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A high level international Code of Ethics should have the objective of striving for the application of high level ethical principles at an international level, as opposed to a Code representing another layer of requirements that may not always be appropriate or compatible with national or regional requirements. Generally speaking, the FEE thinks that by adding these restrictive requirements, the Code becomes rules-based and very complex, leading to problems of application at an international level. The Code should emphasise much more the underlying principle: the professional accountant will need to be able to show that there is no threat resulting from long association.
Although IESBA has taken the audit reform in the EU into account to an extent, the FEE believes that a holistic approach should be taken based on an analysis of the interaction of the different approaches that exist to mitigate the familiarity threat. For example, the concept of joint audit, which has not been taken into account by the Board. In addition, an overly complex system of internal and external rotation requirements may have unintended consequences with respect to compliance without any contribution to audit quality.
FEE believes that a more strategic discussion needs to take place on the role of the Engagement Quality Control Review (EQCR). The IAASB recently released its Invitation to Comment, Enhancing Audit Quality in the Public Interest: A Focus on Professional Skepticism, Quality Control and Group Audits (the ITC); FEE thinks that the potential familiarity threat posed with the role of the EQCR would be better addressed within the remit of the revision of the International Standard on Quality Control 1 (ISQC 1). The consideration of a cooling-off period for the EQCR should be carefully re-assessed, taking into account the differences between the role of engagement partners and EQCR across jurisdictions and only after the discussion on ISQC 1.
The implementation of a different length of cooling-off period depending on the category of KAPs involved is difficult to monitor in practice, adding more complexity to an “already complex area”. Such complex requirements could lead to inadvertent violations from professionals – which would not be in the public interest. Furthermore, the two subsets of PIEs (listed versus non-listed) are not aligned with the applicable European framework. Differentiation between PIEs may solely be acceptable with respect to the size of the entity, but not on whether they are listed or not. We also question the rationale underlying the decision of having different independence requirements for auditors of listed and non-listed PIEs.
In addition, the FEE draws the IESBA's attention to the fact that the proposed amendment would in many EU jurisdictions imply, regardless of the category of the entity, shorter cooling-off periods for KAPs in comparison with the EQCR.