ACCOUNTING

Proposal Seeks to Strengthen Certain Safeguards in Code of Ethics for Accountants

The International Ethics Standards Board for Accountants is proposing changes to certain provisions of the Code of Ethics for Professional Accountants.

The proposals respond to stakeholder concern about the appearance of independence and the need to ensure that the threats created by the long association of audit firm personnel with an audit client are appropriately addressed on all audit engagements.

"The IESBA has not received evidence that the current provisions in the IESBA Code addressing long association, including partner rotation, have not been working effectively in practice," notes interim IESBA Chair Wui San Kwok.

Kwok adds that developments in key jurisdictions and substantive stakeholder feedback indicate that expectations are shifting on what are considered acceptable safeguards to effectively address long association risks.

"The IESBA is responsive and is proposing to strengthen certain safeguards in the Code," says Kwok. The proposal seeks to strengthen general provisions applicable to all audit engagements regarding the threats created by long association.

It also calls for an increase in the mandatory "cooling off" periods for rotated audit engagement partners from two to five years on audits of public interest entities (all other key audit partners would continue to be subject to a two year cooling off period).

The proposal also seeks tighter restrictions on the type of activities that can be undertaken by former key audit partners during the cooling off period, while clarifying that the cooling off period does not prevent an individual from assuming a leadership role in the firm.

The proposed amendment also explicitly requires consideration of potential threats created by the long association of all members of the audit team on all audit engagements.

The Ethics Board is also proposing strengthened provisions in Section 291 of the Code dealing with assurance engagements.

“The issues that the board considered are complex and interconnected, particularly given that knowledge of and experience with the audit client and its business are important contributors to audit quality,” noted IESBA Technical Director Ken Siong. “The proposals reflect extensive and careful board deliberations into the options, weighing audit quality, cost, and practicality considerations.”

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