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IESBA Changes to Certain Provisions of the Code of Ethics which Address Safeguards including their Applicability Pertaining to Non-Assurance Services (Amendments to Harmonized Rule of Professional Conduct, Rule 204) [Completed]

Effective date:

Parts 1, 2 and 3 of the restructured Code of Conduct will be effective as of June 15, 2019; Part 4A relating to independence for audit and review engagements will be effective for audits and reviews of financial statements for periods beginning on or after June 15, 2019; and Part 4B relating to independence for assurance engagements with respect to subject matter covering periods of time will be effective for periods beginning on or after June 15, 2019; otherwise, it will be effective as of June 15, 2019

Last up­dated:

April 2018

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.

At its meeting on December 4-8, 2017, the IESBA approved its revisions to the provisions in the Code of Ethics pertaining to safeguards as developed under this Safeguards project.

On April 9, 2018, the IESBA issued its restructured Code of Conduct [renamed the International Code of Ethics for Professional Accountants (including International Independence Standards)], which in­cludes the re­vi­sions relating to this project. Review the press release, the new Code and the related resource page on the IESBA's website.

Previously, the IESBA had re­ceived feed­back from reg­u­la­tors with re­gard to the clar­ity, ap­pro­pri­ate­ness and the ef­fec­tive­ness of safe­guards within the Code. Con­cerns had also been ex­pressed that some safe­guards may not be com­men­su­rate with the po­ten­tial threats to in­de­pen­dence that the Code seeks to mit­i­gate. In ad­di­tion, the IESBA had iden­ti­fied a po­ten­tial need for greater clar­ity re­gard­ing the mean­ing of a safe­guard in the Code.

The pro­ject was in­tended to eval­u­ate and make rec­om­men­da­tions on the clar­ity, ap­pro­pri­ate­ness and ef­fec­tive­ness of the cur­rent overview of safe­guards in Sec­tions 100 and 200 of the Code and those safe­guards that per­tain to Non-As­sur­ance Ser­vices in Sec­tion 290 of the Code. It in­volved two phases, Phase 1 and Phase 2.

On De­cem­ber 21, 2015, the IESBA is­sued an Ex­po­sure Draft, Pro­posed Re­vi­sions Per­tain­ing to Safe­guards in the Code—Phase 1, re­lat­ing to re­vised pro­vi­sions in ex­tant Sec­tion 100, In­tro­duc­tion and Fun­da­men­tal Prin­ci­ples and ex­tant Sec­tion 200, In­tro­duc­tion (Part B – Pro­fes­sional Ac­coun­tants in Pub­lic Prac­tice) of the Code as they re­late to safe­guards. Among other mat­ters, the pro­posed re­vi­sions in the Phase 1 Ex­po­sure Draft: (i) place strength­ened em­pha­sis on the re­quire­ments in the Code for pro­fes­sional ac­coun­tants to com­ply with the fun­da­men­tal prin­ci­ples and ap­ply the con­cep­tual frame­work; (ii) pro­vide an en­hanced de­scrip­tion of, and fur­ther ap­pli­ca­tion ma­te­r­ial on, the “rea­son­able and in­formed third party” test; (iii) clar­ify what con­sti­tutes a safe­guard; (iv) in­clude en­hanced ap­pli­ca­tion ma­te­r­ial that in­ter alia clar­i­fies and sim­pli­fies the ex­am­ples of safe­guards in the ex­tant Code; and (v) in­clude a re­quire­ment for an over­all as­sess­ment of judg­ments made and con­clu­sions reached when ap­ply­ing the con­cep­tual frame­work.

Phase 2 per­tains to the in­de­pen­dence pro­vi­sions re­lated to non-as­sur­ance ser­vices (NAS).

On Jan­u­ary 24, 2017, the IESBA is­sued an Ex­po­sure Draft, Pro­posed Re­vi­sions Per­tain­ing to Safe­guards in the Code—Phase 2 and Re­lated Con­form­ing Amend­ments. The pro­pos­als ad­dress safe­guards-re­lated pro­vi­sions in the in­de­pen­dence sec­tions of the Code of Ethics for Pro­fes­sional Ac­coun­tants per­tain­ing to non-as­sur­ance ser­vices pro­vided to au­dit and other as­sur­ance clients. The doc­u­ment also ex­plains the ra­tio­nale for the re­vi­sions to the non-as­sur­ance ser­vices sec­tion of the ex­tant Code (Pro­posed Sec­tion 600, Pro­vi­sion of Non-as­sur­ance Ser­vices to an Au­dit Client and Sec­tion 950, Pro­vi­sion of Non-as­sur­ance Ser­vices to an As­sur­ance Client).

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

Other de­vel­op­ments

April 2018

On April 9, 2018, the IESBA issued its restructured Code of Conduct (renamed the International Code of Ethics for Professional Accountants (including International Independence Standards)), which includes the revisions relating to this project.

January 2017

On January 24, 2017, the IESBA issued an Exposure Draft, Proposed Revisions Pertaining to Safeguards in the Code—Phase 2 and Related Conforming Amendments. The proposals address safeguards-related provisions in the independence sections of the Code of Ethics for Professional Accountants pertaining to non-assurance services provided to audit and other assurance clients. Comments are due by April 25, 2017.

January 2017

On January 24, 2017, the IESBA posted to its website the Agreed in Principle version of the Revisions to the IESBA Code in respect of Phase 1 of the Safeguards Project.

December 2015

On December 21, 2015, the IESBA issued an Exposure Draft, Proposed Revisions Pertaining to Safeguards in the Code—Phase 1, relating to revised provisions in extant Section 100, Introduction and Fundamental Principles and extant Section 200, Introduction (Part B – Professional Accountants in Public Practice) of the Code as they relate to safeguards. Comments are due by March 21, 2016.

