The International Ethics Standards Board for Accountants (IESBA), an independent standard-setting board within the International Federation of Accountants (IFAC), has issued an exposure draft updating and strengthening the independence requirements contained in the IFAC Code of Ethics for Professional Accountants. The last substantive revisions to the Code were made in November 2001.

The changing environment in the past few years has led the IESBA to consider what revisions to auditor independence requirements might be needed. Over the two-year development period of the exposure draft, the IESBA consulted with interested stakeholders, including regulators, standard setters, leaders of accountancy organizations, and members of the profession. "Auditor independence is a critical cornerstone of financial reporting," states Richard George, IESBA Chair. "We believe that the proposed changes to the Code contain important provisions that we consider are appropriate to protect the public interest." Significant proposed modifications to the Code include:

• Expanding the applicability of partner rotation requirements;
• Updating requirements related to the provision of non-assurance services, including setting out additional guidance on the provision of tax services to audit clients; and
• Extending the independence requirements to the audits of a wider range of entities of significant public interest.

How to Comment
Comments on the exposure draft are requested by April 30, 2007. The exposure draft may be viewed by going to https://www.ifac.org/EDs. Comments may be submitted by email to edcomments@ifac.org. They can also be faxed to the attention of the IESBA Senior Technical Manager at +1 (212) 286-9570 or mailed to IFAC, 545 Fifth Avenue, 14th Floor, New York, NY 10017, USA. All comments will be considered a matter of public record and will ultimately be posted on IFAC's website.

About the IESBA and IFAC
The IESBA develops ethical standards and guidance for use by professional accountants. It encourages member bodies of IFAC to adopt high standards of ethics for their members and promotes good ethical practices globally. The Public Interest Oversight Board oversees the activities of the IESBA and, as one element of that oversight, establishes the criteria for its due process and working procedures.

IFAC is the worldwide 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 155 members and associates in 118 countries, representing more than 2.5 million accountants in public practice, education, government service, industry and commerce. In addition to setting international standards of ethics through the IESBA, IFAC, through its independent standard-setting boards, sets auditing and assurance, education, and public sector accounting standards. It also issues guidance to encourage high quality performance by professional accountants in business.

Thank you, Eamonn, for inviting me to make a few remarks this evening. It is a privilege to be here with you and your President, Pádraig Ó Feinneadha, to speak before such a distinguished group of professionals. Indeed, I truly appreciate this opportunity discuss a topic that increasingly has made its way into boardrooms, classrooms, lunchrooms, and even to our dinner table: that is the topic of Ethics in Business. Ethics, as we know from the lessons we learned from Enron, WorldCom, Tyco and other companies around the world, is a driver both of business stability and business success. Without a strong ethical foundation, companies and their management are more likely now, than ever before, to find their customer base eroded and their profit margins narrowed.

What is to prevent ethical lapses on the part of company management and those that support management, such as lawyers, investment managers and professional accountants: both in public practice and those who work as CFOs or internal auditors? I think there are three fundamental ways to prevent it: Company management must:

• Establish realistic business objectives;
• Develop a transparent business culture; and
• Promote and enforce a corporate code of ethics among their employees and require their service providers to do the same.

Let me comment briefly on these areas, beginning with the need to establish realistic business objectives, before I turn to the accounting profession’s ethical roles and responsibilities.

Last year, a study entitled, The Ethical Enterprise, A Global Study of Business Ethics, reported that the number one factor likely to cause people to compromise ethical standards was pressure to meet unrealistic business objectives and deadlines. Recognizing this, management must strive to balance business objectives with the reality of their resources and, along the way, they must continually remind employees that ethics is sacrosanct. An Ethics Department or resource center should be available to assist employees when they are confronted with ethical dilemmas. We are quick to provide technical resources to our employees, to assist them in expeditiously and correctly carrying out their work; we must apply the same strategy to ethics.

Secondly, we must develop a transparent business culture. Again, this is an area where there is no room for compromise. An open and transparent corporate culture breeds honesty and respect on the part of employees. Corporate secrets, on the other hand, arouse suspicions and create unhealthy corporate cultures. Without transparency, the credibility of the organization can also be compromised.

