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IESBA Changes to Certain Provisions of the Code of Ethics which Address the Long Association of Personnel with an Audit or Assurance Client (Amendments to Harmonized Rule of Professional Conduct, Rule 204) [Completed]

Effective date:

Sub­ject to the tran­si­tional pro­vi­sion*, the fi­nal long as­so­ci­a­tion pro­vi­sions in ex­tant Sec­tion 290, In­de­pen­dence – Au­dit and Re­view En­gage­ments, will be ef­fec­tive for au­dits of fi­nan­cial state­ments for pe­ri­ods be­gin­ning on or af­ter De­cem­ber 15, 2018. The fi­nal long as­so­ci­a­tion pro­vi­sions in ex­tant Sec­tion 291, In­de­pen­dence – Other As­sur­ance En­gage­ments, will be ef­fec­tive for periods beginning on or after December 15, 2018 in respect of assurance engagements covering periods of time; otherwise, they will be effective as of December 15, 2018. Early adop­tion is per­mit­ted.

[* - The re­vised ju­ris­dic­tional pro­vi­sion will have ef­fect only for au­dits of fi­nan­cial state­ments for pe­ri­ods be­gin­ning prior to De­cem­ber 15, 2023. This tran­si­tion is in­tended to fa­cil­i­tate an even­tual changeover to the cool­ing-off pe­riod of five years in those ju­ris­dic­tions that have es­tab­lished a cool­ing-off pe­riod of less than five years.]

Final Standard

The fi­nal pro­vi­sions, drafted un­der the ex­tant struc­ture and draft­ing con­ven­tions of the Code (the “close-off doc­u­ment”), are avail­able on the IESBA web­site.

Last up­dated:

December 2017

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.

On Au­gust 14, 2014, the IESBA is­sued for pub­lic com­ment an Ex­po­sure Draft of pro­posed changes to cer­tain pro­vi­sions of the Code of Ethics ad­dress­ing the long as­so­ci­a­tion of per­son­nel with an au­dit or as­sur­ance client. The pro­posed changes in­cluded: (i) strength­ened gen­eral pro­vi­sions ap­plic­a­ble to all au­dit en­gage­ments re­gard­ing the threats cre­ated by long as­so­ci­a­tion; (ii) with re­spect to part­ner ro­ta­tion, an in­crease in the manda­tory “cool­ing-off” pe­riod, from two to five years, for the en­gage­ment part­ner on the au­dit of a pub­lic in­ter­est en­tity; (iii) strength­ened re­stric­tions on the type of ac­tiv­i­ties that can be un­der­taken with re­spect to the au­dit client and au­dit en­gage­ment by any for­mer key au­dit part­ner dur­ing the cool­ing-off pe­riod; and (iv) a re­quire­ment to ob­tain the con­cur­rence of those charged with gov­er­nance re­gard­ing the ap­pli­ca­tion of cer­tain ex­cep­tions to the ro­ta­tion re­quire­ments. Sub­ject to com­ments re­ceived on the ED, the changes to the Code were planned to be ef­fec­tive for au­dits of fi­nan­cial state­ments for years be­gin­ning on or af­ter De­cem­ber 15, 2017.

Sub­se­quently, on Feb­ru­ary 4, 2016, the IESBA is­sued for pub­lic com­ment a Re-ex­po­sure Draft, Lim­ited Re-ex­po­sure of Pro­posed Changes to the Code Ad­dress­ing the Long As­so­ci­a­tion of Per­son­nel with an Au­dit Client (the Re-ED). The pro­pos­als be­ing re-ex­posed are: (i) 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; (ii) 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 (iii) 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 Re-ED are re­vised pro­vi­sions ad­dress­ing other long as­so­ci­a­tion pro­pos­als that the IESBA has now fi­nal­ized, in­clud­ing: (a) an in­crease in cool­ing-off pe­riod for EPs from two to five years on au­dits of all PIEs; and (b) ad­di­tional re­stric­tions on ac­tiv­i­ties that can be per­formed dur­ing the cool­ing-off pe­riod.

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

Other developments

May 2017

On May Feb­ru­ary 4, 2016, the IESBA staff issued a document, IESBA Staff Questions and Answers—Long Association, which is designed to highlight, illustrate, or explain aspects of the revised partner rotation regime in the extant Code, and thereby assist in their proper application.

