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IESBA Nears Finalization of Revised Long Association Provisions in Ethics Code; Re-Proposes Enhancements to Address Limited Set of Remaining Issues

  • IESBA (International Ethics Standards Board for Accountants) (lt gray) Image

Feb 04, 2016

On February 4, 2016, the International Ethics Standards Board for Accountants (IESBA) released for public comment the Exposure Draft, Limited Re-exposure of Proposed Changes to the Code Addressing the Long Association of Personnel with an Audit Client (the ED). The ED relates to the IESBA’s project to develop more robust and comprehensive provisions dealing with the long association of personnel with an audit or assurance client. It contains a basis for conclusions regarding proposals that have been finalized, as well as the limited re-exposure of three remaining issues.

The proposals being re-exposed are:

  • An increase from two to five years in the cooling-off period for the engagement quality control reviewer (EQCR) on the audit of a listed entity, and to three years on the audit of a public interest entity (PIE) other than a listed entity;
  • An alternative approach to the cooling-off requirements for PIE audits in the Code of Ethics for Professional Accountants (the Code) where jurisdictions have established different but robust legislative or regulatory safeguards to address the threats to auditor independence created by long association; and
  • A revised approach to determining how long an individual should cool off after having served either as an engagement partner (EP) or as an EQCR, or in a combination of roles, for only part of the seven-year period they have served as a Key Audit Partner.

Included in the ED are revised provisions addressing other long association proposals that the IESBA has now finalized, including:

  • An increase in cooling-off period for EPs from two to five years on audits of all PIEs; and
  • Additional restrictions on activities that can be performed during the cooling-off period.

Editor's notes

The original changes proposed in the IESBA exposure draft that are now finalized would include an increase in the mandatory “cooling-off” period from two to five years for the audit engagement partner of a public interest entity and clearly define the type of activities that partners can undertake with audit clients during the cooling-off period. These changes have a minimal impact in Canada as the cooling off aligns with our rules. Although some additional restrictions during the cooling off period resulted, this would not greatly impact Canadian public companies and their auditors.

There is now a re-exposure to consider key items, including an increase in the cooling-off period for the engagement quality control reviewer (“EQCR”) - from two to five years for a listed entity and from two to three for a public interest entity; and combination roles and respective cooling off periods for the audit engagement partner and the EQCR.  The EQCR changes would have minimal impact as our Canadian rules already require a five year cooling off period. For partners moving between audit engagement partner/EQCR roles and other key audit partner roles during their seven years, the new proposed rules could have an impact as they are not currently defined in our Canadian rules.

Comments on the Long Association ED are requested by May 9, 2016.

To assist stakeholders in better understanding the re-exposed proposals, the ED includes a set of proposed IESBA Staff Questions and Answers, which will be issued with the final provisions to facilitate implementation.

Download the Exposure Draft on the IESBA's Web site.

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