Technology Working Group Final Phase 2 Report Background

History of the IESBA’s Technology Initiative

  1. The IESBA’s Technology Initiative is a high priority, as outlined in the IESBA’s 2019-2023 Strategy and Work Plan. In December 2018, recognizing the breadth and dynamism of technology and its significant impact on the accountancy profession, the IESBA determined to take a systematic, risk-based, and phased approach2to explore the ethics implications of technological developments on the accounting, assurance, and finance functions, and identify actions to respond to stakeholder expectations.

  1. Phase 1 of the Initiative commenced in December 2018 and focused on the impacts of AI, big data, and data analytics on the ethical behavior of PAs, culminating in the Phase 1 Final Report which was issued in February 2020. The Phase 1 Report set out for theIESBA’s consideration:
    1. Seven sets of recommendations for enhancing the International Code of Ethics for Professional Accountants (including International Independence Standards) (the Code).
    2. Additional recommendations for Phase 2 of the Initiative, including two distinct work streams, each with a different focus and remit, led by:
    1. A Technology Task Force to consider, through a formal standard-setting project, potential enhancements to the Code based on the Phase 1 recommendations; and
    2. A Technology Working Group to focus on:
      • Continued information gathering and analysis of transformative technologies (beyond AI, big data, and data analytics) with potential ethical impacts on PAs and the Code (“Phase 23 fact-finding”).
      • Developing or facilitating the development of non-authoritative guidance material.
      • Coordination with the International Auditing and Assurance Standards Board’s (IAASB) Technology Working Group.
  1. Informed by the Phase 1 Report, the IESBA in:
  1. March 2020 established the Technology Task Force, which commenced the project4 to develop enhancements to the Code. In February 2022, the IESBA issued its Exposure Draft: Proposed5 Technology-related Revisions to the Code (Technology ED);
  2. December 2020 approved establishing a new Technology Working Group (Working Group) to focus on both developing non-authoritative guidance material and conducting additional fact-finding into technology with potential ethics impacts on PAs; and
  3. March 2021 approved the Working Group’s Terms of Reference.

Working Group Objectives

  1. The objectives of the Working Group are:
  1. To develop, or facilitate the development of, non-authoritative resources or materials on technology-related topics that would benefit PAs and the wider stakeholder community6 through (i) raising their awareness of the ethical implications of technology-related developments for PAs; and/or (ii) supporting PAs in consistently applying the Code in addressing related ethical dilemmas or conflicts, including with respect to independence; and
  2. To identify and assess the potential impact of technology on the behavior of PAs and the relevance7 and applicability of the Code.

Phase 2 Fact-finding Activities and Process

  1. The Working Group’s fact-finding activities that informed the key themes observed in this report mainly involved:
  • Developing a Briefing Paper to raise awareness of the Working Group’s role and activities, and to provide a basis for, and facilitate, structured and consistent stakeholder outreach.
  • Targeted outreach, roundtables and events, and panel discussions with a diverse8 range of stakeholders on ethics- technology issues. See Appendix I for a summary list.
  • Desktop research consisting of a review of existing reports, articles, and other publications and media, as well as attending numerous webinars and conferences on relevant topics.
  • Establishing the Technology Experts Group9 (TEG) to act as a “sounding board” for the Working Group, as well as providing advice and other technology expertise as inputs for consideration (such as technology-related use cases for the Working Group to consider against the Code).
  • Coordinating with, and receiving input from, representatives of the IAASB’s Technology Initiative and IFAC’s IPAE.
  • Interacting with other presenters and panelists both before and during events hosted by other organizations.
  1. The meeting notes generated from the targeted outreach related to a particular meeting were sent back to the stakeholders interviewed to ensure fair representation of their comments and obtain their agreement as to the key messages the Working Group took away. To ensure frank dialogue, outreach participants were informed that none of their comments would be specifically attributed to them or their organizations, but rather would be aggregated with the sum of the Working Group’s outreach and the evaluation thereof.
  2. Once the outreach was substantially complete, the Working Group identified the PA ethics-related points arising from the outreach. These items were then distilled and synthesized into the eight key themes, as outlined in Section II: Key Themes Observed of this report. This section also benefitted from review comments by the TEG.
  3. Separately, these highlighted items, as well as the use cases provided by the TEG and others, were considered in the context of the Code,10 analyzed, and evaluated against the following decision process to determine whether they have the potential to impact the Code or the IESBA’s work more broadly:



  1. The insights arising from the Working Group’s analysis and evaluation and resulting recommendations for the IESBA and its various workstreams to consider, are detailed in Section III: Insights and Recommendations of this report.
  2. Lastly, the Working Group considered the future of the IESBA’s Technology Initiative based on the nature and extent, as well as the outcomes, of the substantive fact-finding work completed in both Phases 1 and 2, in addition to the anticipated finalization of the proposed technology-related revisions to the Code. In further noting that technology is not a “one and done” endeavor, the Working Group has outlined suggestions for the IESBA to consider in Section IV: Conclusion.
  3. In finalizing this report, the Working Group has considered the views and feedback from the IESBA and the IESBA Consultative Advisory Group (CAG) in September 2022. The insights and recommendations contained in the report were also shared with the Technology Task Force, other IESBA workstreams, and the IAASB’s technologyworkstream, as appropriate.

