Objective
Background
In July 2006, the IESBA revised the Code of Ethics for Professional Accountants by updating the definition of a network firm.
The IESBA commenced a project to revise the definition of a network firm, because concern had been expressed that the existing definition was too narrow and it did not appropriately consider the importance of the way firms present themselves.
The Basis for Conclusions provides background to the project, main comments received on the exposure draft, and the IESBA's conclusions regarding these comments in developing the final definition.
Under the Code, network firms are required to be independent of financial statement audit clients of other firms within the network. Also, for other assurance engagements, consideration should be given to any threats a firm has reason to believe may be created by network firm interests and relationships. The independence requirements for network firms have been summarized by IESBA staff. A paper was prepared to provide an overview of the implications and is not a substitute for reading the full text of the Code.
The revised definition is aligned with the European Union's Eighth Company Law Directive and also contains explanatory material on the application of elements of the definition. Firms would be considered to be 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.