Thirdly, it is vital that every company, no matter how large or small, no matter what the industry or area of practice, develop and promote a corporate code of ethics. The value of that code will be significantly enhanced if the code is consistently enforced. In fact, this was exactly the recommendation made in the 2003 report of the Task Force on Rebuilding Public Confidence in Financial Reporting, chaired by John Crow: a former Chairman of the Central Bank Governors of the Group of Ten countries. The Task Force emphasized the need for management to develop an ethical “tone at the top” and to reinforce this tone with an ethical code of conduct that is widely promoted throughout the company and regularly enforced. Those recommendations, supported by regulators, standard setters and others, are now resulting in significant changes in corporate culture. Ethics and values are, I believe, finally getting the attention that is necessary.

What then is the role of the International Federation of Accountants in promoting strong ethics? First, IFAC’s values of integrity, transparency and expertise, are embraced in all the work carried out by IFAC and by our four independent standard-setting boards. Our board and committee members, for example, all sign declarations indicating their commitment to these values and to act in the best interests of the public.

IFAC’s International Ethics Standards Board for Accountants develops the international Code of Ethics for Professional Accountants, which is applicable to all accountants, including those in business and industry, public practice, the public sector and academia. In June 2005, the Ethics Standards Board released an updated Code of Ethics, which establishes a conceptual framework for all professional accountants to ensure compliance with the five fundamental principles of professional ethics. These principles are integrity, objectivity, professional competence and due care, confidentiality and professional behavior. Under the framework, professional accountants are required to identify threats to these fundamental principles and, if there are threats, to apply safeguards to ensure that the principles are not compromised. The framework applies to all professional accountants: to those in public practice, as well as to those in business and government.

And by the way, the title ‘accountant’ should only apply to members of recognised institutes, to protect and reassure the public that all those known as accountants are bound to follow the IFAC ethics code.

In July 2006, the Ethics Standards Board issued a revision to the Code of Ethics to update the definition of a network firm. This update provides important guidance to firms in the area of independence and includes information on the application of the definition. The Ethics Standards Board is also currently addressing issues such as audit independence and whistle-blowing and is in the process of developing new guidance for professional accountants in government and in business.

Additionally, IFAC’s International Accounting Education Standards Board has released new guidance on ethics. Last month, it proposed a new International Education Practice Statement (IEPS), Approaches to Developing and Maintaining Professional Values, Ethics and Attitudes, designed to assist IFAC member bodies, such as CPA Ireland, in developing ethics education and continuing professional development programs for their members. There is no doubt that ethics education programs enhance professional accountants’ ethical judgment and decision making. The guidance proposed by the Education Standards Board will help member bodies to develop these skills in current and future professional accountants.

The Education Standards Board is now in the process of finalizing an Ethics Education Toolkit to assist member bodies, academic institutions and others in instilling a strong ethical foundation in the accountants of tomorrow. The toolkit will include sample course outlines, teaching notes, case studies, video clips of ethical dilemmas, and a database of ethics education resource materials. It will be available for download from the IFAC website free-of-charge, like all IFAC publications, by the end of the year.

My personal belief is that probity and profitability go hand in hand. Ethical conduct lies at the core of all business. We do business with those we trust; we get business from those who trust us. Ethics, therefore, are a driver of business growth which demands attention from boards and investors alike. Similarly, society accepts those it trusts and ethics are a driver of the social and political acceptability of doing business in corporate form.

The IFAC Professional Accountants in Business (PAIB) Committee is, therefore, expanding the guidance it develops, with a focus on supporting professional accountants in business in providing high quality information and in acting ethically. Earlier this year, the committee issued an exposure draft, Guidance for the Development of a Code of Corporate Conduct, proposing guidance to assist professional accountants and others in establishing and implementing codes of conduct in their organizations. The goal of this proposed new guidance is to support sound corporate governance policies worldwide. The proposed guidance highlights the benefits of an effective code of conduct and identifies professional accountants’ roles in the development, monitoring, reinforcement, and reporting of such codes in their organizations. To assist in the creation of codes of conduct, the guidance includes information on presentation and content, organizational and management challenges, and implementing a code of conduct in a global organization.

Guidance is helpful, but it is important for all of us to keep in mind that it is best to lead by example. Good governance and sound ethics have to be embedded within companies, to grow from within, not be force fed from without. That means leaders, such as yourselves, need to be role models as well as active promoters of sound ethics.

The French Mathematician and philosopher Blaise Pascal said: “The virtue of man ought to be measured not by his extraordinary exertions, but by his everyday conduct.” I believe that these words hold true for every professional accountant worldwide, as well as for all of us in this room tonight. By dedicating ourselves to doing what is right, we will enhance our professional reputation, win public and client trust, and contribute to economic prosperity.

