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.