On 1 July 2025, ICAEW’s updated Code of Ethics comes into effect. The changes made align the Code with the International Ethics Standards Board for Accountants (IESBA) Code of Ethics, including changes to Part 4A – independence for audit and review engagements. The revisions relate to:

• the objectivity of an engagement quality reviewer (EQR);
• the definition of engagement team and group audits;
• the provision of non-assurance services to an audit client;
• fees charged to audit clients; and
• the definition of public interest entity (PIE) and listed entities.

Objectivity of an EQR

The 2025 edition of the Code introduces a new section 325. It provides guidance on the application of the Conceptual Framework in relation to the objectivity of an engagement quality reviewer (EQR). The section also applies to other “appropriate reviewers” who have the necessary knowledge, skills, experience and authority to review work provided or services performed by a firm in an objective manner and can provide a mitigating safeguard against identified threats. The revisions:

• set out threats to compliance with the fundamental principle of objectivity, which might be created in circumstances where an individual is being considered for appointment as an EQR for a given engagement;
• provide factors to consider, when evaluating the level of the identified threats; and
• recommend actions that might be safeguards to address such threats.

In particular, the Code has been amended to include a new example of a potential familiarity threat: a potential reviewer with a close relationship to an individual who performed the original work.

The Code now incorporates the ISQM 2 requirement for firms to establish policies or procedures that specify, as a condition for eligibility, a two-year cooling-off period before the engagement partner can assume the role of engagement quality reviewer.

This requirement is intended to secure compliance with the principle of objectivity and the consistent performance of quality engagements. The cooling-off period required by ISQM 2 is distinct from, and does not modify, the partner rotation requirements outlined in Section 540 of the Code, which are designed to address threats to independence created by long association with an audit client.

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Engagement team and group audits definition

The definitions of the terms “engagement team” and “audit team” have been amended, to recognise different and evolving engagement team structures. The Code now provides guidance to help the determination of those within the respective definitions. It also extends existing requirements and guidance to mitigate potential risks arising from long association of personnel with an audit client (including partner rotation) to:

• the engagement review team; and
• assurance clients.

In addition, the updates strengthen and clarify the independence principles that apply to:

• individuals involved in a group audit, including those within, or engaged by, firms that audit components within a group; and
• firms engaged in the group audit, including firms within and outside the group auditor firm’s network.

In particular, the revisions place a responsibility on the group engagement partner to communicate ethical and independence requirements to component auditor firms, and to ensure compliance.

Where satisfactory assurance of compliance by component auditor firms has not been obtained, the revisions provide guidance for the group engagement partner on how to assess potential threats to independence and appropriate mitigating actions.

There is also guidance on the need for, and content of, appropriate communication on independence matters between the group auditor firm and component auditor firms participating in the group audit. 

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Provision of non-assurance services to an audit client

There are substantive provisions in the 2025 Code intended to enhance international independence standards on non-assurance services by clarifying the circumstances in which firms may provide such services to an audit or assurance client. There are also new express prohibitions on the provision of certain types of non-assurance services to audit clients that are PIEs. For example, firms cannot provide such services to a PIE client in circumstances where the provision of that service might create a self-review threat to the firm’s independence.

The Code now also includes:

• new provisions to assist firms in identifying and evaluating self-review threats, including the provision of advice to an audit client, and provision of multiple non-assurance services to the same client;
• new provisions to strengthen and improve the quality of firm communication with those charged with governance about non-assurance-service-related matters;
• enhanced guidance clarifying that the concept of materiality is not relevant in circumstances where the Code expressly prohibits the provision of non-assurance services to an audit client;
• new application material addressing threats to independence created by the provision of non-assurance services to audit clients that are not PIEs and where safeguards are not available; and
• revised provisions and application material relating to acting as a witness and potential advocacy threats.

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Fees charged to audit clients

Section 410 of the Code has been substantially revised and expanded, setting out requirements and application material related to applying the Conceptual Framework to identify, evaluate and address potential threats to independence arising from fees charged to audit clients.  A new section (410.3.A2) emphasises the heightened expectations of stakeholders, in circumstances where the audit client is a PIE. It notes the importance of transparency and disclosure of fee-related information to those charged with governance and stakeholders generally. In particular, the revisions introduce:

• a structured risk-assessment framework, which enhances objectivity and uniformity in evaluating and addressing potential threats to independence;
• a new, explicit 15% fee-dependency threshold for audit clients that are PIEs;
• mandatory fee disclosures to enhance transparency and to enable a more informed evaluation of auditor independence; and
• stricter safeguards for non-audit services, reducing variability in practice and which strengthen the ethical framework for managing potential conflicts of interest.

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Definition of PIEs and listed entities

Aligned with IESBA’s Code, Part 4A now specifies broader categories of entities that are to be categorised as PIEs (outside the UK) and be subject to additional independence requirements when an audit is undertaken. Part 4A now requires a firm to treat an entity as a PIE if it is:

• a publicly traded entity; 
• an entity one of whose main functions is to take deposits from the public;
• an entity one of whose main functions is to provide insurance to the public;
• an entity specified as such by law, regulation or professional standards to meet the heightened expectations that stakeholders have in relation to the independence of a firm performing an audit engagement for a PIE.

The Code now lists factors to consider when evaluating the extent of public interest in the financial condition of an entity and encourages firms to determine whether to treat other entities as if they were PIEs for the purposes of Part 4A.

When making this determination, the firm may consider a range of factors, including whether the entity is likely to become a PIE soon. The revisions emphasise the prohibition against firms assuming management responsibility in respect of clients that are categorised as PIEs (or which should be treated as such). This is to prevent the creation of self-review, self-interest, familiarity or advocacy threats.

In addition, Part 4A now sets out a range of factors which might indicate the assumption of management responsibility, together with examples. However, the Code emphasises that whether such responsibility has been assumed is a question of fact, which is to be determined by the accountant exercising professional judgement.

The revisions also introduce a transparency requirement for firms to publicly disclose the application of independence requirements for PIEs where they have done so.

• Read guidance in full

The new guidance is the latest in a series of resources to help members get to grips with the changes from 1 July, including webpages outlining each area of change, a webinar and a podcast.

David Gomez, ICAEW’s Senior Adviser, Ethics, urged members to use the resources on icaew.com/codeofethics. “It’s important for all members to remember that they have an individual responsibility to familiarise themselves with the changes ahead of the new Code’s implementation,” he said. “We hope our guidance will help to make this transition as simple as possible.”