IESBA eNews: June–July 2015

Comments on the proposals in the Exposure Draft (ED), Responding to Non-compliance with Laws & Regulations, are requested by September 4, 2015. The proposals set out a new framework to guide auditors and other professional accountants in public practice and in business in how to respond when they encounter acts, or suspected acts, of non-compliance with laws and regulations in the course of their work.

All stakeholders are invited to comment, particularly preparers, those charged with governance, and investors. At a Glance: Responding to Non-compliance with Laws & Regulations has been prepared by staff to outline the key principles and objectives of the revised proposals. The IESBA will consider the significant comments received on the Exposure Draft at its December 2015 meeting.

The IESBA considered and broadly supported the general direction presented in first drafts of selected sections of the restructured Code of Ethics for Professional Accountants (the Code), which included suggestions from a plain English editor. The development of these first drafts follows the IESBA’s review of comments received on the Consultation Paper, Improving the Structure of the Code of Ethics for Professional Accountants, which closed earlier this year. The IESBA also discussed, among other matters, the following:

• ambiguity in certain pieces of guidance as to whether they require specific actions of the professional accountant (“half requirements”);
• the distinction between the Glossary and Terms Used;
• the extent of cross referencing needed;
• the overall flow and readability of the restructured Code;
• a draft Preface;
• the need for a “How to Use the Code” section; and
• terminology and numbering matters.

The IESBA will consider a revised draft of these sections as well as additional ones at its September 2015 meeting.

The IESBA further considered two issues arising from significant comments received in response to the Exposure Draft, Proposed Changes to Certain Provisions of the Code Addressing the Long Association of Personnel with an Audit or Assurance Client, namely:

• whether the existence of different regulatory safeguards, or a package of safeguards, set at the jurisdictional level might provide an alternative to elements of partner rotation requirements for audits of public interest entities (PIEs) in the Code; and
• the adjustment to the cooling-off period for the engagement quality control reviewer on PIE audits, in the light of feedback received from the IESBA Consultative Advisory Group (CAG).

In relation to the first issue, the IESBA supported the Task Force’s proposal for an alternative approach to the Code’s requirements in these particular circumstances. In relation to the second issue, the IESBA will present a new way forward to the IESBA CAG at the September CAG meeting.

The IESBA will consider a revised draft of the proposed provisions with a view to approval at its December 2015 meeting.

The IESBA progressed its consideration of the clarity, appropriateness, and effectiveness of safeguards pertaining to the application of the conceptual framework in the Code. As raised by the Safeguards Task Force, the IESBA considered issues and proposals around:

• clarifications to the conceptual framework;
• the meaning of “a reasonable and informed third party”;
• the description of, and types of, safeguards;
• the involvement of those charged with governance as a safeguard, in relation to the provision of non-assurance services;
• documentation requirements; and
• considerations based on the unique issues faced by small- and medium-sized practices.

The IESBA will consider a first draft of the proposed changes to the Code at its September 2015 meeting.

The IESBA considered significant comments received on its Exposure Draft (ED), Proposed Changes to Part C of the Code Addressing Presentation of Information and Pressure to Breach the Fundamental Principles. The meeting focused on the comments regarding proposed revised Section 320, “Presentation of Information” and included discussion of the following matters:

• the meaning of the concept of “fair and honest” and its relationship to the fundamental principles;
• the appropriateness of certain examples of misuse of discretion in preparing or presenting financial information;
• the nature and extent of guidance to be provided regarding the purpose, context and audience when information is prepared in the absence of a reporting framework;
• the nature and extent of guidance to be provided regarding “reasonable steps” the professional accountant in business (PAIB) should take when relying on work performed by others;
• the need to differentiate the guidance between “senior PAIBs” and other PAIBs; and
• the approach towards disassociation from misleading information for different levels of PAIBs.

The IESBA will next consider the ED comments regarding proposed Section 370, “Pressure to Breach the Fundamental Principles” at its September 2015 meeting, and a revised draft of Section 320 at its December 2015 meeting.

The IESBA supported a recommendation from its Planning Committee to establish a working group to initiate fact finding on fee-related issues in various jurisdictions. This development responds to a call from the Public Interest Oversight Board (PIOB) for the IESBA to revisit issues on auditor independence and non-assurance services from a broader perspective, including consideration of fee-related issues.

As a related initiative, the IESBA also agreed to commission a staff publication to raise auditors’ awareness of fee-related issues and relevant provisions in the Code. An update on the development of the publication will be presented to the IESBA at its next meeting. 

Meetings of the Ethics Board and the Ethics Board’s CAG are open to the public. The next IESBA CAG meeting will be held in New York, USA, on September 14, 2015. The next Ethics Board meeting will be held in New York, USA, on September 15–16, 2015.

For more information and to register to attend an Ethics Board or Ethics Board CAG meeting as an observer, visit Ethics Board Meetings  and Ethics Board CAG Meetings, respectively.

The 2015 edition of the Handbook of the Code of Ethics for Professional Accountants is now available. Print copies can be purchased for USD $65 with discounts available for educators, students, and purchasers from WTO developing countries.

The 2015 edition of the handbook includes the revisions addressing certain non-assurance services provisions for audit clients in Section 290, and assurance clients in Section 291. The changes will be effective on April 15, 2016, except for the changes to Section 290, which will be effective for audits of financial statements for periods commencing on or after April 15, 2016. Early adoption is permitted. See “Changes” section in Handbook for details.

For information on recent developments and pending changes to the Code issued subsequent to May 31, 2015, visit the IESBA’s website, in particular, Exposure Drafts and Standards & Pronouncements.

To access the web-based IESBA Handbook for personal use or purchase print copies, see Handbook of the Code of Ethics for Professional Accountants.  

The IESBA is recruiting at the Deputy Director and Senior Technical Manager levels for its staff team based in New York. For complete job descriptions and required skills and experience for these roles, see Working at IFAC. Qualified candidates should send their resume to jobs@ifac.org.

Last year, IFAC^® launched the Global Knowledge Gateway™, a digital hub for the global accountancy profession. The Gateway serves professional and aspiring accountants in all sectors by providing streamlined access to relevant resources, news, discussions, and thought leadership in ten different areas, including ethics. Resources in this area, designed to serve both accountants in business and in practice, include surveys and reports on business ethics issues, as well as practical guidance on implementing the IESBA Code and other codes of conduct.

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