SMP Committee Response to the IESBA Limited Re-exposure of Proposed Changes to the Code Addressing the Long Association of Personnel with an Audit Client

The IFAC SMP Committee believes that the cooling-off period for the EQCR should not be increased. This is because:

• The role of the Engagement Quality Control Reviewer (EQCR) is quite distinct from the role of the Engagement Partner (EP), such that the risk of independence and familiarity threats being created by long association of the EQCR with the audit client is significantly lower.
• Any increase in objectivity that might be achieved by extending the cooling-off period for the EQCR would not materially benefit audit quality, but will instead, in combination with rotation of the EP, likely adversely impact the effectiveness and efficiency of the audit.
• SMPs may be disproportionately affected by the proposals due to their more limited availability of individuals able to perform the EQCR role.
• The extension of the cooling-off period for the EQCR may create a competitive disadvantage for SMPs that audit PIEs and listed entities, and there is a risk it could lead to further erosion of competition and choice in the audit market, which is not in the public interest.

Notwithstanding that the SMP Committee did not agree with the extension of the cooling-off period to five years for the EP on the audit of PIEs, it supports the proposal to allow for a reduction in the cooling-off period for EPs on audits of PIEs to three years under the conditions specified. In addition, it agrees with the proposed principle for either: a) four or more years; or b) at least two out of the last three years to be used in determining whether the longer cooling-off period applies when a partner has served in a combination of roles during the seven-year time-on period.

For specific comments, read the full comment letter below.