IESBA Proposed Changes to the Code of Ethics: Revisions to address Engagement Team –Group Audits Independence (Potential Amendments to Harmonized Rule of Professional Conduct, Rule 204) [ED]

The comment period ends on May 31, 2022

Next steps:

The IESBA will review the feedback on its Exposure Draft in Q3/2022

Last updated:

February 2022

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.

The pro­ject proposal  for this project was ap­proved by the IESBA at its meet­ing in March 2020.

The objectives of the project are two-fold:
(a) To align the definition of the term “engagement team” in the Code with the revised definition of the same term in proposed ISA 220 (Revised) while ensuring that the independence requirements in the International Independence Standards (IIS) are clear and appropriate and apply only to those individuals within the scope of the revised definition who must be independent in the context of the particular audit engagement; and
(b) To revise the IIS so that they are robust, comprehensive and clear when applied in a group audit context, including with respect to independence for non-network component auditors.

The project is focused on audits of financial statements and auditor independence (Part 4A of the Code). The implications for Part 4B of the Code (other assurance engagements) will be taken into account and addressed as necessary.

On February 28, 2022, the IESBA released for public comment the Exposure Draft "Proposed Revisions to the Code Relating to the Definition of Engagement Team and Group Audits".

The proposed revisions establish provisions that comprehensively address independence considerations for firms and individuals involved in an engagement to perform an audit of group financial statements. The proposals also address the independence implications of the change in the definition of an engagement team―a concept central to an audit of financial statements―in the IAASB’s International Standard on Auditing (ISA) 220, Quality Management for an Audit of Financial Statements.

Among other matters, the proposals:

  • establish new defined terms and revise a number of existing terms, including for application with respect to independence in a group audit context.
  • clarify and enhance the independence principles that apply to: (i) Individuals involved in a group audit; and (ii) Firms engaged in the group audit, including firms within and outside the group auditor firm’s network.
  • more explicitly set out the process to address a breach of an independence provision at a component auditor firm, including reinforcing the need for appropriate communication between the relevant parties and with those charged with governance of the group.
  • align a number of provisions in the Code to conform to changes in the IAASB’s Quality Management standards.

Review the Exposure Draft press release and the proposed revisions to the Code on the IESBA's website. For fur­ther de­tails about the pro­ject, re­fer to the IESBA’s pro­ject sum­mary.

Other developments

February 2022

On February 28, 2022, the IESBA released for public comment the Exposure Draft "Proposed Revisions to the Code Relating to the Definition of Engagement Team and Group Audits".

March 2020

At its meet­ing on March 16-18, 2020, the IESBA ap­proved the pro­posal for this pro­ject.

Related discussions

Engagement Team – Group Audits Independence – IESBA

December 2021

At its meetings on November 30 – December 16, 2021, the IESBA approved for exposure: (a) Proposed revisions to the Code’s definition of “engagement team” and the related terms “audit team,” “assurance team” and “review team” as a result of changes to the definition of “engagement team” in the IAASB’s Quality Management standards; (b) Proposed revisions to the International Independence Standards (IIS) to address independence considerations in a group audit; and (c) Proposed conforming amendments to the Code arising from the IAASB’s recently finalized ISA 600 (Revised) and QM standards. The proposals were developed in close coordination with the IAASB within the established coordination framework of the two Boards. The Exposure Draft (ED) is expected to be released by the end of January 2022 with a public comment period of 90 days.

September 2021

At its meetings on September 13-17 & 27, 2021, the IESBA received an update from the Engagement Team – Group Audits Independence (ET-GA) Task Force on its coordination activities with the IAASB’s ISA 600 Task Force during Q3 2021. Among other matters, the IESBA considered and provided input on the first-read draft of the proposed changes to the IIS to address independence considerations in a group audit. The IESBA also received an update on the Task Force’s consideration of potential quality management-related amendments to the Code arising from the finalization of the IAASB’s Quality Management Standards. The IESBA will consider a revised draft of the Task Force’s proposals with a view to approving an exposure draft in December 2021.

June 2021

At its meetings on June 9-11, 14 & 25, 2021 the IESBA received an update from the Engagement Team – Group Audits Independence (ET-GA) Task Force on its coordination activities with the IAASB’s ISA 600 Task Force during Q2/2021. The IESBA noted plans for IAASB consideration and final approval of ISA 600 (Revised), Special Considerations – Audits of Group Financial Statements (Including the Work of Component Auditors) in December 2021. Given the close link between these two projects, the ET-GA Task Force recommended aligning the timing of approval of the ET-GA Exposure Draft with the anticipated timing of final approval of ISA 600 (Revised). Among other matters, the IESBA considered the Task Force’s proposed revisions to the definitions of the terms “engagement team”, “audit team”, “review team”, and “assurance team” in the Code. The IESBA also discussed a more developed draft of a strawman of proposed changes to Part 4A of the Code to address independence considerations in a group audit context. The IESBA will continue its deliberations of the Task Force’s proposals at its September 2021 meeting.

March 15, 2021

At its meetings on 15-17, 23 & 31, 2021 the IESBA received an update from the Engagement Team – Group Audits Independence (ETGA) Task Force on its coordination activities with the International Auditing and Assurance Standards Board’s (IAASB’s) ISA 600 Task Force during Q1 2021. Among other matters, the IESBA also considered the Task Force’s responses to the matters the IESBA raised on topics discussed at the December 2020 meeting, including a revised approach to the definition of “engagement team,” independence considerations for engagement quality reviewers (EQRs) engaged by the firm, and breaches of independence requirements at a component auditor in the context of group audits. The IESBA will continue its deliberations of the Task Force’s proposals at its June 2021 meeting.

Engagement Team – Group Audits Independence – IESBA

November 30, 2020

At its meet­ing on November 30 and December 4, 8 and 9, 2020, the IESBA continued its deliberations regarding potential revisions to: (a) align the Code’s concept of an “engagement team” with the revised definition of the same term in the ISA 220 (Revised); and (b) clarify the meaning of the phrase “ethical requirements that are relevant to the group audit engagement, including those related to independence,” a concept that is in both the extant ISA 600, and the IAASB’s ISA 600 Exposure Draft. Among other matters, the IESBA considered Task Force proposals in relation to the two parts of the project, including a “strawman” of a proposed new Section 405, Group Audits. The IESBA took into account the relevant stakeholder feedback to the ISA 600 Exposure Draft and the ISA 600 Task Force’s current thinking as presented in the IAASB’s December 2020 meeting materials. The IESBA will continue its deliberations at its March 2021 meeting.

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