IFAC Sovereign Debt Seminar Presentation
IN THIS ISSUE:
1. IESBA Revises 2012 Strategy
2. Responding to a Suspected Illegal Act
3. Breach of a Requirement of the Code
4. IESBA Proposes Changes to the Definition of “Engagement Team”
5. Upcoming Meetings
6. Share Ethics eNews with Your Colleagues
1. IESBA Revises 2012 Strategy
The IESBA has agreed on a revision to its strategy and activities for 2012. Its revised strategy calls for the board to undertake the following activities in 2012:
Rotation—The IESBA will consider firm rotation and also whether the position of the Code of Ethics for Professional Accountants (the Code) on partner rotation remains appropriate, including whether the requirement to rotate off the audit engagement after serving seven years as a key audit partner and observe a two-year time-out period continues to be appropriate.
Non-assurance services—The IESBA will consider whether the Code's position on non-assurance services remains appropriate, including the use of materiality, and, if so, whether guidance should be provided for applying the materiality test. If certain non-assurance services are permitted, the IESBA might also consider whether they should be subject to pre-approval by those charged with governance, restricted in size in relation to the audit fee, or publicly disclosed.
Structure of the Code—The IESBA will determine how to increase the visibility of the requirements and prohibitions in the Code and clarify who is responsible for meeting them.
Part C of the Code—The IESBA will determine whether recent corporate accounting irregularities reveal ethical implications for professional accountants in business (PAIBs) and whether part C of the Code should be strengthened to provide PAIBs with more guidance and support.
These matters will be discussed initially at the IESBA's June 2012 meeting. Depending upon the positions reached, the IESBA ultimately may propose revisions to the Code.
2. Responding to a Suspected Illegal Act
At its February 2012 meeting, the IESBA discussed its position on how a professional accountant should respond to a suspected illegal act. The IESBA agreed on the following:
The IESBA expects to approve an exposure draft on this subject at its next meeting in April.
3. Breach of a Requirement of the Code
At its February 2012 meeting, the IESBA began discussing responses to the Exposure Draft proposing a new framework for addressing a breach of a requirement of the Code. The IESBA noted:
The IESBA tentatively concluded that all breaches should be reported to those charged with governance, but it may be appropriate to have some flexibility on the timing of reporting less significant breaches. The IESBA will continue considering comment submissions at its June meeting.
4. IESBA Proposes Changes to the Definition of “Engagement Team”
At its February 2012 meeting, the IESBA approved an exposure draft to revise the definition of “engagement team” to make it clear that internal auditors providing direct assistance to an external auditor are not considered to be part of the audit engagement team under the Code and eliminate the perception that the Code and ISA 610, Using the Work of Internal Auditors are in conflict. The comment deadline is May 30, 2012.
5. Upcoming Meetings
Meetings of the IESBA and the IESBA Consultative Advisory Group (CAG) are open to the public. The IESBA next meets by conference call on April 19, 2012, from 7:00–10:00 AM Eastern Daylight Time and, in person, June 18–20, 2012 in New York, USA. For more information and to register to attend an IESBA meeting as an observer, visit IESBA Meetings.
The next IESBA CAG meeting will be held on September 12, 2012 in New York, USA. For more information, visit IESBA CAG Meetings.
6. Share Ethics eNews with Your Colleagues
The IESBA issues regular eNews updates to help keep you informed of its activities and recent publications. Please forward this eNews to any interested colleagues and advise them that they can subscribe to receive IESBA eNews by following these simple steps:
Many entities establish internal audit functions as part of their internal control, risk management, and governance structures; effective coordination and communication between the external and internal auditors can contribute positively to the external audit. Recognizing this, the International Auditing and Assurance Standards Board (IAASB) today released International Standard on Auditing (ISA) 610 (Revised), Using the Work of Internal Auditors, which addresses the external auditor’s responsibilities if using the work of an internal audit function in obtaining audit evidence.
“Internal auditing standards and practices have continued to develop, as has the relationship between external and internal auditors. Equally, the expectations on the external auditor continue to evolve, particularly with recent heightened emphasis on audit quality and accountability,” stated Prof. Arnold Schilder, IAASB chairman. “Our standards must also evolve to take account of these changes. Our revision of this standard involved extensive input from, and liaison with, the regulatory community, which we believe has helped enhance the quality of the final standard.”
