The International Ethics Standards Board for Accountants (IESBA) today released strengthened provisions in its Code of Ethics for Professional Accountants (the Code) to address conflicts of interest and a breach of a requirement of the Code. It also released amendments to the definition of the term “engagement team” in the Code.

Conflicts of Interest

Recognizing the ethical questions and challenges that can arise from conflicts of interest, the IESBA has revised the Code to establish more specific requirements and provide more comprehensive guidance to support professional accountants in identifying, evaluating, and managing such conflicts. The revisions affect professional accountants both in public practice and in business, taking into account the different circumstances in which they work. There is now a clearer explanation of what a conflict of interest means under the Code. The changes also are aimed at better enabling professional accountants to identify potential conflicts of interest early for timely action to be taken by the affected parties. Importantly, the new requirements are intended to stimulate professional accountants to evaluate whether they can remain objective in those circumstances and abide by the other fundamental ethical principles in the Code.

Breach of a Requirement of the Code

Reflecting its view that any breach of a provision of the Code is a matter that must be treated very seriously, the IESBA has strengthened the Code with respect to a professional accountant’s actions when encountering such a breach. In particular, the revisions to the Code establish a robust framework for addressing a breach of an independence requirement in the Code. They include requiring a firm to:

• Terminate, suspend, or eliminate the interest or relationship that caused the breach;
• Evaluate the significance of the breach and determine whether action can be taken and is appropriate in the circumstances to satisfactorily address the consequences of the breach;
• Communicate all breaches with those charged with governance and obtain their concurrence that action can be, or has been, taken to satisfactorily address the consequences of the breach; and
• Document, among other matters, the action taken and all the matters discussed with those charged with governance.

Definition of Engagement Team

In conjunction with the International Auditing and Assurance Standards Board (IAASB)’s release today of its International Standard on Auditing (ISA) 610 (Revised 2013), Using the Work of Internal Auditors, the IESBA is also releasing amendments to the definition of “engagement team” in the Code. The amendments clarify the relationship between internal auditors providing direct assistance on an external audit (“direct assistance”) and the meaning of an engagement team under the Code.

“A hallmark of professional accountants is their acceptance of their duty to act in the public interest,” said IESBA Chair Jörgen Holmquist. “The changes to the Code addressing conflicts of interest and a breach of a requirement of the Code raise the bar even higher and will, I believe, contribute to further strengthening of public trust in the profession.” He also added, “In relation to the engagement team definition, while the amendments to the definition address a perception that the Code and the revised ISA are in conflict with respect to direct assistance, it is important to make clear that the board is not requiring or encouraging external auditors to use direct assistance.”

The changes will be effective in 2014; see the individual pronouncements for details. Early adoption is permitted. The revised pronouncements will be printed in the 2013 Handbook of the Code of Ethics for Professional Accountants due out in the second quarter.

About the IESBA
The IESBA is an independent standard-setting board that develops and issues, in the public interest, high-quality ethical standards and other pronouncements for professional accountants worldwide. Through its activities, the IESBA develops the Code of Ethics for Professional Accountants, which establishes ethical requirements for professional accountants. The structures and processes that support the operations of the IESBA are facilitated by IFAC. Please visit www.ethicsboard.org for more information.

About IFAC
IFAC is the global organization for the accountancy profession dedicated to serving the public interest by strengthening the profession and contributing to the development of strong international economies. It is comprised of 173 members and associates in 129 countries and jurisdictions, representing approximately 2.5 million accountants in public practice, education, government service, industry, and commerce.

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In follow-up to its 2012 release of stronger standards dealing with the external auditor’s use of an internal audit function’s work, the International Auditing and Assurance Standards Board (IAASB) today issued new requirements and guidance that address the auditor’s responsibilities if using internal auditors to provide direct assistance under the direction, supervision, and review of the external auditor for purposes of the audit (“direct assistance”).

International Standard on Auditing (ISA) 610 (Revised 2013), Using the Work of Internal Auditors, now includes guidance to external auditors when determining whether they can use direct assistance from internal auditors, and if so, in which areas and to what extent. The material addressing direct assistance does not apply if the external auditor is prohibited by law or regulation from obtaining direct assistance.

“The new requirements and guidance not only clarify the scope of the standard, which we have already heard is an essential improvement, but also clearly set out the conditions, limits, and safeguards necessary so that direct assistance is used only in appropriate circumstances,” said Prof. Arnold Schilder, IAASB chairman.

In conjunction with ISA 610 (Revised 2013), the International Ethics Standards Board for Accountants (IESBA) today also released amendments to the definition of engagement team in its Code of Ethics for Professional Accountants (IESBA Code). The amendments clarify the relationship between internal auditors providing direct assistance and the meaning of an engagement team under the IESBA Code.

