See all presentations at www.ifac.org/2012SMPForum.  

The PAIB Committee submitted its Comment Letter for the Committee of Sponsoring Organizations of the Treadway Commission (COSO)'s Internal Control - Integrated Framework. The PAIB Committee provides the perspective of professional accountants in business. Among other recommendations, the Committee suggests broadening the scope of the Framework and the definition of internal control as well as including a strategic objective and an objective setting component.

Members of the IFAC Member Body Development team were recently invited to present at a World Bank Financial Management Team of the Africa Region meeting, held in Washington, D.C. in Feburary 2012. The meeting gathered 45 members of the World Bank staff who work across the African continent. This presentation was given by Szymon Radziszewicz, IFAC Senior Technical Manager, on the IFAC Compliance Program, the Statements of Membership Obligations (SMOs) as a framework for a high-quality accountancy profession, and the current status of the profession thought-out Africa. In response to a request from the World Bank, IFAC staff highlighted the key themes in each SMO and the action plan process as well as support tools available from IFAC staff. The World Bank expressed their interest in how they could support the implementation of IFAC SMOs and action plans on the ground in individual nations. The meeting also included an open discussion that focused on the different ways the Compliance Program and the World Bank Financial Management team can increase collaboration.

Related materials

• Video Highlights of Seminar
• Seminar Press Release

Learn more

• April 2012 - PSTF Recommendations for the G-20 Nations – Meeting of April 19-20, 2012 
• April 2012 - IFAC Makes Recommendations to the G-20 – Meeting of April 19-20, 2012 
• March 2012 - IFAC Policy Position Paper #4: Public Sector Financial Management Transparency and Accountability: The Use of International Public Sector Accounting Standards
• May 2010 -  Public Consultation on The Suitability Of International Public Sector Accounting Standards (IPSAS) For EU Member States 

Agenda

Day One: March 19, 2012

Agenda

Day Two: March 20, 2012

IN THIS ISSUE:

1. IESBA Revises 2012 Strategy
2. Responding to a Suspected Illegal Act
3. Breach of a Requirement of the Code
4. IESBA Proposes Changes to the Definition of “Engagement Team”
5. Upcoming Meetings
6. Share Ethics eNews with Your Colleagues

1. IESBA Revises 2012 Strategy

The IESBA has agreed on a revision to its strategy and activities for 2012. Its revised strategy calls for the board to undertake the following activities in 2012:

Rotation—The IESBA will consider firm rotation and also whether the position of the Code of Ethics for Professional Accountants (the Code) on partner rotation remains appropriate, including whether the requirement to rotate off the audit engagement after serving seven years as a key audit partner and observe a two-year time-out period continues to be appropriate.

Non-assurance services—The IESBA will consider whether the Code's position on non-assurance services remains appropriate, including the use of materiality, and, if so, whether guidance should be provided for applying the materiality test. If certain non-assurance services are permitted, the IESBA might also consider whether they should be subject to pre-approval by those charged with governance, restricted in size in relation to the audit fee, or publicly disclosed.

Structure of the Code—The IESBA will determine how to increase the visibility of the requirements and prohibitions in the Code and clarify who is responsible for meeting them.

Part C of the Code—The IESBA will determine whether recent corporate accounting irregularities reveal ethical implications for professional accountants in business (PAIBs) and whether part C of the Code should be strengthened to provide PAIBs with more guidance and support.

These matters will be discussed initially at the IESBA's June 2012 meeting. Depending upon the positions reached, the IESBA ultimately may propose revisions to the Code.

2. Responding to a Suspected Illegal Act

At its February 2012 meeting, the IESBA discussed its position on how a professional accountant should respond to a suspected illegal act. The IESBA agreed on the following:

• An auditor and a professional accountant in public practice providing non-assurance services to an audit client should be required to disclose to an appropriate authority suspected illegal acts that affect financial reporting or fall within the expertise of the professional accountant. This requirement would apply when the suspected illegal act is of such consequence that disclosure would be in the public interest and the client has not done so. 
• Accountants performing non-assurance services for non-assurance clients and accountants in business should be required to disclose the matter to the external auditor. If the response to the matter is not appropriate, the accountant would be expected to exercise his right to disclose the matter to an appropriate authority. 
• Exceptional circumstances may exist where a reasonable and informed third party would conclude that it is not in the public interest to make such disclosure because the probable consequences, such as the risk to the personal safety of the professional accountant or other individuals, would outweigh the benefits of disclosure.

The IESBA expects to approve an exposure draft on this subject at its next meeting in April.

3. Breach of a Requirement of the Code

At its February 2012 meeting, the IESBA began discussing responses to the Exposure Draft proposing a new framework for addressing a breach of a requirement of the Code. The IESBA noted:

• Respondents are supportive of the Code addressing breaches.
• Respondents expressed mixed views on whether all independence breaches should be reported as soon as possible to those charged with governance; a majority felt that all breaches should be reported while a minority felt that breaches that were not significant need not be reported.
• Many respondents commented on the timing of such reporting, including that insignificant breaches not be required to be reported as soon as possible.

