The International Ethics Standards Board for Accountants has revised its ethics standards to safeguard auditor independence when providing non-assurance services and the resulting fees paid by audit clients.
The revisions affect the
The IESBA, which is affiliated with the International Federation of Accountants, is revamping the rules at a time when auditor independence has come into a question after a series of accounting scandals have surfaced in recent years around the world at companies like Wirecard in Germany, Steinhoff in South Africa, Samsung in South Korea, and General Electric in the U.S. Audit regulators in the European Union and the United Kingdom have moved to impose reforms on the audit market overseas to provide greater separation between the audit and non-audit sides of firms, especially the Big Four firms that dominate the audit market.
“Independence is fundamental to the role of auditors as corporate guardians and ultimately to public confidence in financial reporting and market integrity,” said IESBA Chairman Dr. Stavros Thomadakis in a statement Wednesday. “With the significant strengthening of the NAS and fees provisions, we have taken bold steps to set an even higher bar for the standards of independence required of auditors globally, especially in relation to public interest entities. We believe these changes represent a major advance in the public interest.”
The new measures include a far-reaching prohibition on audit firms from providing a non-assurance service that might create a self-review threat to an audit client that is a public interest entity. Other new provisions aim to allow and promote stronger engagement between auditors and those charged with governance of public interest entities about independence matters relating to non-audit services and fees.
The revisions also include strengthened provisions to deal with undue fee dependency on audit clients. There are also provisions to prompt more public transparency about the fees paid by audit clients that are public interest entities to assist stakeholder judgments about auditor independence. The documents include more guidance to help auditors do threat assessments and take action in relation to non-assurance services and fees.
“The revised NAS and fee-related provisions reflect current public interest expectations with respect to auditor independence in two important areas," said IESBA Consultative Advisory Group (CAG) chair Gaylen Hansen in a statement. "The IESBA CAG, with its diverse membership base, has unanimously supported and encouraged the IESBA’s formidable leadership in effecting these changes.”
IESBA developed the revised rules after conducting global roundtables and doing other forms of outreach to investors, corporate governance experts, regulators, audit oversight bodies, national standard-setters, accounting firms, financial statement preparers, and others. During the process, IESBA coordinated closely with the International Auditing and Assurance Standards Board, which has also been working on auditor independence standards.
The revisions take effect for audits of financial statements for periods starting on or after Dec. 15, 2022, but early adoption is allowed and encouraged.
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