The International Ethics Standards Board for Accountants (IESBA) today released strengthened provisions in its Code of Ethics for Professional Accountants (the Code) to address conflicts of interest and a breach of a requirement of the Code. It also released amendments to the definition of the term “engagement team” in the Code.

Conflicts of Interest

Recognizing the ethical questions and challenges that can arise from conflicts of interest, the IESBA has revised the Code to establish more specific requirements and provide more comprehensive guidance to support professional accountants in identifying, evaluating, and managing such conflicts. The revisions affect professional accountants both in public practice and in business, taking into account the different circumstances in which they work. There is now a clearer explanation of what a conflict of interest means under the Code. The changes also are aimed at better enabling professional accountants to identify potential conflicts of interest early for timely action to be taken by the affected parties. Importantly, the new requirements are intended to stimulate professional accountants to evaluate whether they can remain objective in those circumstances and abide by the other fundamental ethical principles in the Code.

Breach of a Requirement of the Code

Reflecting its view that any breach of a provision of the Code is a matter that must be treated very seriously, the IESBA has strengthened the Code with respect to a professional accountant’s actions when encountering such a breach. In particular, the revisions to the Code establish a robust framework for addressing a breach of an independence requirement in the Code. They include requiring a firm to:

• Terminate, suspend, or eliminate the interest or relationship that caused the breach;
• Evaluate the significance of the breach and determine whether action can be taken and is appropriate in the circumstances to satisfactorily address the consequences of the breach;
• Communicate all breaches with those charged with governance and obtain their concurrence that action can be, or has been, taken to satisfactorily address the consequences of the breach; and
• Document, among other matters, the action taken and all the matters discussed with those charged with governance.

Definition of Engagement Team

In conjunction with the International Auditing and Assurance Standards Board (IAASB)’s release today of its International Standard on Auditing (ISA) 610 (Revised 2013), Using the Work of Internal Auditors, the IESBA is also releasing amendments to the definition of “engagement team” in the Code. The amendments clarify the relationship between internal auditors providing direct assistance on an external audit (“direct assistance”) and the meaning of an engagement team under the Code.

“A hallmark of professional accountants is their acceptance of their duty to act in the public interest,” said IESBA Chair Jörgen Holmquist. “The changes to the Code addressing conflicts of interest and a breach of a requirement of the Code raise the bar even higher and will, I believe, contribute to further strengthening of public trust in the profession.” He also added, “In relation to the engagement team definition, while the amendments to the definition address a perception that the Code and the revised ISA are in conflict with respect to direct assistance, it is important to make clear that the board is not requiring or encouraging external auditors to use direct assistance.”

The changes will be effective in 2014; see the individual pronouncements for details. Early adoption is permitted. The revised pronouncements will be printed in the 2013 Handbook of the Code of Ethics for Professional Accountants due out in the second quarter.

About the IESBA
The IESBA is an independent standard-setting board that develops and issues, in the public interest, high-quality ethical standards and other pronouncements for professional accountants worldwide. Through its activities, the IESBA develops the Code of Ethics for Professional Accountants, which establishes ethical requirements for professional accountants. The structures and processes that support the operations of the IESBA are facilitated by IFAC. Please visit www.ethicsboard.org for more information.

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. It is comprised of 173 members and associates in 129 countries and jurisdictions, representing approximately 2.5 million accountants in public practice, education, government service, industry, and commerce.

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This final pronouncement reflects the IESBA's amendment to the Code to establish more specific requirements and provide more comprehensive guidance to support professional accountants in identifying, evaluating, and managing conflicts of interest. The revisions affect professional accountants both in public practice and in business, taking into account the different circumstances in which they work. 

This Basis for Conclusions has been prepared by staff of the IESBA. It relates to, but does not form part of, the changes to the Code of Ethics for Professional Accountants (the Code) addressing conflicts of interest.

This Basis for Conclusions has been prepared by staff of the IESBA. It relates to, but does not form part of, the changes to the Code of Ethics for Professional Accountants (the Code) related to provisions addressing a breach of a requirement of the Code.

This Basis for Conclusions has been prepared by staff of the IESBA. It relates to, but does not form part of, the change to the definition of “engagement team” in the Code of Ethics for Professional Accountants (the Code).

This final pronouncement reflects amendments to the IESBA's definition of “engagement team” in the Code of Ethics for Professional Accountants (the Code). The amendments clarify the relationship between an external auditor’s use of internal auditors to provide direct assistance on the external audit in accordance with the International Auditing and Assurance Standards Board (IAASB)’s International Standard on Auditing (ISA) 610 (Revised 2013), Using the Work of Internal Auditors, and the meaning of an engagement team under the Code.

Podcast: Meeting Highlights from the IESBA's March 11-13, 2013 meeting in New York.

00:21 Overview

3:34 Responding to a Suspected Illegal Act

6:32 Those Charged with Governance

8:24 Part C of the Code

11:05 Structure of the Code

13:26 Long Association

15:56 Non-Assurance Services

Objective

This project will review the long association provisions in Section 290 of the Code to ensure that they continue to provide robust and appropriate safeguards against the familiarity and self-interest threats arising from long association with an audit client.

Thank you for signing up to receive eNews from the International Ethics Standards Board for Accountants (IESBA). This edition of IESBA eNews provides a summary of decisions made at the IESBA’s meeting held December 10-12, 2012, in New York, USA. See the Meeting Page for more information.

