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IESBA Proposed Changes to the Code of Ethics: Addressing the Objectivity of Engagement Quality Reviewers (Potential Amendments to Harmonized Rule of Professional Conduct, Rule 204) [Completed]

Effective date:

The enhanced guidance will become effective December 2022

Last up­dated:

January 2021

Overview

    Har­mo­nized provin­cial Rule 204 sets out the Cana­dian pro­fes­sion’s stan­dards that en­sure Char­tered Pro­fes­sional Ac­coun­tants (CPAs) main­tain au­di­tor in­de­pen­dence dur­ing en­gage­ments they un­der­take or par­tic­i­pate in. It sets the stan­dards and re­quire­ments CPAs must main­tain as part of their pro­fes­sional con­duct. Ethics stan­dards adopted by Cana­dian provin­cial bod­ies are cre­ated in align­ment with the Code of Ethics for Pro­fes­sional Ac­coun­tants is­sued by the In­ter­na­tional Ethics Stan­dards Board for Ac­coun­tants (IESBA).  Hence, changes to the IESBA Code of Ethics will need to be re­flected in Rule 204.

    In January 2020, the International Ethics Standards Board for Accountants (IESBA) released for public comment an Exposure Draft, Proposed Revision to the Code Addressing the Objectivity of Engagement Quality Reviewers. The proposed limited-scope revision to the International Code of Ethics for Professional Accountants (including International Independence Standards) (the Code) dovetails with the International Auditing and Assurance Standards Board’s (IAASB’s) development of proposed International Standard on Quality Management (ISQM) 2, Engagement Quality Reviews. 

    The Exposure Draft included proposed guidance on the application of the conceptual framework in the Code to address the topic of the objectivity of an engagement quality reviewer (EQR), thereby supporting proposed ISQM 2 in addressing the matter of the eligibility of an individual to serve in an EQR role.

    In January 2021, the IESBA released revisions to the International Code of Ethics for Professional Accountants (including International Independence Standards) addressing the objectivity of an engagement quality reviewer (EQR) and other appropriate reviewers.

    These revisions address the objectivity of an EQR and other appropriate reviewers. This project dovetailed with the International Auditing and Assurance Standards Board’s (IAASB’s) development of International Standard on Quality Management (ISQM) 2, Engagement Quality Reviews, which was finalized in December 2020.

    The revisions provide guidance that supports ISQM 2 in addressing the eligibility of an individual to serve in an EQR role, focusing on the critical attribute of objectivity. Among other matters, the guidance:

    • Elaborates on the need to identify, evaluate and address threats to compliance with the fundamental principle of objectivity that might arise in the appointment of an individual as an EQR for a given engagement;
    • Explicitly refers to and supports the requirement in ISQM 2 for a firm to establish, as a condition for eligibility, a cooling-off period of two years before an engagement partner can assume the EQR role on the same engagement; and
    • Emphasizes that this cooling-off requirement in ISQM 2 serves the dual objective of supporting compliance with the fundamental principle of objectivity and the  high quality of engagements.

    The guidance may also apply in situations where, as a safeguard to address identified threats to compliance with the fundamental ethics principles, an individual is appointed as an appropriate reviewer for work performed.

     

    Other developments

    January 2021

    On January 14, 2021, the IESBA released revisions to the International Code of Ethics for Professional Accountants (including International Independence Standards) addressing the objectivity of an engagement quality reviewer (EQR) and other appropriate reviewers.

    January 2020

    On January 30, 2020, the IESBA released for public comment an Exposure Draft, Proposed Revision to the Code Addressing the Objectivity of Engagement Quality Reviewers. Comments on the Exposure Draft are requested by March 16, 2020.

     

    Related Discussions

    September 2020

    At its meeting on September 14-21, 29 and October 1, 2020, the IESBA approved a new section to the Code providing guidance to firms on addressing the objectivity of an engagement quality reviewer based on the conceptual framework. The new section also notes that the guidance might apply in circumstances where a professional accountant appoints an appropriate reviewer, as described in the Code, to review work performed as a safeguard to address identified threats. This project was closely coordinated with the International Auditing and Assurance Standards Board (IAASB) in the context of its project to develop International Standard on Quality Management (ISQM) 2, Engagement Quality Reviews, which the IAASB also finalized at its September 2020 meeting. Subject to Public Interest Oversight Board (PIOB) approval, the final pronouncement is expected to be issued in early January 2021 and will be effective for audits of financial statements for periods beginning on or after December 15, 2022.

    June 2020

    At its meeting on June 8-12 and 15, 2020, the IESBA considered the significant comments raised by respondents to the January 2020 Exposure Draft and related Task Force responses, including a “first-read” draft of revised proposals. Among other matters, the IESBA (i) considered the need for a “cooling off” requirement with respect to an engagement partner being appointed to an EQR role on the same engagement, and whether that requirement should be located in the IAASB’s standard (proposed ISQM 2, Engagement Quality Reviews) or the Code; and (ii) the Task Force’s proposal to broaden the scope of the guidance to the concept of an “appropriate reviewer,” which is described in the Code. The IESBA will consider a revised draft of the proposed revisions to the Code with a view to finalizing them at the September 2020 IESBA meeting.

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