The revised standard is aimed at enhancing the external auditor’s performance by providing a more robust framework for evaluating and using the work of an entity’s internal audit function. Related changes have also been made to ISA 315 (Revised), Identifying and Assessing the Risks of Material Misstatement through Understanding the Entity and Its Environment, to explain how the internal audit function and its findings can usefully inform the external auditor’s risk assessments.
“The external auditor may be able to use the work of a robust internal audit function. Nevertheless, the external auditor has sole responsibility for the audit opinion expressed, and that responsibility is not reduced by the external auditor’s use of the work of the internal audit function,” notes James Gunn, IAASB technical director. “This revised ISA defines the conditions that are necessary for the external auditor to be able to use the work of internal auditors, including ensuring that the internal audit function’s work is adequate for the audit, and preventing overuse or undue use of such work.”
Both ISA 610 (Revised) and ISA 315 (Revised) are effective for audits of financial statements for periods ending on or after December 15, 2013.
Using Internal Auditors to Provide Direct Assistance
In revising ISA 610, the IAASB also agreed on requirements and guidance that specify the conditions and establish responsibilities of the external auditor if the external auditor intends to use internal auditors to provide direct assistance during the audit.
The IAASB has engaged closely with the International Ethics Standards Board for Accountants (IESBA) in relation to this matter. While the IAASB has concluded its deliberations on the requirements addressing direct assistance, it intends to incorporate such material in ISA 610 (Revised) only after the IESBA concludes its deliberations on its February 2012 exposure draft of proposed changes to the definition of “engagement team” in the Code of Ethics for Professional Accountants (IESBA Code). The IESBA exposure draft proposes to resolve a perceived inconsistency between the ISAs and the IESBA Code regarding the ability of external auditors to use internal auditors to provide direct assistance.
About the IAASB
The IAASB develops auditing and assurance standards and guidance for use by all professional accountants under a shared standard-setting process involving the Public Interest Oversight Board, which oversees the activities of the IAASB, and the IAASB Consultative Advisory Group, which provides public interest input into the development of the standards and guidance. The structures and processes that support the operations of the IAASB are facilitated by IFAC.
About IFAC
IFAC is the global organization for the accountancy profession dedicated to serving the public interest by strengthening the profession and contributing to the development of strong international economies. IFAC is comprised of 167 members and associates in 127 countries and jurisdictions, representing approximately 2.5 million accountants in public practice, education, government service, industry, and commerce.
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The International Federation of Accountants (IFAC) seminar, The Sovereign Debt Crisis, a Matter of Urgency―From Lessons to Reform, convened key decision makers, politicians, public finance management leaders, and others over two days in Vienna. The presentations, debates, and discussions sought a comprehensive understanding of the causes contributing to the international sovereign debt crisis and conveyed a clear and consistent message that the fiscal stress and instability associated with the crisis need to be addressed urgently, through a radical reform of public financial management systems and institutions in many countries.
“We heard over these two days that the problems with financial management and reporting are not confined to a small handful of European countries, but are widespread. There is a real danger of the current sovereign debt crisis, coupled with the fiscal challenges of aging populations, deepening into a global fiscal crisis—and it is therefore more urgent than ever that we act to bring about a radical transformation in public financial management,” said Ian Ball, CEO of IFAC. “Our goal is enhanced transparency and accountability on the part of public sector entities around the world. This would achieve long-term fiscal sustainability, more effective and efficient governments, and reduced risk of new fiscal crises.”
Speakers included influential financial and accounting leaders, such as Vincenzo La Via, Chief Financial Officer of the World Bank Group; Göran Persson, former Prime Minister of Sweden; Hon. Ruth Richardson, former New Zealand Minister of Finance; and Hon. David Walker, Founder and CEO of the Comeback America Initiative and former United States Comptroller General (complete list attached).
The Sovereign Debt Crisis, a Matter of Urgency—From Lessons to Reform took place March 19-20, 2012, at the Hilton Vienna. Event sponsors included CECCAR, Ernst & Young, PwC, and the World Bank.
For more information about the conference, visit http://sovereigndebt.ifac.org.
About IFAC
IFAC is the global organization for the accountancy profession dedicated to serving the public interest by strengthening the profession and contributing to the development of strong international economies. IFAC is comprised of 167 members and associates in 127 countries and jurisdictions, representing approximately 2.5 million accountants in public practice, education, government service, industry, and commerce.
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