Ethics code consultation to strengthen auditor conflict issues

The International Ethics Standards Board for Accountants (IESBA) is consulting on limited scope revisions to the international code of ethics for professional accountants, to clarify issues relating to an engagement quality reviewer’s objectivity

The changes are designed to dovetail with the International Auditing and Assurance Standards Board’s (IAASB’s) development of proposed International Standard on Quality Management 2, Engagement Quality Reviews.

Some jurisdictions require firms to establish mandatory ‘cooling-off periods’ for individuals previously involved in the audit engagement, in particular engagement partners, before they can act in an engagement quality reviewer’s role on the same engagement. 

Currently, the IESBA code does not specifically address threats to objectivity that may arise in these circumstances.

For example, a self-review or self-interest threat might be created when judgments made by the individual in the previous engagement continue to influence subsequent periods, as is often the case in an audit of financial statements.

The exposure draft includes proposed guidance on the application of the conceptual framework in the code to address the topic of the objectivity of an engagement quality review, thereby supporting proposed International Standard on Quality Management 2 in addressing the matter of the eligibility of an individual to serve in an engagement quality reviewer’s role.

In particular, the proposed guidance explains the different types of threat to compliance with the fundamental principle of objectivity that might be created in circumstances where an individual is being considered for appointment as an engagement quality reviewer for a given engagement. 

It sets out factors to consider in evaluating the level of the identified threats, and suggests actions that might be safeguards to address those threats.

The IESBA has adopted an accelerated timeframe to finalise the proposal in order to align closely with the anticipated finalisation of ISQM 2 within 2020. 

It anticipates considering the responses to the exposure draft by June and to approve the revised provisions by September. The IESBA proposes that the effective date of the proposed guidance be aligned with the proposed effective date of ISQM.

The consultation on the exposure draft closes on 16 March 2020.

Proposed Revision to the Code Addressing the Objectivity of Engagement Quality Reviewers

Pat Sweet |Reporter, Accountancy Daily [2010-2021]

Pat Sweet was the former online reporter at Accountancy Daily and contributor to the monthly Accountancy magazine, pub...

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