Ethics code proposals seek to enhance auditor independence

  • IESBA (International Ethics Standards Board for Accountants) (lt gray) Image

15 Aug 2014

The International Ethics Standards Board for Accountants (IESBA) has released an exposure draft of proposed changes to the Code of Ethics for Professional Accountants (the Code). The changes are designed to strengthen auditor independence through addressing threats created by the long association of audit firm personnel with an audit client.

The exposure draft, Proposed Changes to Certain Provisions of the Code Addressing the Long Association of Personnel with an Audit or Assurance Client, proposes to amend the Code in a number of ways, including:

  • Providing more guidance regarding the threats that may be created by long association of audit personnel with audit clients
  • Increasing the mandatory "cooling off" periods for rotated audit engagement partners from two to five years on audits of public interest entities (all other key audit partners would continue to be subject to a two year cooling off period)
  • Tighter restrictions on the type of activities that can be undertaken by former key audit partners during the cooling off period, whilst clarifying that the cooling off period does not prevent an individual from assuming a leadership role in the firm
  • Explicitly requiring consideration of potential threats created by the long association of all members of the audit team on all audit engagements
  • Requiring concurrence of those charged with governance when certain exceptions to the rotation requirements are applied.

In developing the proposals, the IESBA considered whether the existing seven year "time on" period for key audit partners before rotation is required should be reduced to five years or some other shorter period. After an analysis of existing time on periods in various jurisdictions and other factors, the IESBA concluded that a seven year time on period "seems to provide the right balance between addressing the familiarity and self-interest threats to independence created by long association and the need to maintain relevant knowledge and experience to support audit quality".

The proposals are open for comment until 12 November 2014. Click for press release (link to IFAC website).

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