Revised Ethics Code requires changes to audit standards

The International Auditing and Assurance Standards Board (IAASB) is consulting on minor amendments to the International Standards on Auditing (ISAs) to match the revised ethics code for accountants

The exposure draft focuses on changes to risk reporting and threats to auditor independence, and are being made as a result of the revised International Ethics Standards Board for Accountants’ (IESBA) International Code of Ethics for Professional Accountants (IESBA Code), which came into effect in June 2019.

The project aims to align the IAASB’s international standards with the revisions to the IESBA Code to ensure the requirements are aligned. Once feedback is reviewed, IAASB plans to introduce the changes within 90 days.

On the responsibility and independence of auditors, ISQC 1, Quality Control for Firms that Perform Audits and Reviews of Financial Statements, and Other Assurance and Related Services Engagements, paragraph 22, has been strengthened and goes so far as to say that an auditor should resign the audit if the risks are deemed too high.

The revised text states that staff should ‘promptly notify the firm of circumstances and relationships that create a threat to compliance with independence requirements so that the firm can evaluate whether such threats are at an acceptable level and if not, address them by eliminating the circumstances that create the threat, applying safeguards, or withdrawing from the engagement, where withdrawal is possible under applicable law or regulation appropriate action can be taken’.

ISA 260 (Revised), Communication with Those Charged with Governance, para A30, has been amended in relation to how identified threats are addressed. The revision states: ‘The communication about relationships and other matters, and how threats to independence that are not at an acceptable level have been addressed and safeguards to be communicated, varies with the circumstances of the engagement and generally addresses the threats to independence, safeguards to reduce the threats, and measures to eliminate threats.’

Unlike the previous Code (300.13), the new Code does not refer to safeguards created by the profession.

There is greater emphasis on auditor independence in ISRE 2400 (Revised), Engagements to Review Historical Financial Statements. The proposed amendment states: ‘The IESBA Code provides a conceptual framework that professional accountants are to apply in order to identify, evaluate and address threats to compliance with the fundamental principles.

‘In the case of audits, reviews and other assurance engagements, the IESBA Code sets out International Independence Standards, which apply the conceptual framework of identifying, evaluating and addressing threats to the fundamental principles and compliance with independence requirements.’

The amendments will be introduced in a single effective date. In the exposure draft, IAASB said: ‘Given the limited nature of the amendments proposed and because the conforming amendments do not create any new obligations, the IAASB is proposing that the conforming amendments become effective approximately 90 days after the approval of the due process by the Public Interest Oversight Board.’

‘It is important that the International Standards acknowledge the enhancements made to the IESBA Code and achieve alignment to the fullest extent possible on overlapping issues,’ said Tom Seidenstein, chair of the IAASB. ‘Many jurisdictions use both the International Standards and the IESBA Code and it is in the public interest that these be able to operate in concert.’

The closing date for comment is 10 January 2020.

IAASB Exposure Draft, Proposed Conforming Amendments to the IAASB’s International Standards on Auditing, issued 15 Nov 2019

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