Related Discussions

Safe­guards Project – IESBA

Dec 4, 2017

  • At its meeting on December 4-8, 2017, the IESBA approved its revisions to the provisions in the Code of Ethics pertaining to safeguards as developed under this Safeguards project, Subject to the Public Interest Oversight Board (PIOB) approval, the restructured Code, which includes these revisions, is expected to be released by early April 2018.

Safe­guards Project – IESBA

Sept 19, 2017

  • At its meeting on September 19-22, 2017, the IESBA further deliberated significant comments received on Safeguards ED-2, and related Task Force responses. The IESBA also was briefed on the outcome of the Task Force’s July 2017 teleconferences with representatives of regulatory stakeholders who responded to Safeguards ED-2, and the IFAC Small and Medium Practices (SMP) Committee. As part of its deliberations, the IESBA considered a first draft of revisions to proposed Section 600, Provision of Non-assurance Services to an Audit Client, and conforming and consistency changes to safeguards-related provisions in other sections of the proposed restructured Code. Among other matters, the IESBA discussed the adequacy and appropriateness of the provisions for evaluating and addressing advocacy threats; and whether additional guidance is needed in the Code to explain (a) the meaning of the term “appropriate professional” used in examples of actions that might be safeguards; and (b) how professional accountants and firms should determine whether an action is effective in reducing a threat to an acceptable level, and therefore qualify as a safeguard. The IESBA broadly supported the direction of the Task Force’s proposals. At its December 2017 meeting, the IESBA will consider a final draft of the safeguards provisions and related conforming amendments, with a view to approving them for inclusion in the restructured Code.

Safe­guards Project – IESBA

Jun 19, 2017

  • At its meet­ing on June 19-21, 2017, the IESBA considered significant comments received on the Exposure Draft of Phase 2 of its Safeguards project, Topics discussed included: the permissibility of specific non-assurance services (NAS); extension of the prohibition of certain recruiting services to all entities; and the appropriateness of safeguards included in the Code. The IESBA also considered feedback received from some respondents on certain matters it had agreed in principle in Phase 1, including the descriptions of the concepts of a “reasonable and informed third party” and “acceptable level,” and use of the term “significance” in relation to identifying, evaluating, and addressing threats. The IESBA will consider a first-read draft of the revised Phase 2 text at its September 2017 meeting.

Safe­guards Project – IESBA

Dec 12, 2016

  • At its meet­ing on De­cem­ber 12-15, 2016, the IESBA approved for exposure Phase 2 of its Safeguards project, which includes proposed revisions to the non-assurance services sections of the extant Code (i.e., proposed restructured Section 600, Provision of Non-assurance Services to an Audit Client and restructured Section 950, Provision of Non-assurance Services to an Assurance Client). The IESBA also approved proposed conforming amendments to other areas of the Code arising from the Safeguards project.

Safe­guards Project – IESBA

Dec 12, 2016

  • At its meeting on December 12-15, 2016, the IESBA agreed in principle the text of Phase 1 of its Safeguards project, comprising revisions to the provisions in the extant Code relating to the conceptual framework (restructured Section 120) and the application of the conceptual framework to professional accountants in public practice (PAPPs) (restructured Section 300). Key features of the agreed-in-principle text include an enhanced conceptual framework that requires professional accountants to identify, evaluate and address threats to compliance with the fundamental principles, a new definition of the term “safeguards,” and a more robust description of the reasonable and informed third party. The Phase 1 text has been drafted under the new structure and drafting conventions of the Code. Subject to any matters of consistency arising from the exposure of the text of Phase 2 of the project, the IESBA anticipates approving the Phase 1 text with the final Phase 2 text by the end of 2017.

Safe­guards Project – IESBA

Sep 26, 2016

  • At its meeting on September 26-30, 2016, with respect to Phase 1, the IESBA considered a revised draft of Safeguards ED-1 with a view to closing off significant deliberations on key issues. The IESBA also considered safeguards-related conforming amendments to other areas of the Code, including Part C, Long Association, and NOCLAR. With respect to Phase 2, the IESBA considered a revised draft of proposed changes to the Code pertaining to NAS.

Safe­guards Project – IESBA

Jun 27, 2016

  • At its meeting on June 27-29, 2016, the IESBA considered significant comments received on its Phase 1 Exposure Draft (Safeguards ED-1) and related Task Force proposals. The IESBA broadly supported the direction of the Task Force’s proposed revisions to Safeguards ED-1 in the light of the feedback from respondents. Topics on which the IESBA provided input for purposes of refining the revised text of Safeguards ED-1 included: the description of the conceptual framework, in particular, the requirements for professional accountants to re-evaluate new information or changes in facts and circumstances, and to form overall conclusions about whether threats are addressed; the description of the reasonable and informed third party test; and how best to emphasize in the Code that there are situations when there can be no safeguards to eliminate threats or reduce them to an acceptable level.

Safe­guards Project – IESBA

Mar 14, 2016

  • At its meeting on March 14-16, 2016, the IESBA considered issues and Task Force proposals for the second phase of the Safeguards project focusing on safeguards pertaining to the independence provisions related to non-assurance services (NAS). With respect to independence, the IESBA discussed how the Code should address: (i) the linkage between independence and the fundamental principles; (ii) requirements and application material with respect to identifying, evaluating and addressing threats to independence; (iii) communication with TCWG about independence matters; and (iv) documentation of conclusions about compliance with independence requirements. With respect to NAS, topics discussed included: principles for identifying, evaluating and addressing threats created from providing a NAS to an audit client; materiality; examples of safeguards relating to the provision of NAS; and whether, how and when a firm should interact with TCWG regarding the provision of NAS to an audit client.

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