Jean Rothbarth, Chair
In December 2006, the IESBA issued an exposure draft proposing changes to the independence requirements contained in the Code of Ethics for Professional Accountants.
The existing independence provisions in the Code were issued in November 2001 and were effective for assurance reports dated on or after December 31, 2004, with earlier application encouraged. Since then, several corporate failures have led to a loss of credibility in aspects of the financial reporting process and many jurisdictions have taken steps to restore credibility. Some of these steps have related to independence requirements for accountants performing assurance engagements. Accordingly, the IESBA concluded it was appropriate to commence a project to determine whether to revise any of the independence requirements contained in Section 290 of the Code.
The more significant proposals in the exposure draft include:
- Extending requirements for audits of listed entities to audits of all entities of significant public interest;
- Expanding the partner rotation requirements on audits of entities of significant public interest to all key audit partners (the engagement partner, the individual responsible for the engagement quality control review and other audit partners on the engagement team who are responsible for key decisions or judgments with respect to the audit);
- Eliminating the existing flexibility for firms with few partners to apply alternative safeguards instead of partner rotation to address the familiarity threat;
- Establishing a mandatory "cooling-off" period before a key audit partner joins a former audit client that is an entity of significant public interest, or the individual who is the firm's Senior or Managing Partner (Chief Executive or equivalent) joins such an audit client;
- Updating requirements related to the provision of non-assurance services, including setting out additional guidance on the provision of tax services to audit clients;
- Providing additional guidance on independence requirements for certain assurance reports that are expressly restricted for use by only the users specified in the report; and
- Splitting existing Section 290 into two sections - proposed revised Section 290, which sets out independence requirements for audit and review engagements, and proposed new Section 291, which sets out independence requirements for other assurance engagements.
The exposure comment period ended on April 30, 2007.
The IESBA approved the proposed changes to the independence requirements contained in the Code in January 2008. In April 2008, the Public Interest Oversight Board confirmed that due process has been followed in the development of these changes to the Code.