Overview of Revised and Restructured IESBA Code · This set of PowerPoint slides has been developed...
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Prepared by IESBA Staff April 2018 Overview of Revised and Restructured IESBA Code
Transcript of Overview of Revised and Restructured IESBA Code · This set of PowerPoint slides has been developed...
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Prepared by IESBA Staff
April 2018
Overview of Revised and Restructured IESBA Code
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Purpose and Disclaimers
This set of PowerPoint slides has been developed by IESBA Staff to assist national standard setters (NSS), regulators and audit oversight bodies, firms, IFAC member bodies, educators and others as they adopt and implement, educate and train, and enforce the revised and restructured International Code of Ethics for Professional Accountants (including International Independence Standards), which the IESBA issued in April 2018.
These slides provide only an overview of the new Code and do not purport to present all the detailed changes. The slides should be read in conjunction with the new Code, the text of which alone is authoritative. The slides do not form part of the Code.
The IESBA does not accept responsibility for loss caused to any person who acts or refrains from acting in reliance on the material in this publication, whether such loss is caused by negligence or otherwise.
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• About the New Code – Overview, What is Included, and Architecture– Overarching Requirements Relating to Fundamental Principles and Independence– The Enhanced Conceptual Framework
• Using the New Code • Other Substantive Revisions• Effective Date • Awareness, Adoption and Implementation• Additional Tools and Resources
Agenda
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• New design – easier to navigate, use and enforce– Completely rewritten– Req’ts clearly distinguished from application material – New user guide and updated glossary
• Increased focus on compliance with the fundamental principles (FPs) and independence as overarching req’ts
• Enhanced conceptual framework (CF)– Clearer and more robust safeguards – More tightly integrated into relevant sections of the Code
About the New Code
Presenter
Presentation Notes
Easier to enforce: Responsibility for compliance with requirements has been made clearer, including with respect to firms and network firms. To emphasize their enforceability, the auditor independence provisions have been recharacterized as International Independence Standards.
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• Packages all substantive advances in ethics and independence over last four years– Significant enhancements to conceptual framework– Enhanced safeguards provisions better aligned to threats– Strengthened Long Association provisions– Strengthened provisions re preparing or presenting information – New provisions addressing pressure to breach FPs– NOCLAR– Applicability of relevant PAIB provisions to PAPPs clarified– Strengthened provisions regarding inducements– New guidance re professional judgment and professional skepticism
About the New Code
What is Included
Presenter
Presentation Notes
The IESBA approved the revised Inducements provisions at its April 23, 2018 teleconference. New guidance with illustrative examples clarifies that relevant provisions that apply to professional accountants in business (PAIBs), such as provisions dealing with pressure, are also applicable to professional accountants in public practice (PAPPs). New guidance regarding professional judgment and professional skepticism New guidance regarding the exercise of professional judgment by auditors and other professional accountants New guidance to explain how compliance with the fundamental principles supports the exercise of professional skepticism in audit engagements
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ArchitectureAbout the New Code
PART 1 Complying with the Code, Fundamental Principles and Conceptual Framework (All Professional Accountants)
PART 2 Professional Accountants in Business (PAIBs)
(Sections 200 to 299)PART 3 Professional Accountants
in Public Practice (PAPPs)(Sections 300 to 399)
GLOSSARY (All Professional Accountants)
PARTS 4A & 4B International Independence Standards
(Sections 400 to 899)Part 4A—Independence for Audits & Reviews
Part 4B—Independence for Assurance Engagements Other than Audit & Review Engagements
(Sections 900 to 999)
(Part 2 is also applicable to individual PAPPs when performing professional activities pursuant to their relationship with the firm)
(Sections 100 to 199)
Presenter
Presentation Notes
Overview of what is covered in the restructured Code in terms of its different parts, and how Board expects PAs to use it. New Code includes: Part 1 – Complying with the Code, Fundamental Principles and Conceptual Framework, which includes the fundamental principles and the conceptual framework and is applicable to all professional accountants. Part 2 – Professional Accountants in Business, which sets out additional material that applies to professional accountants in business when performing professional activities. Professional accountants in business include professional accountants employed, engaged or contracted in an executive or non-executive capacity in, for example: Commerce, industry or service. The public sector. Education. The not-for-profit sector. Regulatory or professional bodies. Part 2 is also applicable to individuals who are professional accountants in public practice when performing professional activities pursuant to their relationship with the firm, whether as a contractor, employee or owner. Part 3 – Professional Accountants in Public Practice, which sets out additional material that applies to professional accountants in public practice when providing professional services. International Independence Standards, which sets out additional material that applies to professional accountants in public practice when providing assurance services, as follows: Part 4A – Independence for Audit and Review Engagements, which applies when performing audit or review engagements. Part 4B – Independence for Assurance Engagements Other than Audit and Review Engagements, which applies when performing assurance engagements that are not audit or review engagements.