IN THIS ISSUE:

1. Emerging Issues and Strategic Plan
2. Breach of a Provision of the Code
3. Conflicts of Interest
4. Definition of Engagement Team
5. Long Association of Senior Personnel with an Audit Client
6. Non-Assurance Services
7. Review of Part C of the Code
8. Suspected Illegal Acts
9. Next Meetings
10. New Technical Director
11. 2013 IESBA Handbook

1. Emerging Issues and Strategic Plan

IESBA members shared information and views about significant national and international developments or emerging issues of potential relevance to the IESBA’s current and future strategy and work plan.

In addition, the IESBA agreed to the scope of, and general approach to, the survey of stakeholders to be used to facilitate the development of its Strategy and Work Plan, 2014-2016. 

The survey is now open through March 15, 2013. The IESBA encourages all stakeholders to participate. For the strategy and work plan currently in effect, see Strategy and Work Plan, 2011–2012, and the additional work streams added in mid-2012.

2. Breach of a Provision of the Code

The IESBA approved for issuance, subject to due process confirmation by the Public Interest Oversight Board (PIOB), changes to the Code of Ethics for Professional Accountants (the Code) related to provisions addressing a breach of a requirement of the Code.

The changes will be effective approximately one year after issuance of the final pronouncement, which is expected by the end of March 2013. The final pronouncement will be included in the 2013 Handbook of the Code of Ethics for Professional Accountants (see below).

3. Conflicts of Interest
The IESBA approved for issuance, subject to due process confirmation by the PIOB, changes to the Code addressing conflicts of interest. The final pronouncement is expected to be released by the end of March 2013, with the changes becoming effective on July 1, 2014. The final pronouncement will be included in the 2013 Handbook of the Code of Ethics for Professional Accountants (see below).

4. Definition of Engagement Team

The IESBA considered the significant comments received on the Exposure Draft (ED) of its proposed change to the definition of the term “engagement team.” The IESBA also considered further amendments to the proposed definition, taking into account limited amendments proposed by the International Auditing and Assurance Standards Board (IAASB) to the material in ISA 610 (Revised), Using the Work of Internal Auditors, dealing with the use of internal auditors to provide direct assistance on the external audit (Direct Assistance).

The IESBA will consider approving the revised definition of “engagement team” after consulting with its Consultative Advisory Group (CAG) on January 21, 2013.

5. Long Association of Senior Personnel (Including Partner Rotation) with an Audit Client

The IESBA approved a project proposal to review the long association provisions in Section 290 of the Code to ensure that they continue to provide robust and appropriate safeguards against the familiarity and self-interest threats arising from long association with an audit client.

The IESBA will consider preliminary issues relating to the project at its March 2013 meeting, including the approach to the project.

6. Non-Assurance Services

The IESBA approved in principle, subject to confirmation of scope, a project proposal to review the non-assurance services provisions in Sections 290 and 291 of the Code to ensure that they continue to support a rigorous approach to independence for assurance services, particularly audits of financial statements.

The IESBA will consider the outcome of a benchmarking exercise for purposes of narrowing the scope of the project at its March 2013 meeting.

7. Review of Part C of the Code

Part C of the Code addresses how the conceptual framework of threats and safeguards in Part A of the Code applies in certain situations to professional accountants in business (PAIBs). The IESBA agreed to the recommendations of the Part C Working Group, including that priority attention be given to the following areas in a review of Part C of the Code:

• Pressure by superiors and others to engage in unethical or illegal acts;
• The responsibility of PAIBs to produce financial reports that are faithful representations of the economics of transactions, and associated matters; and
• Facilitation of payments and bribes.

The IESBA agreed that the Part C work stream should proceed on an accelerated basis under the current strategy and work plan rather than be subject to further consideration of relative prioritization as part of the upcoming consultation on its Strategy and Work Plan, 2014-2016. Accordingly, the IESBA directed the Working Group to develop a project proposal for its consideration at the March 2013 IESBA meeting.

8. Suspected Illegal Acts

The IESBA received a brief update on initial stakeholder reactions to its August 2012 Exposure Draft (ED), Responding to a Suspected Illegal Act, which closed on December 15, 2012.

The IESBA will consider the significant comments from the nearly 70 responses received on the ED at its March 2013 meeting.

9. Next Meetings

Meetings of the IESBA and the IESBA CAG are open to the public. The IESBA CAG will next meet via teleconference on January 21, 2013. The IESBA is expected to next meet via teleconference in the latter part of January 2013. The next face-to-face IESBA meeting will be held in New York, USA, on March 11–13, 2013. For more information and to register to attend an IESBA meeting as an observer, visit IESBA Meetings. For more information and to register to attend an IESBA CAG meeting as an observer, visit IESBA CAG Meetings.

10. New Technical Director

Ken Siong has assumed the role of technical director of the IESBA effective January 1, 2013. Ken brings over 10 years of experience working with the International Auditing and Assurance Standards Board (IAASB), most recently as deputy director. In that capacity, his responsibilities included managing a number of key IAASB standard-setting projects and other initiatives—including audit quality, quality control, and related parties—overseeing the IAASB’s liaison with major national standard setters, and coordinating the IAASB’s strategic and operational activities. Prior to joining the IAASB, Ken worked as a senior manager in the assurance practice of PwC in Hong Kong. He is a member of the Institute of Chartered Accountants in England and Wales.

11. 2013 IESBA Handbook

The IESBA is developing the 2013 Handbook of the Code of Ethics for Professional Accountants. It will contain the final pronouncements addressing breaches of provisions in the Code and conflicts of interest. It is also expected to contain the revised definition of “engagement team.” The 2013 Handbook is expected to be released in the second quarter of 2013. For the current edition, see 2012 IESBA Handbook.