February 2016

On February 4, 2016, the IESBA issued for public comment a Re-exposure Draft, Limited Re-exposure of Proposed Changes to the Code Addressing the Long Association of Personnel with an Audit Client (the Re-ED).

August 2014

On August 14, 2014, the IESBA issued for public comment an Exposure Draft of proposed changes to certain provisions of the Code of Ethics addressing the long association of personnel with an audit or assurance client.

 

Related discussions

Long Association – IESBA

Dec 4, 2017

At its meet­ing on December 4-8, 2017, the IESBA agreed to modify the effective date for the revised provisions relating to assurance engagements in extant Section 291. For assurance engagements covering periods of time, these provisions will be effective for periods beginning on or after December 15, 2018; otherwise, they will be effective as of December 15, 2018. The effective date for the revised Long Association provisions in extant Section 290 remains unchanged, i.e., these provisions are effective for audits of financial statements for periods beginning on or after December 15, 2018. The effective date of the restructured Code does not override the effective date of the revised Long Association provisions.

Long Association – IESBA

Sept 19, 2017

  • At its meeting on September 19-22, 2017, in light of the comments received from respondents on Structure ED-2 and Safeguards ED-2, the IESBA considered revisions to the proposed restructured text relating to its Long Association close-off document. The IESBA was generally supportive of the Task Force’s proposals, subject to any further structure- or safeguard-related refinements. At its December 2017 meeting, the IESBA will consider a final draft of the restructured text, with a view to approval for inclusion in the restructured Code.

Long Association – IESBA

March 13, 2017

  • At its meeting on March 13-15, 2017, the IESBA considered a revised draft of the Q&A publication that it has commissioned its staff to develop to facilitate implementation of the revised long association provisions it finalized in December 2016. The IESBA provided suggestions for further refinement to the publication. The IESBA asked that its staff consider its feedback and finalize the publication for issuance in April 2017.

Long Association – IESBA

Dec 12, 2016

  • At its meeting on December 12-15, 2016, the IESBA approved changes to the revised long association provisions it had agreed at its September 2016 meeting in response to comments from the Public Interest Oversight Board (PIOB). The changes are: (i) The replacement of the “jurisdictional provision” (permitting a reduction in the cooling-off period for engagement partners (EPs) on audits of public interest entities (PIEs) where jurisdictions have established alternative requirements to address threats created by long association) with a revised formulation that retains the main objective of the original provision, i.e., where a jurisdiction has established a cooling-off period for an EP of less than five years, the higher of that period or three years may be substituted for the cooling-off period of five years provided that the applicable time-on period does not exceed seven years; and (ii) The withdrawal of the exception permitting, under certain strict conditions, an EP or an engagement quality control reviewer who has rotated off a PIE audit engagement to provide consultation to the engagement team on a technical or industry-specific issue after two years have elapsed during the cooling-off period.

Long Association – IESBA

Sep 26, 2016

  • At its meeting on September 26-30, 2016, the IESBA considered: (i) final changes to the provisions addressing long association of personnel with an audit or assurance client with a view to closing off the provisions under the extant structure and drafting conventions; (ii) a revised draft of the IESBA Staff Questions & Answers (Q&A) publication to be issued with the release of the final revised and restructured long association provisions; and (iii) a revised draft of the restructured long association provisions based on the extant text presented at this meeting.

Long Association – IESBA

Jun 27, 2016

  • At its meeting on June 27-29, 2016, the IESBA considered significant comments received on its February 2016 Re-ED. The IESBA supported the Task Force’s proposals regarding the three remaining issues that were subject to exposure, namely (i) to set the  duration of the cooling-off period for the EQCR on the audit of all PIEs, including listed entities, at 3 years; (ii) to allow a reduction in the cooling-off period for engagement partners (EPs) and EQCRs on PIE audits where jurisdictions have established alternative requirements to address threats created by long association; and (iii) revised proposals as to how long an individual should cool off from a PIE audit after having served in a combination of EP, EQCR or other key audit partner roles.

Long Association - IESBA

Mar 14, 2016

  • At its meeting on March 14-16, 2016, the IESBA, with a view to making timely progress on the restructuring of the Code, considered a preliminary draft of the restructured text of the February 2016 Re-ED. The IESBA broadly supported the direction of the restructuring and provided structural and drafting feedback to the Long Association Task Force for further consideration, including how certain exceptions to requirements should be drafted.

Correction list for hyphenation

These words serve as exceptions. Once entered, they are only hyphenated at the specified hyphenation points. Each word should be on a separate line.