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Overarching RequirementsAbout the New Code
Professional Behavior
Independence
Confidentiality
Integrity
Professional Competence and Due Care
Objectivity
THE CONCEPTUALFRAMEWORK
Presenter
Presentation Notes
The FPs establish the standard of behavior expected of PAs, and reflect the profession’s recognition of its public interest responsibility. Fundamental principles remain unchanged, and so has the overarching req’ts for all PAs to apply the conceptual framework to comply with them. Independence is NOT a fundamental principle, but the categories of threats to independence are the same as those to the fundamental principles. Therefore, the Code clarifies and now explicitly states that the conceptual framework applies to compliance with independence in the same way that it does to compliance with the fundamental principles.
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Categories of Threats About the New Code
Self-interest Self-review Advocacy
Familiarity Intimidation
Presenter
Presentation Notes
Threats to compliance with the FPs and to independence are unchanged and fall into one or more of the following categories: Self-interest threat – the threat that a financial or other interest will inappropriately influence a professional accountant’s judgment or behavior; Self-review threat – the threat that a professional accountant will not appropriately evaluate the results of a previous judgment made or an activity performed by the accountant, or by another individual within the accountant’s firm or employing organization, on which the accountant will rely when forming a judgment as part of performing a current activity; Advocacy threat – the threat that a professional accountant will promote a client’s or employing organization’s position to the point that the accountant’s objectivity is compromised; Familiarity threat – the threat that due to a long or close relationship with a client or employing organization, a professional accountant will be too sympathetic to their interests or too accepting of their work; and Intimidation threat – the threat that a professional accountant will be deterred from acting objectively because of actual or perceived pressures, including attempts to exercise undue influence over the accountant.
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• What is it? – Dedicated provisions that apply to all
PAs, in all circumstances, when dealing with ethics and independence issues
• Why have a conceptual framework?– Because establishing an exhaustive list of
facts and circumstances that might trigger ethics and independence issues is impracticable
About the New Code
The Enhanced Conceptual Framework
Presenter
Presentation Notes
Strengthened provisions for identifying, evaluating and addressing threats
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• Identified threats that are not at acceptable level must be addressed in one of three ways:– Eliminate circumstances creating the threats;– Apply safeguards; or– Decline or end the specific professional activity/service
• Safeguards and RITP and other key concepts clarified– Safeguards now more closely correlated to identified threats
• Emphasis that if threats cannot be addressed, PA must decline or end the specific professional activity
• New req’t for PA to “step back” in forming overall conclusion
About the New Code
Key Enhancements to Conceptual Framework
Presenter
Presentation Notes
Change in mindset required – Conceptual Framework no longer referred to as “threats and safeguards” approach To avoid the suggestion that all threats can be addressed by the application of safeguards Key terms that are defined or described in the enhanced Conceptual Framework are: Conditions, Polices and Procedures (new) Can be established by profession, legislation, regulation, the firm, or the employing organization that can enhance the accountant acting ethically Code clarifies that they might also help identify threats to compliance with the FPs and are also “factors” that are relevant in evaluating the level of threats Acceptable Level (revised) Level at which a PA using the reasonable and informed third party (RITP) test would likely conclude that PA complies with fundamental principles Safeguards (revised) Actions, individually or in combination, that PA takes that effectively reduce threats to compliance with fundamental principles to an acceptable level Appropriate Reviewer (new) A professional with the necessary knowledge, skills, experience and authority to review, in an objective manner, the relevant work performed or service provided Individual might be a PA Term applies in the context of applying safeguards Reasonable and Informed Third Party (new) The RITP test is a consideration by PA about whether the same conclusions would likely be reached by another party Such consideration is made from the perspective of a RITP who weighs all the relevant facts and circumstances that PA knows, or could reasonably be expected to know, at the time that the conclusions are made RITP does not need to be a PA, but would possess the relevant knowledge and experience to understand and evaluate the appropriateness of PA’s conclusions in an impartial manner
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Using the New Code
• Users required to know, understand and apply:– All provisions in Part 1 – Complying with the Code,
Fundamental Principles and Conceptual Framework– Relevant sections which contain incremental contextual
provisions to assist in proper application of CF
• New headings emphasize scalability– Applicable in all circumstances: “General” “All Audit Clients” (i.e., PIEs and non-PIEs) in Section 600
– “Audit Clients that are not PIEs”– “Audit Clients that are PIEs”
Presenter
Presentation Notes
The general sections in the Code are as follows: Section 200 generally applies to all PAIBs Section 300 applies to all PAPPs Sections 400 and 900 relate to independence Sections 600 and 950 also include general independence provisions relating to NAS Provisions are categorized in sections according to each individual topic area.
