The International Ethics Standards Board for Accountants has released for public comment an updated exposure draft on a standard for addressing how audit firm personnel should act toward an audit or assurance client who has a long association with the firm.
The document, Limited Re-exposure of Proposed Changes to the Code Addressing the Long Association of Personnel with an Audit Client, relates to the IESBA’s project to develop more robust and comprehensive provisions dealing with the long association of personnel with an audit or assurance client. It contains a basis for conclusions regarding proposals that have been finalized, as well as the limited re-exposure of three remaining issues. The IESBA operates under the auspices of the International Federation of Accountants.
The proposals being re-exposed are:
• An increase from two to five years in the cooling-off period for the engagement quality control reviewer (EQCR) on the audit of a listed entity, and to three years on the audit of a public interest entity (PIE) other than a listed entity;
• An alternative approach to the cooling-off requirements for PIE audits in the Code of Ethics for Professional Accountants where jurisdictions have established different but robust legislative or regulatory safeguards to address the threats to auditor independence created by long association; and
• A revised approach to determining how long an individual should cool off after having served either as an engagement partner (EP) or as an EQCR, or in a combination of roles, for only part of the seven-year period they have served as a Key Audit Partner.
“In developing the new EQCR cooling-off proposal, the board has been particularly sensitive to public
interest concerns about the need for a ‘fresh look,’ given the EQCR’s important role on the audit and proximity to the audit issues,” said IESBA chairman Dr. Stavros Thomadakis in a statement. “At the same time, the board has found it also in the public interest to give appropriate weight to the practical consequences of implementation, given that the availability of individuals suitably qualified to act in an EQCR role tends to be more limited. The board believes that the proposal is balanced and, importantly, that its benefits to enhancing public trust in auditor independence outweigh the costs in terms of some added complexity in implementation in an already complex area.”
The exposure draft includes revised provisions addressing other long association proposals that the IESBA has now finalized, including:
• An increase in cooling-off period for EPs from two to five years on audits of all PIEs; and
• Additional restrictions on activities that can be performed during the cooling-off period.
“Feedback on the first exposure draft in August 2014 indicated broad support for the IESBA’s intention to enhance the long association provisions in the Code,” said IESBA technical director Ken Siong. “However, the diversity of views among commentators across different stakeholder groups on certain issues, and new stakeholder perspectives on the challenges of overlaying some of the proposals on pre-existing jurisdictional requirements, led the board to carefully review its proposals, reaffirming or recalibrating them as needed.”
To help stakeholders better understand the proposals, the document includes a set of proposed IESBA Staff Questions and Answers, which will be issued with the final provisions to facilitate implementation.
The Ethics Board is asking all stakeholders to comment on the exposure draft. To access the document and submit a comment, visit the Ethics Board’s website at www.ethicsboard.org. Comments are requested by May 9, 2016.