The International Ethics Standards Board for Accountants (IESBA or Board) held hybrid in-person/virtual meetings in November/December 2022. A brief summary of the Board’s key standard-setting decisions and the applicable impact (or potential impact) on the International Code Ethics for Professional Accountants (including International Independence Standards) (the Code) follows:
Technology
The IESBA unanimously approved the proposed technology-related revisions to the Code. The revisions are subject to final approval by the Public Interest Oversight Board (PIOB); the final pronouncement is expected to be released in April 2023. The revisions, some ethics and some independence-related, will be effective as of December 15, 2024 (ethics) and for audits of financial statements for periods beginning on or after December 15, 2024 (independence). Early adoption will be permitted.
The revised provisions guide the ethical conduct of professional accountants (PAs) working and providing professional services in an environment that is constantly evolving due to technology.
For example, the revisions address the following ethics provisions in Parts 1 and 2 of the Code:
• Professional competence and confidentiality
• Threats to compliance with the Code when using the output of technology (e.g., self-interest or self-review)
The Board revised Part 4A of the Code, Independence for Audit and Review Engagements, to address:
• business relationships with audit clients
• the general application of nonassurance services (NAS) independence provisions when a firm provides, sells, resells, or licenses technology to audit clients or to an entity that provides services using technology to audit clients of the firm or a network firm
• factors to consider when determining whether automated bookkeeping services are routine and mechanical under the NAS independence provisions
• information technology design, development, implementation, and post-implementation services
• data hosting services
The Board also revised Part 4B of the Code, the independence requirements for other assurance engagements (besides financial statement audits and reviews), which includes, for example, assurance engagements on non-financial information, e.g., environmental, social, and governance (ESG) disclosures.
Engagement Team–Group Audits Independence
The IESBA unanimously approved proposed revisions to the Code relating to the definition of engagement team and group audits. Subject to PIOB approval, the final pronouncement is expected to be released by Q1 2023. Coordinated with the effective date of International Standard on Auditing (ISA) 600 (Revised), the pronouncement will be effective for audits of financial statements for periods beginning on or after December 15, 2023. Early adoption is permitted.
The ISAs establish the requirements that a firm performing a group audit engagement and all those involved in the engagement, which may include individuals and component audit firms both within and outside the group audit firm’s network. All such participants are required to comply with relevant ethical requirements, including those related to independence. The change in the definition of engagement team in ISA 220 (Revised) necessitated clarification of the independence requirements for individuals involved in a group audit from outside the group audit firm’s network. The IESBA believes all are members of the engagement team but agreed to a proportionate approach to independence that requires a component audit firm outside the group audit firm’s network to be independent of the component audit client, and to prohibit certain financial interests, loans and guarantees with respect to the entity on whose group financial statements the group audit firm expresses an opinion. If threats arise with respect to other entities in the group, the conceptual framework applies.
Among other things, the revisions establish new defined terms, revise several existing terms, clarify the independence requirements that apply to individuals and firms involved in a group audit, and establish a more explicit process for addressing an independence breach by a component audit firm.
Tax Planning
The IESBA unanimously approved for exposure two new proposed sections to the Code addressing tax planning and related services. Section 280 would apply to PAs in business and Section 380 to PAs in public practice. The proposal establishes an ethical framework to guide PAs’ judgments and decisions when advising employers and clients on tax planning and related services. Key aspects of the proposal include:
• the PA’s role to act in the public interest,
• principle of determining whether a “credible basis” exists for recommending a particular tax treatment,
• use of a “stand-back” test by considering the reputational, commercial, and wider economic consequences that could arise from the way stakeholders might view the tax arrangement,
• guidance on areas of uncertainty that might exist, and
• specific communication requirements that would apply when there is a disagreement with the responsible parties in the employer organization or client about a proposed tax planning arrangement.
The Exposure Draft (ED) is expected to be released by the end of January 2023 with a public comment period of 90 days.
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