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IESBA Proposed Changes to the Code of Ethics: Fee-related Provisions in Part 2, Part 3 and Part 4A of the Code (Potential Amendments to Harmonized Rule of Professional Conduct, Rule 204) [Completed]

Effective date:

The re­vi­sions to the fee-re­lated pro­vi­sions of the Code were re­leased on April 28, 2021 and will be ef­fec­tive for au­dits of fi­nan­cial state­ments for pe­ri­ods be­gin­ning on or af­ter De­cem­ber 15, 2022.

Last up­dated:

September 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.

    This project was approved by the IESBA at its meeting in September 2018, pursuant to the June 2018 final report of the Fees Working Group.

    The objective of the project is to review the provisions in the Code pertaining to fee-related matters within the project scope, and recommend any changes considered necessary for the Code to remain robust and appropriate in enabling professional accountants to meet their responsibility to comply with the fundamental principles and, where applicable, be independent.

    The scope of the project encompasses (a) provisions in Part 3 of the Code relating to the level of fees for individual audit engagements, and in Part 2 relating to the role of professional accountants in business in approving audit fees; (b) provisions in Part 4A of the Code with respect to fee dependency at the firm, office and engagement partner level in relation to all audit clients; and (c) a review of safeguards in the Code pertaining to the areas addressed in (a) and (b) above. Fee-related matters that overlap with non-assurance services (NAS), in particular the ratio of NAS to audit fees, will be dealt with as part of the NAS project.

    On January 21, 2020, the IESBA released its Exposure Draft, "Proposed Revisions to the Fee-Related Provisions of the Code". The ED’s proposals are aimed at strengthening the fee-related independence provisions of the IESBA Code of Ethics. Among the key proposed changes to the fee-related provisions are: (i) a prohibition on firms allowing the audit fee to be influenced by the provision of services other than audit to the audit client; (ii) in the case of PIEs, a requirement to cease to act as auditor if fee dependency on the audit client continues beyond a specified period; and (iii) communication of fee-related information to TCWG and to the public to assist their judgments about auditor independence. The ED also includes enhanced guidance on identifying, evaluating and addressing threats to independence in relation to other fee-related matters, including the proportion of fees for services other than audit to the audit fee. Comments are requested by May 4, 2020.

    At its meeting on November 30 and December 4, 8 and 9, 2020, the IESBA approved the revisions to the fee-related provisions of the Code. Subject to PIOB approval, the final Fees pronouncement is expected to be released by late April 2021 and will be effective for audits of financial statements for periods beginning on or after December 15, 2022.

    On April 28, 2021, the IESBA released revisions to the Non-Assurance Services (NAS) and fee-related provisions of the "International Code of Ethics for Professional Accountants (including International Independence Standards) (the Code)".

    For fur­ther de­tails about the pro­ject, re­fer to the IESBA’s pro­ject sum­mary.

     

    Other developments

    April 2021

    On April 28, 2021, the IESBA released revisions to the Non-Assurance Services (NAS) and fee-related provisions of the "International Code of Ethics for Professional Accountants (including International Independence Standards) (the Code)".

    April 2020

    On April 7, 2020, the IESBA announced that it is extending by one month the comment period on the Exposure Drafts (EDs). The new comment deadline is June 4, 2020. Stakeholders who are able to submit their feedback by May 4, 2020, the original comment deadline, are encouraged to do so. 

    January 2020

    On January 21, 2020, the IESBA released its Exposure Draft, "Proposed Revisions to the Fee-Related Provisions of the Code". Comments are requested by May 4, 2020.

    September 2018

    At its meeting on September 17-20, 2018, the IESBA approved the proposal for this project.

     

    Re­lated dis­cus­sions

    Fee-related Provisions in the Code - IESBA

    September 2021

    • At its meetings on September 13-17 & 27, 2021, the IESBA received an update from the Non-Assurance Services (NAS) and Fees Rollout Working Group and the senior staff of IFAC Communications on Q3 activities to promote awareness, adoption and implementation of the revised NAS and fee-related provisions following the release of the final pronouncements in April 2021. In particular, the IESBA was briefed on the two global webinars held in June, and the status of two sets of IESBA Staff-prepared FAQs which are expected to be finalized and released in Q4 2021. The IESBA was also briefed on other NAS and Fees regional and national webinars and other outreach events held in Q3 2021, as well as those being planned for Q4 2021 and beyond.

    March 15, 2021

    • At its meetings on 15-17, 23 & 31, 2021 the IESBA received its first briefing from the Non-Assurance Services (NAS) & Fees Rollout Working Group on proposed rollout initiatives to promote awareness and support the global adoption and implementation of the revisions to the NAS and fee-related provisions of the Code. Subject to the Public Interest Oversight Board’s (PIOB’s) approval, the final pronouncements will be released by the end of April 2021 and will be effective for audits of financial statements for periods beginning on or after December 15, 2022. The IESBA noted the Working Group’s plan to coordinate its rollout activities with IFAC and to develop tools and other resources as part of the rollout. The IESBA was also briefed on the Working Group’s proposal to transition its activities to IFAC once the pronouncements come into effect in December 2022. The IESBA will receive an update from the Working Group in June 2021.