“The ISA does not require or encourage the external auditor to use, or to consider using, internal auditors to provide direct assistance, nor does it override relevant law or regulation. However, where direct assistance is permitted, the standard provides a robust framework for the external auditor’s judgments,” noted James Gunn, IAASB technical director. “The external auditor can therefore look to where there may be potential benefits from direct assistance, while understanding the limits to using such assistance and being able to take the necessary steps to avoid over or undue use, in line with the external auditor’s sole responsibility for the audit opinion expressed.”

The material in ISA 610 (Revised 2013) pertaining to direct assistance is effective for audits of financial statements for periods ending on or after December 15, 2014.

About the IAASB
The IAASB develops auditing and assurance standards and guidance for use by all professional accountants under a shared standard-setting process involving the Public Interest Oversight Board, which oversees the activities of the IAASB, and the IAASB Consultative Advisory Group, which provides public interest input into the development of the standards and guidance. The structures and processes that support the operations of the IAASB are facilitated by the International Federation of Accountants (IFAC).

About IFAC
IFAC is the global organization for the accountancy profession dedicated to serving the public interest by strengthening the profession and contributing to the development of strong international economies. It is comprised of 173 members and associates in 129 countries and jurisdictions, representing approximately 2.5 million accountants in public practice, education, government service, industry, and commerce.

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IFAC recognizes the importance of high-quality auditing and acts to promote and enhance audit quality around the globe, including supporting the development, adoption, and implementation of high-quality, internationally accepted auditing and quality control standards, promoting the need for global regulatory convergence, and supporting the development of strong professional accountancy organizations and accountancy firms.

Podcast: Meeting Highlights from the IESBA's March 11-13, 2013 meeting in New York.

00:21 Overview

3:34 Responding to a Suspected Illegal Act

6:32 Those Charged with Governance

8:24 Part C of the Code

11:05 Structure of the Code

13:26 Long Association

15:56 Non-Assurance Services

Sue Flis joined the IPAE in 2020 and was nominated by the Forum of Firms. Sue currently works for Ernst & Young LLP in their Global Standards, Methodology and Implementation Group.

Sue previously was a technical advisor and Board Member for the International Accounting Education Standards Board. Sue earned her Bachelor of Business Administration from Kent State University.

The revised IES 5, Initial Professional Development—Practical Experience, aims to assist educational organizations, employers, regulators, government authorities, and any other stakeholders who support the practical experience of professional accountants.

The International Auditing and Assurance Standards Board (IAASB) today released an online survey seeking public comment, insights, and views from all stakeholders to help shape its future direction for 2015 and beyond. It is seeking the input of interested parties at this early stage to identify key issues for discussion.

“The IAASB understands the importance of addressing matters of global and long-term relevance across the broad range of services covered by its international standards. We also recognize that we need to strike a balance between developing new and revised standards to further enhance practice, and taking steps to support continued global implementation of existing standards, including by small- and medium-sized practices,” said Prof. Arnold Schilder, IAASB Chairman. “Accordingly, this survey asks for views on emerging developments and trends that are likely to be important in the public interest, as well as specific areas of focus for development of standards and related guidance. It also asks for input on the appropriate balance between setting new and revised standards and facilitating their adoption and effective implementation.”

The survey also asks for feedback on the appropriateness of the IAASB changing its future strategy period to five years (2015–2019) instead of three years as it has done in the past. The IAASB believes that extending its strategy period will enable stakeholders to better understand its medium- to longer-term priorities, and provide a suitable context for decisions on specific initiatives. 

Responses to the survey will inform the development of a formal consultation paper on the IAASB’s Strategy and Work Program for the period commencing 2015. The consultation paper is scheduled to be issued in late 2013.

How to Comment
The IAASB invites all stakeholders to complete the online survey. To access the survey, visit the IAASB’s website at www.iaasb.org. Comments are requested by May 7, 2013. Individual responses to the questionnaire will not be on public record. They will be summarized for discussion purposes.

About the IAASB
The IAASB develops auditing and assurance standards and guidance for use by all professional accountants under a shared standard-setting process involving the Public Interest Oversight Board, which oversees the activities of the IAASB, and the IAASB Consultative Advisory Group, which provides public interest input into the development of the standards and guidance. The structures and processes that support the operations of the IAASB are facilitated by the International Federation of Accountants (IFAC).

About IFAC
IFAC is the global organization for the accountancy profession dedicated to serving the public interest by strengthening the profession and contributing to the development of strong international economies. It is comprised of 173 members and associates in 129 countries and jurisdictions, representing approximately 2.5 million accountants in public practice, education, government service, industry, and commerce.

