19 March 2013

IFAC: IESBA strengthens key sections of Code of Ethics for Professional Accountants

Conflicts of Interest

Recognising the ethical questions and challenges that can arise from conflicts of interest, the IESBA has revised the Code to establish more specific requirements and provide more comprehensive guidance to support professional accountants in identifying, evaluating, and managing such conflicts. The revisions affect professional accountants both in public practice and in business, taking into account the different circumstances in which they work. There is now a clearer explanation of what a conflict of interest means under the Code. The changes also are aimed at better enabling professional accountants to identify potential conflicts of interest early for timely action to be taken by the affected parties. Importantly, the new requirements are intended to stimulate professional accountants to evaluate whether they can remain objective in those circumstances and abide by the other fundamental ethical principles in the Code.

Breach of a Requirement of the Code

Reflecting its view that any breach of a provision of the Code is a matter that must be treated very seriously, the IESBA has strengthened the Code with respect to a professional accountant’s actions when encountering such a breach. In particular, the revisions to the Code establish a robust framework for addressing a breach of an independence requirement in the Code. They include requiring a firm to:

• Terminate, suspend, or eliminate the interest or relationship that caused the breach;
• Evaluate the significance of the breach and determine whether action can be taken and is appropriate in the circumstances to satisfactorily address the consequences of the breach;
• Communicate all breaches with those charged with governance and obtain their concurrence that action can be, or has been, taken to satisfactorily address the consequences of the breach; and
• Document, among other matters, the action taken and all the matters discussed with those charged with governance.

Definition of Engagement Team

In conjunction with the IAASB’s release of its ISA 610 (Revised 2013), Using the Work of Internal Auditors, the IESBA is also releasing amendments to the definition of “engagement team” in the Code. The amendments clarify the relationship between internal auditors providing direct assistance on an external audit (“direct assistance”) and the meaning of an engagement team under the Code.

“A hallmark of professional accountants is their acceptance of their duty to act in the public interest”, said IESBA Chair Jörgen Holmquist. “The changes to the Code addressing conflicts of interest and a breach of a requirement of the Code raise the bar even higher and will, I believe, contribute to further strengthening of public trust in the profession.” He also added: “In relation to the engagement team definition, while the amendments to the definition address a perception that the Code and the revised ISA are in conflict with respect to direct assistance, it is important to make clear that the board is not requiring or encouraging external auditors to use direct assistance".

The changes will be effective in 2014; see the individual pronouncements for details. Early adoption is permitted. The revised pronouncements will be printed in the 2013 Handbook of the Code of Ethics for Professional Accountants due out in the second quarter.

Press release

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