    Fee-related Provisions in the Code - IESBA

    Nov 30, 2020

    • At its meeting on November 30 and December 4, 8 and 9, 2020, the IESBA approved the revisions to the fee-related provisions of the Code. Subject to PIOB approval, the final Fees pronouncement is expected to be released by late April 2021 and will be effective for audits of financial statements for periods beginning on or after December 15, 2022.

    September 30,  2020

    • At its meeting on September 14-21, 29 and October 1, 2020, the IESBA considered a full analysis of the significant comments received from respondents to the Exposure Draft, Proposed Revisions to the Fee-related Provisions of the Code, and a first read of the Task Force’s revisions to the ED text in response to the main issues raised by respondents. Among other matters, the IESBA considered the Task Force’s proposed revisions to the ED text and other proposals on the topics of: the audit fee as a standalone fee not to be influenced by the provision of other services to the audit client; fee dependency on audit clients that are not public interest entities (non-PIEs); transparency of fee-related information to those charged with governance and to the public; how to address private equity and other investment company complexes in relation to the transparency requirements; and a more flexible approach for the firm to achieve public transparency if fee-related information is not disclosed by a PIE audit client. The IESBA will consider a revised draft of the provisions with a view to approving the final pronouncement at its December 2020 meeting.

    Fee-related Provisions in the Code - IESBA

    December 3, 2019

    • At its meeting on December 3-6, 2019, the IESBA approved an Exposure Draft of proposed revisions to the fee-related provisions in the Code. The Exposure Draft will be released on January 21, 2020 and will be open for public comment until May 4, 2020.

    September 2019

    • At its meeting on September 16-19, 2019, the IESBA reviewed a second draft of the proposed revisions to the Code with the project task force. Generally, the Board was supportive of the changes made to the material by the task force since the June 2019 meeting. As a result of the discussions at this meeting, the task force will now give more explicit reference to the Conceptual Framework in presenting the material, as well as considering what changes should be made to the text to more fully address the fact that fees can create an important self interest threat, because they are negotiated between the client and the service provider. The task force intends to update the text of the proposed revisions prior to the December 2019 meeting of the IESBA with a view to having the Board approve an Exposure Draft at that meeting which would be issued for comment in early 2020.

    June 17, 2019

    • At its meeting on June 17-19, 2019, the IESBA considered a first-read draft of the proposed changes to the fee-related provisions in the International Independence Standards, Section 410, Fees as well as some of the related conforming amendments to other sections. Among other matters, the IESBA deliberated: (i) how to emphasize that independence might be impacted by the level of fees charged or quoted to an audit client, including the level of audit fees and fees for services other than audit, as well as the ratio of such fees; (ii) whether the Code should include provisions to address threats to independence created by the fees charged or quoted by a firm for the provision of services other than audit to an audit client; (iii) for audit clients that are public interest entities (PIEs), whether the Code should require firms to communicate information about the level of audit fees and fees for services other than audit to: (a) those charged with governance (TCWG) and (b) the public to enhance transparency, and if so, how this might best be achieved; and (iv) how the fee dependency provisions in the Code might be strengthened for audit clients that are PIEs, including through requiring public disclosure about fee dependency and withdrawal from the audit engagement in specific circumstances. The IESBA will undertake a second read of the proposed changes to the Code at its September 2019 meeting with a view to approving an Exposure Draft by December 2019.

    March 11, 2019

    • At its meeting on March 11-13, 2019, the IESBA considered the Fees Task Force’s initial views about possible revisions to the fee-related provisions in the Code, in particular Section 410, Fees in the International Independence Standards. Among other matters, the Board deliberated and provided directional input about whether the Code should: (i) be strengthened with respect to firms’ and engagement partners’ responsibilities regarding the level of fees quoted for audit engagements; (ii) address the responsibilities of professional accountants in business when they are involved in setting audit fees, particularly having regard to the provisions in the Code dealing with pressure to breach the fundamental principles; (iii) include new provisions to enhance transparency about the level of audit fees, including auditor communication with TCWG and public disclosure, and if so, under what circumstances and how; (iv) be strengthened with respect to the issue of fee dependency at the firm level, including through considering whether the existing safeguards in the Code addressing this issue continue to be appropriate, and whether there should be enhanced transparency about fee dependency matters to (i) TCWG; and (ii) the public, and, if so, under what circumstances and how. The IESBA will progress its deliberations and consider a first-read draft of the proposed changes to the Code at its June 2019 meeting.

    December 2018

    • At its meeting on December 3-5, 2018, the IESBA received a brief update on the activities of the Fees Task Force since approving the project proposal at its September 2018 meeting, including the planned approach to and timeline for the project. The IESBA will consider issues and Task Force proposals, including possible revisions to the fee-related provisions in the Code, at its March 2019 meeting. 

     

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