Changes to ICAEW Code of Ethics

IESBA’s changes since the last ICAEW update replace the exisiting sections of the current code completely. The pre-2020 ICAEW code includes some additional wording which partly overlaps with the new IESBA material and will be deleted in the 2020 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 pre-2020 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 pre-2020 ICAEW code includes that as additional wording); and
• additional discussion of, eg, conflict identification processes, safeguards (partly picking up pre-2020 ICAEW additional wording), types of disclosure and consent (again, partly picking up pre-2020 ICAEW additional wording), and when work can be taken on without disclosure and consent.

IESBA’s changes since the last ICAEW revision 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 having been implicit within the pre-2020 code.

Section 100 of the pre-2020 code 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 the last ICAEW revision, this requirement is being 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 what is now part 4 of the revised 2020 code.

IESBA changes replace the existing sections of the pre-2020 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.

IESBA changes since the last ICAEW revision have had the following impact on the independence provisions of what in the 2020 ICAEW code is part 4A (and to an extent, part 4B) of the code:

Breaches of the Code

The requirements 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 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 part 4B.

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 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 were not permitted in respect of audited public interest entities, except in ‘emergency situations’. This emergency exception is now abolished (as it already is in the FRC Ethical Standard), 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.