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In its report issued this week, the European Commission found that International Public Sector Accounting Standards (IPSASs) “represent an indisputable reference for potential EU harmonized public sector accounts.”

The report highlights that harmonized accruals-based government accounting improves transparency, accountability and the comparability of financial reporting in the public sector. Furthermore, a Commission staff working document that accompanied it discusses the advantages of IPSASs, including that “transparency provided by high-quality accruals standards such as IPSASs also provides for better-informed capital markets, in which government financial activity plays a much greater role than is often acknowledged.”

Noting that the present financial crisis has demonstrated that the need to assure financial stability is common to all European Union (EU) countries, the report also states that because “government assets and liabilities are substantial in all EU countries, it is therefore important that they are effectively managed and that governments are accountable for this management to their citizens, their representatives, investors and other stakeholders.”  

Andreas Bergmann, chair of the International Public Sector Accounting Standards Board (IPSASB), welcomed the report, which proposes that almost half of the existing IPSASs could be implemented as European Public Sector Accounting Standards (EPSASs) with little or no adaptation.

Currently, 15 European Union (EU) Member States incorporate IPSASs to some extent, with nine of these having national standards based on or in line with IPSASs.

“The adoption of accrual accounting by EU Member States would represent a historic step in the direction of achieving governmental transparency and serving the public interest,” Bergmann said. “Developing high-quality accounting standards like the IPSASs will require a rigorous process to ensure the EPSASs are of the same caliber. The IPSASB offers the EU’s public sector accounting authorities its full cooperation and resources in producing, adopting, and implementing EPSASs.”

The European Commission’s report will be followed by a conference, “Towards Implementing European Public Sector Accounting Standards,” to be held May 29-30 in Brussels.

About the IPSASB
The IPSASB develops accounting standards and guidance for use by public sector entities. The structures and processes that support the operations of the IPSASB are facilitated by IFAC. The IPSASB receives support (both direct financial and in-kind) from the World Bank, the Asian Development Bank, the Canadian Institute of Chartered Accountants, and the governments of Canada, China, New Zealand, and Switzerland.

About IFAC
IFAC is the global organization for the accountancy profession dedicated to serving the public interest by strengthening the profession and contributing to the development of strong international economies. IFAC is comprised of 173 members and associates in 129 countries and jurisdictions, representing approximately 2.5 million accountants in public practice, education, government service, industry, and commerce.

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The International Federation of Accountants today praised the G-20 Finance Ministers and Central Bank Governors for addressing government borrowing and public debt sustainability at their recent meeting. It also applauded the European Commission (EC) report, issued this week, which called for “harmonized public sector accruals-based accounting standards” as a tool to build trust and financial stability.

IFAC CEO Fayez Choudhury said the two actions “provided an important impetus for transparent, comprehensive, reliable, and comparable public sector financial reporting.”

The G-20 recap and communiqué state that “(i)n pursuit of our goal of strengthening the public sector balance sheet, work is needed to better assess risks to public debt sustainability. This includes, inter alia, taking into account country-specific circumstances, looking at transparency and comparability of public sector reporting, and monitoring the impact of financial sector vulnerabilities on public debt.” It calls on the International Monetary Fund (IMF) and World Bank to further explore the issue and provide updates. Prior to the G-20 meeting, outgoing IFAC CEO Ian Ball addressed “The G-20 Agenda under the Russian Chairmanship,” organized by the Institute of International Finance and the Russian Federation Ministry of Finance, where he called on Russia to use its G-20 Presidency to strengthen global financial stability by supporting adoption and implementation of International Public Sector Accounting Standards (IPSASs).

The EC report states that “(t)he sovereign debt crisis has underlined the need for governments to clearly demonstrate their financial stability and for more rigorous and more transparent reporting of fiscal data.” It underscores the need for international comparability, as well as governments’ public interest obligation to owners of government debt securities, potential investors, citizens, and other stakeholders, to provide timely, reliable, and comparable information on their financial performance and position, in the same way that listed companies have obligations to equity market participants.

In addition, it recognizes IPSASs as the only internationally recognized set of public-sector accounting standards, and their foundation in the International Financial Reporting Standards, which are widely applied by the private sector.

“While there has been some progress on reforming public sector financial management and adopting accrual accounting and IPSASs, we need to quicken the pace of change,” Choudhury said. “IFAC’s efforts are strengthened when global organizations like the G-20, EC, IMF, and World Bank show leadership in this area.” 

About IFAC
IFAC is the global organization for the accountancy profession, dedicated to serving the public interest by strengthening the profession and contributing to the development of strong international economies. It is comprised of 173 members and associates in 129 countries and jurisdictions, representing approximately 2.5 million accountants in public practice, education, government service, industry, and commerce.

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