The International Ethics Standards Board for Accountants (IESBA) today released its 2011 Annual Report, Ethics for the Global Accounting Profession—Building on the Groundwork.

The report describes the IESBA’s commitment to developing high-quality international ethics standards for the global accountancy profession as presented in the Code of Ethics for Professional Accountants (the Code). It emphasizes the board’s long-term objective of facilitating the convergence of national and international ethics standards and continued work to support their consistent implementation.

The report summarizes the progress made on the IESBA's 2011 Work Plan, including key projects on conflicts of interest, addressing a breach of a requirement of the Code, and responding to a suspected illegal act. It also looks forward to 2012, outlining the board’s plans to add additional workstreams (summarized in a Staff Update) to its 2012 Work Plan in response to matters under consideration by the European Commission, US Public Company Accounting Oversight Board, and others.

“As significant changes to the Code took effect on January 1, 2011, we focused our 2011 outreach activities on helping those who had adopted the Code to understand these changes and implement the standards consistently,” said Ken Dakdduk, chair of the IESBA. “In issuing our first annual report, we aim to support our outreach activities by promoting transparency and communication with the board's stakeholders. The report highlights our achievements during 2011 and also the dynamic nature of the IESBA’s Work Plan. To best serve the public interest, the IESBA must continually review its activities and maintain the flexibility to respond to developments in the global regulatory and business communities.”

The report also includes a report from Richard Fleck, chair of the IESBA Consultative Advisory Group (CAG), which outlines the work of the CAG in providing input to the IESBA.

To access and download the 2011 IESBA Annual Report, visit www.ethicsboard.org.
 

About the IESBA
The International Ethics Standards Board for Accountants (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. 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 Ethics Standards Board for Accountants (IESBA) has added additional workstreams to its Strategy and Work Plan for 2012. The board is considering additional projects in the areas of: firm rotation, non-assurance services, the structure of the Code of Ethics for Professional Accountants (the Code), and Part C of the Code.  

The IESBA handbook contains the entire Code of Ethics for Professional Accountants, effective January 1, 2011. The 2012 edition includes a new introduction and editorial amendments. It replaces the 2010 edition of the IESBA handbook.

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:

• An auditor and a professional accountant in public practice providing non-assurance services to an audit client should be required to disclose to an appropriate authority suspected illegal acts that affect financial reporting or fall within the expertise of the professional accountant. This requirement would apply when the suspected illegal act is of such consequence that disclosure would be in the public interest and the client has not done so. 
• Accountants performing non-assurance services for non-assurance clients and accountants in business should be required to disclose the matter to the external auditor. If the response to the matter is not appropriate, the accountant would be expected to exercise his right to disclose the matter to an appropriate authority. 
• Exceptional circumstances may exist where a reasonable and informed third party would conclude that it is not in the public interest to make such disclosure because the probable consequences, such as the risk to the personal safety of the professional accountant or other individuals, would outweigh the benefits of disclosure.

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:

• Respondents are supportive of the Code addressing breaches.
• Respondents expressed mixed views on whether all independence breaches should be reported as soon as possible to those charged with governance; a majority felt that all breaches should be reported while a minority felt that breaches that were not significant need not be reported.
• Many respondents commented on the timing of such reporting, including that insignificant breaches not be required to be reported as soon as possible.

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:

• Register a new account or log in to your existing IFAC web account. 
• Go to My Subscriptions to manage your subscription preferences. 
• Select "Ethics eNews" from the check list, as well as any other newsletters or press releases that you would like to receive.

The International Ethics Standards Board for Accountants (IESBA) today released for public exposure proposed changes to the definition of “engagement team” in the IESBA Code of Ethics for Professional Accountants (the Code).

The proposals address comments received by the International Auditing and Assurance Standards Board on its Exposure Draft (ED) on ISA 610, Using the Work of Internal Auditors. A number of respondents to that ED pointed out the perceived inconsistency between the independence requirements for external auditors under the Code and the use of internal auditors to perform external audit procedures.

“Through this Exposure Draft, the IESBA seeks to ascertain whether the proposed changes to the definition adequately clarify the term "engagement team" and eliminate the perception that the Code and the ISA are in conflict. The IESBA believes this will contribute to more consistent application of the Code, which is critical to our mission to support the global adoption and implementation of the Code of Ethics,” said Ken Dakdduk, chair of the IESBA.

How to comment
The IESBA invites all stakeholders to comment on its proposals in the Exposure Draft, Proposed Change to the Definition of “Engagement Team.” To submit a comment, visit the IESBA website at www.ifac.org/ethics. Comments on the Exposure Draft are requested by May 31, 2012.

About the IESBA
The International Ethics Standards Board for Accountants (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.ifac.org/ethics 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. 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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Objective

To provide guidance for professional accountants on how best to act in the public interest when they become aware of a suspected illegal act (or non-compliance with laws and regulations (NOCLAR)).

Task Force progress / Board discussions to date

At its October 2009 meeting, the IESBA discussed a draft project proposal to develop additional guidance for professional accountants when encountering a suspected fraud or illegal act.

Objective

To revise Sections 220, Conflicts of Interest, and 310, Potential Conflicts, of the Code to establish more specific requirements and provide more comprehensive guidance to support professional accountants in public practice and professional accountants in business, respectively, in identifying, evaluating and managing conflicts of interest.