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FRC responds to IESBA consultation on long association of personnel with an audit or assurance client

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13 Nov 2014

The Financial Reporting Council (FRC) has published its response to the International Ethics Standards Board for Accountants (IESBA) exposure draft of proposed changes to the Code of Ethics for Professional Accountants (the Code) in relation to the long association of audit firm personnel with an audit client. The FRC support the objective of the proposals but believe IESBA should go further in strengthening the Code provisions in this area.

The IESBA consultation, published in August 2014, proposed a number of amendments to the Code.  In response to the proposed changes, the FRC's key points are:

  • In relation to IESBA's proposals regarding the allowed period of 'time-on' as a key audit partner, the FRC believe that IESBA has reached the wrong conclusion that it is not appropriate to reduce the current period from seven years to five.  They strongly recommend that IESBA reconsider the proposed changes to the Code in relation to this.
  • They support IESBA's proposal to increase the ‘time-off’ period for engagement partners to 5 years.  However, they do not agree that the 'time-off' period for other partners, such as the EQCR partner, should be shorter than this and recommend that the required 'time-off' period for all key audit partners should be 5 years.
  • As regards involvement with the audit during the 'time-off' period, the FRC believe that, other than in exceptional cases, a partner should have no involvement at all with an audited entity.  In relation to the provision of technical or industry-specific advice, the FRC recommend that either a total prohibition or provisions requiring the establishment of further safeguards are necessary.  This contrasts with IESBA's proposal that an engagement partner who has been rotated off could, after two of the five years have elapsed, provide consultation to the engagement team or client on such matters. Notwithstanding this, the FRC do support the proposal that during the time-off period the rotated partner should not act as ‘relationship partner’ for the client, or undertake any other role, including the provision of non-audit services, that would result in significant or frequent interaction with senior management or those charged with governance or an ability to exert direct influence on the outcome of the audit engagement.  The FRC agree with IESBA that these provisions should not prevent an individual from assuming a senior leadership role in the firm.
  • The FRC agree that if, in rare circumstances, it is considered appropriate to extend the total time-on period served this should require the approval of those charged with governance, ordinarily the audit committee or equivalent.

The full response letter can be obtained from the FRC website.

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