Presentation given by Yacoob Suttar, chair, Institute of Chartered Accountants of Pakistan (ICAP)'s Professional Accountants in Business Committee during ICAP's CFO Conference 2013, CFO: Meeting Future Challenges!

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.

#  #  #

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.

# # #

This final pronouncement reflects the IESBA's amendment to the Code to establish more specific requirements and provide more comprehensive guidance to support professional accountants in identifying, evaluating, and managing conflicts of interest. The revisions affect professional accountants both in public practice and in business, taking into account the different circumstances in which they work. 

This Basis for Conclusions has been prepared by staff of the IESBA. It relates to, but does not form part of, the changes to the Code of Ethics for Professional Accountants (the Code) addressing conflicts of interest.

This Basis for Conclusions has been prepared by staff of the IESBA. It relates to, but does not form part of, the changes to the Code of Ethics for Professional Accountants (the Code) related to provisions addressing a breach of a requirement of the Code.

This Basis for Conclusions has been prepared by staff of the IESBA. It relates to, but does not form part of, the change to the definition of “engagement team” in the Code of Ethics for Professional Accountants (the Code).

In addition to the changes included in ISA 610 (Revised), ISA 610 (Revised 2013) now also includes requirements and guidance addressing the external 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, where such assistance is not prohibited by law or regulation. 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.

This final pronouncement reflects amendments to the IESBA's definition of “engagement team” in the Code of Ethics for Professional Accountants (the Code). The amendments clarify the relationship between an external auditor’s use of internal auditors to provide direct assistance on the external audit in accordance with the International Auditing and Assurance Standards Board (IAASB)’s International Standard on Auditing (ISA) 610 (Revised 2013), Using the Work of Internal Auditors, and the meaning of an engagement team under the Code.