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Other Substantive Revisions – PAIBs
Preparation and Presentation of Information
• More comprehensive provisions addressing PAIBs’ responsibilities when preparing or presenting information
• Prohibition on exercising discretion when preparing or presenting information with intent to mislead or inappropriately influence contractual or regulatory outcomes
• Enhanced guidance to assist PAs in disassociating from misleading information
Presenter
Presentation Notes
Revised Section 220, Preparing and Presentation of Information
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Other Substantive Revisions – PAIBs
Pressure to Breach Fundamental Principles
• Prohibition on allowing pressure from others to result in a breach of fundamental principles
• Prohibition on placing pressure on others that would lead them to breach fundamental principles
• Guidance to assist in navigating situations involving pressure
• Practical examples to illustrate different situations in which pressure might arise
Presenter
Presentation Notes
New Section 270, Pressure to Breach the Fundamental Principles
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Other Substantive Revisions – PAIBs and PAPPs
Inducements, Including Gifts and Hospitality
• Clarifications about appropriate boundaries for offering and accepting of inducements
• Prohibitions on offering or accepting inducements with intent to improperly influence behavior
• Application of CF when no actual or perceived intent to improperly influence behavior
• PAIB and PAPP provisions strengthened• Conforming changes to independence provisions
re gifts and hospitality
Presenter
Presentation Notes
Sections 250 (for PAIBs) and 340 (for PAPPs), Inducements, Including Gifts and Hospitality Sections 420 (for Audits and Reviews) and 902 (for Other Assurance Engagements), Gifts and Hospitality
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Other Substantive Revisions
Long Association
Extant Revised
7-year time-on: all KAPs No change
2-year cooling-off: all KAPs
5-year cooling-off: EP
3-year cooling-off: EQCR
2-year cooling-off: all other KAPs
• Strengthened general provisions addressing long association• A strengthened partner rotation regime for PIE audits, including:
Presenter
Presentation Notes
EP: Engagement partner EQCR: Engagement quality control reviewer KAP: Key audit partner
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Other Substantive Revisions – Long Association
Restrictions on Activities During Cooling-off
• Continuing prohibition on consulting with engagement team or client re technical or industry-specific issues, transactions or events
• But new restrictions:– Acting as “client relationship” partner– Undertaking any other role or activity (including providing
NAS) that would result in individual having significant or frequent interaction with senior management or TCWG, or directly influencing outcome of audit
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Other Substantive Revisions
Non-assurance Services (NAS)
• New and improved guidance to assist in proper application of CF– New factors for evaluating threats– Enhanced guidance on addressing threats, including
revised safeguards provisions
• Prohibition on assuming management responsibilities now more prominent
• Existing prohibitions on provision of certain types of NAS in certain circumstances retained– But new prohibition re recruiting services
Presenter
Presentation Notes
In addition to the requirement to apply the enhanced conceptual framework to identify, evaluate and address threats when providing NAS to audit and assurance clients, Sections 600 and 900 of the Code contain specific NAS provisions. These include: An overarching prohibition on assuming management responsibilities when providing NAS to audit clients. Prohibitions regarding the provision of certain types of NAS in certain circumstances (see below). For those circumstances, the IESBA has determined that the threats created by providing those NAS to audit clients cannot be eliminated or safeguards cannot be applied to reduce those threats to an acceptable level. New and improved guidance to assist firms and network firms better apply the conceptual framework in relation to the provision of NAS. This includes: - General provisions intended to apply in all circumstances. - Additional provisions that apply to specific types of NAS. These are included in subsections 601 to 610 of the Code. The approach in the Code is based on the premise that it is impracticable for a global Code to cover an exhaustive list of services that might be provided by a firm or network firm given the continual evolution of business practices, financial markets and technology. Types of NAS for which existing prohibitions continue: Accounting and bookkeeping IT Internal audit Recruiting (but revised) Legal Corporate finance Valuation Tax – Calculations, Planning, Advisory, Resolution of Disputes
