an audit client
  • New provisions to strengthen and improve the quality of firm communication with those charged with governance (TCWG) about NAS-related matters, especially in the case of audit clients that are PIEs and entities within that PIE’s corporate structure
  • Enhanced guidance to explain that the concept of materiality is not relevant in evaluating whether a self-review threat might be created by the provision of a NAS to an audit client that is a PIE
  • Strengthened provisions to assist firms in addressing threats to independence that might be created by the provision of NAS to audit clients that are not PIEs, including new application material in relation to situations where a safeguard is not available
  • New provisions and structural refinements to promote the consistent application of the NAS provisions

One of the more significant changes relates to firms providing accounting and bookkeeping services. Whereas the extant Code noted that providing such services to an audit client might create a self-review threat, the revised guidance makes clear that providing these services creates a self-review threat when there is a risk that the results of the services will affect the accounting records or the financial statements on which the firm will express an opinion.

Examples of actions that might be safeguards to address a self-review threat created when providing accounting and bookkeeping services of a routine or mechanical nature to an audit client that is not a public interest entity include:

  • Using professionals who are not audit team members to perform the service.
  • Having an appropriate reviewer who was not involved in providing the service review the audit work or service performed

These revisions are effective December 15, 2022. Early adoption is permitted.


In April 2021, IESBA also released revisions to the fee-related provisions of Parts 4A and 4B of the Code. The changes include:

  • A prohibition on firms allowing the audit fee to be influenced by the provision of services other than audit to the audit client.
  • Enhanced guidance for identifying, evaluating and addressing threats to independence in relation to other fee-related matters, including the proportion of fees for services other than audit to the audit fee.

As it relates to the proportion of fee provisions noted above, the revised guidance states that when for each of five consecutive years total fees from an audit client that is not a public interest entity represent, or are likely to represent, more than 30% of the total fees received by the firm, the firm shall determine whether either of the following actions might be a safeguard to reduce the threats created to an acceptable level, and if so, apply it:

  • Prior to the audit opinion being issued on the fifth year’s financial statements, have a professional accountant, who is not a member of the firm expressing the opinion on the financial statements, review the fifth year’s audit work; or
  • After the audit opinion on the fifth year’s financial statements has been issued, and before the audit opinion is issued on the sixth year’s financial statements, have a professional accountant, who is not a member of the firm expressing the opinion on the financial statements, or a professional body review the fifth year’s audit work.

In the case of audit clients that are PIEs, the following changes also apply:

  • A firm is required to cease to be the auditor of a PIE audit client if the audit fee exceeds more than 15% of the total fees by the firm for five consecutive years, unless they meet specific criteria for an exception.
  • A requirement to communicate fee-related information to TCWG, and to the public to assist their judgments about auditor independence.

These revisions are effective as of December 15, 2022, with early adoption permitted.

Objectivity of an Engagement Quality Reviewer and other Appropriate Reviewers

In January 2021, IESBA released revisions to the Code addressing the objectivity of an engagement quality reviewer (EQR) and other appropriate reviewers. This project was closely coordinated with the IAASB project to develop the International Standard on Quality Management (ISQM) 2, Engagement Quality Reviews, which was finalized in December 2020.

The revisions provide guidance that supports ISQM 2 in addressing the eligibility of an individual to serve in an EQR role, focusing on the critical attribute of objectivity. Among other matters, the guidance:

  • Elaborates on the need to identify, evaluate and address threats to compliance with the fundamental principle of objectivity that might arise in the appointment of an individual as an EQR for a given engagement
  • Explicitly refers to and supports the requirement in ISQM 2 for a firm to establish, as a condition for eligibility, a cooling-off period of two years before an engagement partner can assume the EQR role on the same engagement
  • Emphasizes that this cooling-off requirement in ISQM 2 serves the dual objective of supporting compliance with the fundamental principle of objectivity and the high quality of engagements

The guidance may also apply in situations where, as a safeguard to address identified threats to compliance with the fundamental ethics principles, an individual is appointed as an appropriate reviewer for work performed.

The enhanced guidance will become effective December 15, 2022.


It is critical that SMPs keep up with all of these upcoming changes to the Code. IFAC continues to support the adoption and implementation of international standards and develop resources to assist PAs as they navigate these changes.

Additional Resources

There are numerous additional guidance and support resources available on the dedicated ‘Supporting International Standards’ and “Building Trust and Ethics” sections of the Knowledge Gateway.

IFAC has also highlighted the importance of professional accountants leading reporting and assurance on sustainability and recently published Accelerating Integrated Reporting Assurance in the Public Interest.

In addition, the IAASB have released new Guidance on Applying ISAE 3000 (Revised) to Extended External Reporting Assurance Engagements.

There are several other additional projects that IESBA is currently working on, view a full listing of their project timetable as of June 2021.

Kristy Illuzzi

Kristy Illuzzi was an IFAC principal for SME/SMP and Research at IFAC. She was previously a senior manager with the AICPA working with their Technical Issues Committee. She was also the Controller at Engenderhealth, a global non-profit organization focused on reproductive health. Kristy started her career in the audit practice of Arthur Andersen in New York City and later was an experienced manager at Grant Thornton working in their Not-for-Profit practice.

Naofumi Higuchi

Naofumi Higuchi became a member of the IFAC SMP Advisory Group (SMPAG) in January 2017. He was nominated by the Japanese Institute of Certified Public Accountants (JICPA).

Mr. Higuchi is a Technical Director at JICPA, the organization for the CPA profession in Japan. He assists member CPAs working in SMPs to implement International Financial Reporting Standards (IFRS) by providing a series of seminars and workshops. JICPA also provides tools, guidelines, and special training sessions for members in SMPs to be utilized when supporting start-ups, new business development, and business revitalization.

Mr. Higuchi is a professor (part-time) specializing in IFRS at Tohoku University Accounting School in Japan since 2018. 

Mr. Higuchi received his CPA qualification in 2001 while working as a manager in financial services with ChuoAoyama PricewaterhouseCoopers in Japan.

Mr. Higuchi holds a bachelor of economics degree from Keio University, Japan, and a master's degree (Master of Laws) from University of Tsukuba, Business Science School.