News
ETHICS BOARD PROPOSES STRENGTHENED AUDITOR INDEPENDENCE STANDARD ADDRESSING LONG ASSOCIATION IN ETHICS CODE
02-Sep-2014
The International Ethics Standards Board for Accountants® (IESBA®, the Ethics Board) released for public comment the Exposure Draft (ED), Proposed Changes to Certain Provisions of the Code Addressing the Long Association of Personnel with an Audit or Assurance Client. The proposals respond to stakeholder concern about the appearance of independence and the need to ensure that the threats created by the long association of audit firm personnel with an audit client are appropriately addressed on all audit engagements.
"The IESBA has not received evidence that the current provisions in the IESBA Code™ addressing long association, including partner rotation, have not been working effectively in practice," notes interim IESBA Chair Wui San Kwok. "However, developments in key jurisdictions and substantive stakeholder feedback indicate that expectations are shifting on what are considered acceptable safeguards to effectively address long association risks. The IESBA is responsive and is proposing to strengthen certain safeguards in the Code, such as the engagement partner ‘cooling-off’ provisions, to ensure continued public confidence in the independence of the audit process."
Among the proposed changes are:
• Strengthened general provisions applicable to all audit engagements regarding the threats created by long association;
• With respect to partner rotation, an increase in the mandatory “cooling-off” period, from two to five years, for the engagement partner on the audit of a public interest entity;
• Strengthened restrictions on the type of activities that can be undertaken with respect to the audit client and audit engagement by any former key audit partner during the cooling-off period; and
• A requirement to obtain the concurrence of those charged with governance regarding the application of certain
exceptions to the rotation requirements.
The Ethics Board is also proposing strengthened provisions in Section 291 of the Code dealing with assurance engagements.
“The issues that the board considered are complex and interconnected, particularly given that knowledge of and experience with the audit client and its business are important contributors to audit quality,” noted IESBA Technical Director Ken Siong. “The proposals reflect extensive and careful board deliberations into the options, weighing audit quality, cost, and practicality considerations.”
The development of the proposals was informed by wide-ranging research, which included a benchmarking exercise of jurisdictional requirements, stakeholder outreach, and a survey that yielded more than 400 responses from standard setters, audit committees, regulators, and firms.