Supplementary information relating to changes to ICAEW Code of Ethics arising from IESBA Code restructure
Additional information on the changes arising from the IESBA Code restructure.
Changes to IESBA sections on conflicts of interest
IESBA’s changes since 2009 replace sections 220 and 310 of the current code completely. The ICAEW code already includes some additional wording paragraphs in s220 and s221, principally extra discussion of safeguards. The additional ICAEW wording partly overlaps with the new IESBA material and will be deleted in the revised version of the code to the extent that it is no longer needed.
We have analysed the requirements and guidance in the new sections and consider that the changes do not substantially change the substance of the existing requirements, including ICAEW additional material. They do enhance the guidance on how to apply those requirements.
The core requirement in the existing code is that conflicts can create threats to objectivity, so safeguards should be applied. Generally, this would for practitioners include, but is not limited to, getting consent. The new IESBA sections maintain that core requirement, but add:
- examples of types of conflict;
- explicit reference to the reasonable and informed third party test (though the ICAEW code already includes that as additional wording);
- additional discussion of, eg, conflict identification processes, safeguards (partly picking up existing ICAEW additional wording), types of disclosure and consent (again, partly picking up existing ICAEW additional wording), and when work can be taken on without disclosure and consent.
Changes to IESBA part of the code for professional accountant in business
IESBA’s changes since 2009 largely add additional explanation to existing requirements. There is a new section which requires explicitly that the accountant should not allow pressure to result in a breach of the fundamental principles; and not place pressure on others that would result in a breach of the fundamental principles. We regard this as implicit within the existing code.
Change in the provisions of the IESBA code relating to a breach in the provisions of the code
Section 100 of the current code currently includes a provision that requires that, should a provision of the code be breached, the accountant needs to evaluate the consequences, correct the breach and apply other safeguards a necessary. As a result of IESBA’s changes since 2009, this requirement will be replaced with a new paragraph which retains this basic approach but makes it a little more explicit. It specifically requires the accountant to consider whether the breach needs to be reported and notes that there are additional requirements in respect of breaches of audit and assurance independence provisions, in sections 290 and 291 (of the current code).
Changes to sections on inducements (subject to finalisation)
IESBA changes expected to be introduced will replace sections 260 and 350 of the current code but are largely in the nature of additional discussion. They do widen out current guidance in the practice members section on gifts and hospitality to inducements in general (to align with the business members section). They also refer explicitly to considering whether there is intent to influence inappropriately.
Changes to s290 and s291 on independence in audit and assurance engagements
IESBA changes since 2009 have had the following impact on the provisions of s290 (and to an extent, s291) of the current code:
Breaches of the Code
The requirements in s290 and s291 in respect of audit and other assurance engagements now also require explicitly: a) consideration of whether the engagement needs to be terminated; and b) a discussion with those charged with governance.
Definition of those charged with governance
IESBA has changed this to align more closely with ISA 260. The extended definition recognises that those charged with governance (TCWG) may sometimes include organisations (eg a corporate trustee) and/or those with management responsibilities (eg owner managers). In addition, a new paragraph is inserted in section 100 noting that when communicating with TCWG, it may in some circumstances be acceptable to communicate with a subset of that group. There are also conforming changes to a paragraph in s291.
Definition of engagement team
IESBA has changed this to align with that used in ISAs. The definition now excludes individuals within the client’s internal audit function who provide direct assistance on an audit engagement, where this is permitted by ISA610. Note that such assistance is prohibited by the FRC versions of the ISAs in any event.
Clarification of management responsibilities and changes re accounting services when providing assurance work
Additional guidance and clarification is now provided in s290 and s291 relating to: management responsibilities, including demarcation of ‘administrative services’; and ‘routine and mechanical’, in the context of the provision of accounting services to entities to which audit and assurance services are also supplied.
Accounting and tax accounting services are currently not permitted in respect of audited public interest entities, except in ‘emergency situations’. This emergency exception will now be abolished, over concerns that it was misused.
Long association of audit personnel with audit clients
The IESBA changes tighten up on cooling-off rotation requirements for partners on PIE audits and what they can do during that period, with maximum on/ minimum off periods thus:
- Engagement partner - 7 years on/ 5 off
- Individual responsible for the engagement quality control review - 7 years on/ 3 off
- Other key audit partners - 7 years on/ 2 off
Note that the FRC ES is largely stricter than the new provisions.