Purpose of the Report and Intended Audience

  1. The primary purpose of this report is to provide the IESBA with a comprehensive summary of the Working Group’s Phase 2 activities in meeting the Working Group’s objectives. To this end, the report presents a summary of the most pressing emerging, disruptive, and transformative technologies – based on both stakeholder interviews and desk research; how stakeholders are experiencing the impact of such technology, and its effect on PA behavior and ethical decision-making; and the Working Group’s analysis and evaluation of the potential Code implications and recommended next steps as a result of such findings.
  2. In the broader context, this report also provides the IESBA’s stakeholders with specific insights as to how innovative technologies are reshaping the professional and business world in which PAs operate. This includes highlighting (a) opportunities for stakeholders globally (such as PAOs, NSS, and regulators) to take a leadership position in those areas stakeholders believe are important, and (b) beneficial topics for non-authoritative resources and materials to help guide this transformation of the profession from an ethics perspective.

Interactions with Other IESBA Workstreams and the IAASB

Technology Task Force and Other IESBA Workstreams

  1. The Working Group shared its preliminary observations and insights with the Technology Task Force and these were considered by the Task Force in finalizing its technology-related ED proposals in December 2021. The IESBA-approved technology-related proposals were issued in February 2022. The proposals respond to a public interest need for timely enhancements to the Code in light of the rapid pace of change in, and use of, technology (see paragraphs 58 to 59 of the Technology ED Explanatory Memorandum). In finalizing this report, the Working Group’s relevant insights and recommendations were shared with the Task Force for its consideration within the context of its analysis of comment letters received on the Technology ED and assessment of whether further revisions to the Code are appropriate at this time.
  2. Similarly, the Working Group will share relevant insights and recommendations with other IESBA workstreams for their consideration as appropriate.

IAASB-IESBA Coordination Matters

  1. Input from representatives of the IAASB’s technology initiative was considered throughout Phase 2. In addition, audit and assurance stakeholder observations have been shared with IAASB colleagues as appropriate.

 

 

 

Endnotes

2 December 2018 IESBA Meeting Agenda Item 7 paragraph 5 and SWP (2019-2023) Basis for Conclusions paragraph 34

3 The Phase 1 Final Report (page 30) recommended the following technology-related topics be considered as priorities for Phase 2: Blockchain, Cryptocurrencies and Initial Coin/Security Token Offerings; Cyber-crime and Cyber-security; Internet of Things; and Data governance. In addition, the approved Project Proposal for the Technology Task Force (paragraph 7) also includes Cloud-based Services as a topic to be considered under Phase 2.

4 As noted in the IESBA’s April 2021 Update and the Technology ED issued in February 2022, the technology-related revisions to the Code were developed in a holistic and principles-based manner to encompass all technologies (including AI and machine learning, blockchain, and other future technologies not yet known), in order to preserve and expand the relevance of the Code as technology evolves.

  • Among other matters, the proposals:
  • Draw special attention to the professional competence and confidentiality imperatives of the digital age.
  • Address the ethical dimension of PAs’ reliance on, or use of, the output of technology in carrying out their work.
  • Further enhance considerations relating to threats from the use of technology as well as considerations relating to complex circumstances inapplying the Code’s conceptual framework.
  • Strengthen and clarify the International Independence Standards (IIS) with respect to technology-related non-assurance services (NAS) firms mayprovide to their audit clients or technology-related business relationships they may enter into with their audit clients.
  • Explicitly acknowledge that the IIS that apply to assurance engagements are applicable to assurance engagements on non-financial information, for example, environmental, social, and governance (ESG) disclosures.

6 In this regard, see the Working Group’s Technology Focus Webpage which compiles resources from across the world (including those that the Working Group contributed to developing) to assist both professional accountants in business (PAIBs) and in public practice (PAPPs), including auditors, navigate the ethical challenges and opportunities arising from evolving technologies.

7 For example, modernization of terms and concepts in addition to those recommended in the Phase 1 Final Report, page 23

8 Including different professional roles and perspectives (such as PAIBs and individual PAPPs, firms, PAOs, NSS, regulators, investors, those charged with governance (TCWG), academics, and technologists (i.e., IT professionals), as well as geographic representation

9 Eight members with practical experience in using and implementing technology.

10 Extant Code as of 2021 (including the revised NAS provisions) along with consideration of the proposals contained in the Technology ED issued on February 18, 2021, with comments due by June 20, 2022.