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IESBA Proposed Changes to the Code of Ethics: Definitions of Listed Entity and PIE (Potential Amendments to Harmonized Rule of Professional Conduct, Rule 204) [ED]

The comment period ends on May 3, 2021

Next steps:

The IESBA will undertake a full review of respondents’ comments and a revised draft of the proposed changes to the Code at its September 2021 meeting.

Last up­dated:

June 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.

At its meeting on December 3-6, 2019, the IESBA approved a project to review the definitions of the terms “listed entity” and “public interest entity” (PIE) in the Code, with the aim of revising them as necessary so that they remain relevant and fit for purpose.

The concept of a PIE overlaps with the concept of an “entity of significant public interest” (ESPI) in the standards of the International Auditing and Assurance Standards Board (IAASB) in some respects. Therefore, part of the project objectives is to develop a pathway that would achieve convergence between the two concepts to the greatest extent possible. The IESBA will coordinate this project closely with the IAASB.

On Jan­u­ary 29, 2021, the IESBA re­leased for pub­lic com­ment the Ex­po­sure Draft, "Pro­posed Re­vi­sions to the De­f­i­n­i­tions of Listed En­tity and Pub­lic In­ter­est En­tity in the Code".

The proposed revisions broaden the definition of a public interest entity (PIE) to include more categories of entities, given the level of public interest in their financial condition, for the purposes of additional independence requirements to enhance confidence in their audits.

Among other matters, the proposed revisions:

  • Introduce an overarching objective for additional requirements to enhance confidence in the audit of financial statements of PIEs.
  • Provide guidance on factors to consider when determining the level of public interest in an entity.
  • Broaden the definition of PIE to additional categories of entities.
  • Replace the term “listed entity” with the term “publicly traded entity” and redefine that PIE category.
  • Introduce new requirements for firms to determine if additional entities should be treated as PIEs for independence purposes and to publicly disclose if an audit client was treated as a PIE.
  • Recognize and encourage local regulators to refine PIE categories in regard to national conditions.

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

 

Recent de­vel­op­ments

June 2021

At its meetings on June 9-11, 14 & 25, 2021 the IESBA considered a high level overview of the key issues and comments raised by respondents to the January 2021 Exposure Draft, Proposed Revisions to the Definitions of Listed Entity and Public Interest Entity in the Code (PIE ED) and the Task Force’s preliminary views about how to address them. Among other matters, the IESBA considered respondents’ feedback on the overarching objective for PIE requirements in the Code; the approach to developing the PIE definition; the proposed replacement of the term “listed entity” with “publicly traded entity” in the Code; the proposed categories in the PIE definition; and the role of firms with respect to identifying additional entities as PIEs and public disclosure when an entity has been treated as such. The IESBA will undertake a full review of respondents’ comments and a revised draft of the proposed changes to the Code at its September 2021 meeting.

January 2021

On January 29, 2021, the IESBA released for public comment the Exposure Draft, "Proposed Revisions to the Definitions of Listed Entity and Public Interest Entity in the Code". Comments are requested by May 3, 2021.

December 2019

At its meeting on December 3-6, 2019, the IESBA approved this project to review the definitions of the terms “listed entity” and “public interest entity” (PIE) in the Code, with the aim of revising them as necessary so that they remain relevant and fit for purpose.

Related Discussions

Definitions of Listed Entity and Public Interest Entity (PIE) - IESBA

November 30, 2020

At its meeting on November 30 and December 4, 8 and 9, 2020, the IESBA approved for exposure proposed revisions to broaden the Code’s definition of “public interest entity” (PIE) and to revise the definition of “listed entity.” The proposals were developed in close coordination with the International Auditing and Assurance Standards Board (IAASB) within the established coordination framework of the two Boards.

September 14, 2020

At its meet­ing on September 14-21, 29 and October 1, 2020, the IESBA considered issues and comments raised by respondents to Question #4 of the Exposure Draft and a first read of the Task Force proposals, including revisions to the proposed list of high-level categories of PIEs and the Task Force’s reflections on other types of entities that could be included in the list. The IESBA also considered the timing of the PIE Exposure Draft and how to coordinate the effective date of the final PIE provisions with the effective date of the revisions to the NAS and Fees provisions. The IESBA will consider revised proposals from the Task Force at its December 2020 meeting with a view to approving an Exposure Draft.

June 8, 2020

At its meet­ing on June 8-12 and 15, 2020, the IESBA considered issues and revised Task Force proposals reflecting input from the IESBA’s March 2020 discussion as well as feedback from the CAG and NSS. Among other matters, the IESBA considered: (i) a revised overarching objective clarifying that there is public interest in the financial condition of certain entities that is relevant to those entities being classified as PIEs; (ii) possible terms that might replace the term “listed entity;” (iii) a draft list of PIE categories as well as other possible categories considered by the Task Force;  and (iv) the role of firms, including a proposal for a firm to include in its audit report whether the audit client has been treated as a PIE. The IESBA will continue its deliberations on the issues and consider revised Task Force proposals at its meeting in September 2020.

March 16, 2020

At its meeting on March 16-18, 2020, the IESBA considered issues and a strawman draft outlining the Task Force’s initial views and a possible approach to redefining the concept of a public interest entity (PIE) in the Code. Among other matters, the IESBA considered a proposed overarching objective for requiring more stringent independence requirements for certain entities; a proposed expanded list of categories of entities within the PIE umbrella, subject to further calibration by national regulators or other authorities; and a strengthened role for firms in evaluating whether entities should be treated as PIEs. The IESBA will continue to work closely with the IAASB to achieve a common revised definition of “listed entity” in both Boards’ standards and, as far as possible, convergence between the concepts of PIE in the Code and “entity of significant public interest” in the IAASB standards. At its June 2020 meeting, the IESBA will continue its deliberations on the issues and consider revised proposals from the Task Force.

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