I know that the CPA Institute shares these values, together with the IFAC values of integrity, transparency and expertise. Your participation in the IFAC Member Body Compliance Program, in which you indicate your commitment to and promotion of international auditing, ethics, and accounting standards, makes a very clear statement about the strength of your organization. I am proud to work with you, both institutionally and personally, in our profession’s drive to generate economic growth and stability in every country of the world.

Thank you very much for your attention.

An important objective of the International Ethics Standards Board for Accountants (IESBA), an independent standard-setting board within the International Federation of Accountants (IFAC), is to provide auditors with clear guidance on matters of independence. In keeping with this commitment, the IESBA has revised the Code of Ethics for Professional Accountants by updating the definition of a network firm. Network firms are required to be independent of an audit client of another firm within the network.

"The revised definition focuses on how networks operate and how they present themselves to third parties," states Richard George, IESBA Chair. "The public has a right to expect that when firms are part of a network the independence requirements apply to the other firms within the network. This revision provides clear guidance for firms and contains additional information on the application of the definition."

The revised definition is consistent with the definition in the European Union's Eighth Company Law Directive. It would classify firms as network firms if the firms belong to a larger structure that is aimed at cooperation and is clearly aimed at profit or cost sharing, or shares common ownership, control or management, common quality control policies and procedures, common business strategy, the use of a common brand-name or a significant part of professional resources. The revised definition is effective for assurance reports dated on or after December 31, 2008. The Code of Ethics for Professional Accountants and the revision can be downloaded from the IFAC online bookstore at https://www.ifac.org/store/Category.tmpl?Category=Ethics.

About the IESBA and IFAC

The IESBA develops ethical standards and guidance for use by professional accountants. It encourages member bodies to adopt high standards of ethics for their members and promotes good ethical practices globally. The Public Interest Oversight Board oversees the activities of the IESBA and, as one element of that oversight, establishes the criteria for its due process and working procedures.

IFAC is the worldwide 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's current membership consists of approximately 160 professional accountancy bodies in 120 countries, representing more than 2.5 million accountants in public practice, education, government service, industry and commerce. IFAC, through its independent standard-setting boards, sets international standards on ethics, auditing and assurance, education, and public sector accounting. It also issues guidance to encourage high-quality performance by professional accountants in business.

The International Federation of Accountants (IFAC) has appointed Richard Fleck as the independent Chair of the Consultative Advisory Group (CAG) to the International Ethics Standards Board for Accountants (IESBA). Mr. Fleck was elected by members of the CAG and his appointment, which is for a three-year term, beginning May 2006, was approved by the Public Interest Oversight Board (PIOB).*

"We are delighted by Mr. Fleck's appointment to this very significant role. His experience and leadership will be invaluable to the CAG as it provides public interest input to the IESBA," states IFAC President Graham Ward.

The CAG, which includes representatives of organizations** that have an interest in international ethics issues, provides technical advice and input on the strategic direction of the IESBA. The IESBA establishes, independently and under its own authority, the IFAC Code of Ethics for Professional Accountants and other ethical standards and guidance for use by professional accountants around the world. The PIOB oversees the standard-setting activities of the IESBA to ensure that they are properly responsive to the public interest.

Commenting on the appointment, Professor Stavros Thomadakis, Chair of the PIOB, stated: "We welcome Mr. Fleck's appointment as the first independent chair of the IESBA CAG. This major step completes the CAG structure contemplated for this important element of IFAC reform. It will also further strengthen the due process applied to setting international ethical standards and guidance."

Mr. Fleck is a partner with Herbert Smith, an international legal practice with 1,100 lawyers in Europe and Asia. His practice experience includes mergers and acquisitions, competition and regulation, insolvency, dispute resolution, and accountancy work. Mr. Fleck is a member of the United Kingdom Financial Reporting Council and Chairman of the UK Auditing Practices Board.

The Chair of the CAG acts as the primary representative of those who use or rely on IESBA standards and guidance and encourages a deeper understanding by the IESBA of the public's needs and expectations. The Chair provides leadership direction to the CAG, overseeing the achievement of the CAG's goals and objectives. As the CAG's liaison with the PIOB, the IESBA and identified key stakeholders, the Chair is also responsible for communicating the views of the CAG to these bodies and conveying the views of these bodies to the CAG.