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Other Substantive Revisions (NAS)
Recruiting Services
• Enhanced general description of recruiting services• Clearer guidance re types of recruiting services
prohibited • New provisions to help avoid assuming management
responsibilities when providing recruiting services– Similar to IT and internal audit
• Prohibition on providing certain recruiting services now applies to all entities – Searching for or seeking out candidates– Undertaking reference checks of prospective candidates
Presenter
Presentation Notes
The new prohibition on recruiting services applies to the following positions only: Director or officer of the entity Senior management in a position to exert significant influence over preparation of client’s accounting records or f/s on which firm will opine
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Other Substantive Revisions
Applicability of PAIB Provisions to PAPPs
• Clear guidance for PAPPs that relevant PAIB provisions in Part 2 are applicable to them when they perform professional activities pursuant to their relationship with the firm– Whether as contractors, employees or owners
of the firm
• Illustrations of situations in which provisions in Part 2 apply to a PAPP
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Other Substantive Revisions
Professional Judgment and Professional Skepticism
• New guidance – For all PAs to emphasize the importance
of obtaining an understanding of facts and circumstances when exercising professional judgment
– For auditors and assurance practitioners that explains how compliance with the fundamental principles supports the exercise of professional skepticism
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• New Code (including safeguards-related changes)– Parts 1, 2 and 3: June 15, 2019– Part 4A: audits and reviews of financial statements for
periods beginning ≥ June 15, 2019– Part 4B: for assurance engagements with respect to subject
matter covering periods: periods beginning ≥ June 15, 2019; otherwise June 15, 2019
• Above does not override effective dates of NOCLAR and Long Association provisions– Drafted under current structure and drafting conventions
Effective Date
Presenter
Presentation Notes
NOCLAR provisions are already effective as of July 15, 2017 Long Association close-off provisions effective as follows: For audits and reviews of financial statements for periods beginning ≥ Dec 15, 2018 For other assurance engagements with respect to subject matter covering periods: periods beginning ≥ Dec 15, 2018; otherwise as of Dec 15, 2018
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Awareness, Adoption and Implementation
• IESBA rollout strategy: Prepare, Engage, Activate – Social media, e.g., Twitter, Linked-in – In-person presentations and other targeted outreach– Webcasts and webinars – Articles
• Important for others to embrace improvements and support adoption and implementation of new Code– NSS, regulators and audit oversight bodies, IFAC
member bodies, firms, educators, etc
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Additional Tools and Resources
www.ethicsboard.org/restructured-code
• Now Available – Flyer– Basis for Conclusions – Webinars
• More to Come– At-a-Glance – Fact Sheet– Videos– Staff Q&As
Presenter
Presentation Notes
Approved text already available on IESBA website
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Coming Soon!
• Handbook– Expected by Q3 2018
• E-Code– Easy to access and navigate– Improved functionality and
overall user experience– Phase 1 by Q4 2019
Presenter
Presentation Notes
Subject to the Public Interest Oversight Board’s approval in June 2018, the Inducements provisions that the IESBA approved on April 23, 2018 will form part of the Handbook.
www.ethicsboard.org
The Ethics Board
Copyright © April 2018 by the International Federation of Accountants (IFAC). All rights reserved. Permission is granted to make copies of this work provided that such copies are for personal or classroom use and are not sold or otherwise disseminated commercially, and provided that each copy bears the following credit line: “Copyright © April 2018 by the International Federation of Accountants (IFAC). All rights reserved. Used with permission of IFAC.” Otherwise, written permission from IFAC is required to reproduce, store, or transmit, or to make other similar uses of, this work, except as permitted by law. Contact [email protected].