The IESBA tentatively concluded that all breaches should be reported to those charged with governance, but it may be appropriate to have some flexibility on the timing of reporting less significant breaches. The IESBA will continue considering comment submissions at its June meeting. 

4. IESBA Proposes Changes to the Definition of “Engagement Team”

At its February 2012 meeting, the IESBA approved an exposure draft to revise the definition of “engagement team” to make it clear that internal auditors providing direct assistance to an external auditor are not considered to be part of the audit engagement team under the Code and eliminate the perception that the Code and ISA 610, Using the Work of Internal Auditors are in conflict. The comment deadline is May 30, 2012.

5. Upcoming Meetings

Meetings of the IESBA and the IESBA Consultative Advisory Group (CAG) are open to the public. The IESBA next meets by conference call on April 19, 2012, from 7:00–10:00 AM Eastern Daylight Time and, in person, June 18–20, 2012 in New York, USA. For more information and to register to attend an IESBA meeting as an observer, visit IESBA Meetings.

The next IESBA CAG meeting will be held on September 12, 2012 in New York, USA. For more information, visit IESBA CAG Meetings.

6. Share Ethics eNews with Your Colleagues

The IESBA issues regular eNews updates to help keep you informed of its activities and recent publications. Please forward this eNews to any interested colleagues and advise them that they can subscribe to receive IESBA eNews by following these simple steps:

• Register a new account or log in to your existing IFAC web account. 
• Go to My Subscriptions to manage your subscription preferences. 
• Select "Ethics eNews" from the check list, as well as any other newsletters or press releases that you would like to receive.

The SMP Committee submitted this letter to the IFAC Board's Exposure Draft, Statements of Membership Obligations. The comments focus on the aspects of most relevance to SMPs, including the scope of quality assurance review systems, IFRS for SMEs, and translation requirement.

Many entities establish internal audit functions as part of their internal control, risk management, and governance structures; effective coordination and communication between the external and internal auditors can contribute positively to the external audit. Recognizing this, the International Auditing and Assurance Standards Board (IAASB) today released International Standard on Auditing (ISA) 610 (Revised), Using the Work of Internal Auditors, which addresses the external auditor’s responsibilities if using the work of an internal audit function in obtaining audit evidence.

“Internal auditing standards and practices have continued to develop, as has the relationship between external and internal auditors. Equally, the expectations on the external auditor continue to evolve, particularly with recent heightened emphasis on audit quality and accountability,” stated Prof. Arnold Schilder, IAASB chairman. “Our standards must also evolve to take account of these changes. Our revision of this standard involved extensive input from, and liaison with, the regulatory community, which we believe has helped enhance the quality of the final standard.”

The revised standard is aimed at enhancing the external auditor’s performance by providing a more robust framework for evaluating and using the work of an entity’s internal audit function. Related changes have also been made to ISA 315 (Revised), Identifying and Assessing the Risks of Material Misstatement through Understanding the Entity and Its Environment, to explain how the internal audit function and its findings can usefully inform the external auditor’s risk assessments.

“The external auditor may be able to use the work of a robust internal audit function. Nevertheless, the external auditor has sole responsibility for the audit opinion expressed, and that responsibility is not reduced by the external auditor’s use of the work of the internal audit function,” notes James Gunn, IAASB technical director. “This revised ISA defines the conditions that are necessary for the external auditor to be able to use the work of internal auditors, including ensuring that the internal audit function’s work is adequate for the audit, and preventing overuse or undue use of such work.”

Both ISA 610 (Revised) and ISA 315 (Revised) are effective for audits of financial statements for periods ending on or after December 15, 2013.

Using Internal Auditors to Provide Direct Assistance
In revising ISA 610, the IAASB also agreed on requirements and guidance that specify the conditions and establish responsibilities of the external auditor if the external auditor intends to use internal auditors to provide direct assistance during the audit.

The IAASB has engaged closely with the International Ethics Standards Board for Accountants (IESBA) in relation to this matter. While the IAASB has concluded its deliberations on the requirements addressing direct assistance, it intends to incorporate such material in ISA 610 (Revised) only after the IESBA concludes its deliberations on its February 2012 exposure draft of proposed changes to the definition of “engagement team” in the Code of Ethics for Professional Accountants (IESBA Code). The IESBA exposure draft proposes to resolve a perceived inconsistency between the ISAs and the IESBA Code regarding the ability of external auditors to use internal auditors to provide direct assistance.

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 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. IFAC is comprised of 167 members and associates in 127 countries and jurisdictions, representing approximately 2.5 million accountants in public practice, education, government service, industry, and commerce.

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The Professional Accountants in Business Committee was invited to participate in the Institute of Cost Accountants of India's National Cost Convention in New Delhi, India, in March 2012.