IFAC is the worldwide organization for the accountancy profession dedicated to serving the public interest by strengthening the profession and contributing to the development of strong international economies. Its current membership consists of over 160 professional accountancy bodies in 120 countries, representing more than 2.5 million accountants in public practice, education, government service, industry and commerce. IFAC, through its independent standard-setting boards, sets international standards on auditing and assurance, ethics, education, and public sector accounting. It also issues guidance to encourage high-quality performance by professional accountants in business.

* Note to Editors

The Public Interest Oversight Board (PIOB), established in 2005, oversees IFAC's public interest activities with the objective of increasing the confidence of investors and others that such activities, including the setting of standards, are properly responsive to the public interest. The PIOB oversees the activities of the IESBA and of the CAG and, as one element of this oversight, establishes the criteria for their due processes and working procedures. PIOB members are nominated by international institutions and regulatory bodies.

** IESBA Consultative Advisory Group Members (As of April 30, 2006)
Auditing Practices Board (United Kingdom)
Basel Committee on Banking Supervision
CFA Institute
Eastern Central and Southern African Federation of Accountants
European Federation of Accountants and Auditors for SMEs
European Federation of Financial Executives' Institutes
Fédération des Experts Comptables Européens
Institute of Internal Auditors
International Auditing and Assurance Standards Board Consultative Advisory Group
International Corporate Governance Network
International Organization of Securities Commissions
International Organization of Supreme Audit Institutions
Public Company Accounting Oversight Board (United States)
World Bank

The International Federation of Accountants (IFAC), the global organization for the accountancy profession, is seeking nominations for a public member for the International Ethics Standards Board for Accountants and for a public member for the International Public Sector Accounting Standards Board, independent standard-setting boards within IFAC. Individuals, organizations, accountancy firms and IFAC member and regional accountancy bodies may submit nominations for these two public member positions by April 15, 2006. Public members are expected to act in the public interest and must be seen to be independent of any special interests and seen to be acting to represent society as a whole.

The International Ethics Standards Board for Accountants develops high-quality ethical standards and other pronouncements for professional accountants around the world. The IFAC Code of Ethics for Professional Accountants and Interpretations apply to all professional accountants, including those in public practice, business, education, and the public sector. The Code serves as the foundation for codes of ethics developed and enforced by member bodies, and no member body of IFAC or firm issuing reports in accordance with International Standards on Auditing may apply less stringent standards than those stated in the Code.

The International Public Sector Accounting Standards Board (IPSASB) develops high-quality accounting standards for use by governments and other public sector entities around the world in the preparation of general purpose financial statements. Its aim is to enhance the quality and transparency of public sector financial reporting and strengthen public confidence in public sector financial management. The IPSASB also supports the convergence of international and national public sector accounting standards and the convergence of accounting and statistical bases of financial reporting where appropriate.

Nominees for either public member position must have an appropriate level of knowledge about the work of the respective board, although they need not have a professional accountancy designation. See the Call for Nominations for more information, including expected time commitments. Organizations and individuals interested in submitting candidates may do so through the electronic Candidate Information Form, available at https://www.ifac.org/NominationForms.

The search for public members for IFAC's standard-setting boards is part of a broad-based and transparent IFAC nominations process designed to identify the most qualified candidates possible. All members of these groups are required to sign a declaration committing to act with integrity and in the public interest in their role within IFAC.

IFAC is dedicated to serving the public interest by strengthening the profession and contributing to the development of strong international economies. Its current membership consists of over 160 professional accountancy bodies in 120 countries, representing more than 2.5 million accountants in public practice, education, government service, industry and commerce. IFAC, through its independent standard-setting boards, sets international standards on ethics, auditing and assurance, education, and public sector accounting. It also issues guidance to encourage high-quality performance by professional accountants in business.

Thank you for inviting me to speak with you today. Having been to more than dozen countries in the last few months, it is a pleasure to speak "at home" with long-standing colleagues and friends. It is through meetings such as this that the International Federation of Accountants can keep a pulse on the concerns of firms, and network firms in particular, which play such a critical role in our global profession. It also gives IFAC an opportunity to inform you about our expanding role and initiatives to support the profession in delivering quality and in meeting its public interest responsibilities. I am well aware that quality is a word that is frequently bandied about, but not always defined.

When I speak about quality with respect to accounting firms, I am really talking about three fundamental criteria:

• Acting with integrity;
• Achieving high quality standards; and
• Demonstrating professional competence.