IESBA revises group audit ethics standards

The International Ethics Standards Board for Accountants released a final set of revisions Tuesday to its standards for conducting group audits, strengthening and clarifying the independence requirements.

The updates to the International Code of Ethics for Professional Accountants (including International Independence Standards) aim to address the different independence considerations in an audit of group financial statements. The revisions also pertain to the independence and other implications of the changes made to the definition of an engagement team in the ethics code to align with changes to the definition of the same term in the International Auditing and Assurance Standards Board's International Standards on Auditing and International Standards on Quality Management.

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"Group audits play a fundamental role in safeguarding the integrity of, and public trust in, the financial markets," said IESBA chair Gabriela Figueiredo Dias in a statement. "For a long time, there was a vacuum in international standards addressing the independence of audit firms and individuals involved in group audits, leading to uncertainty and inconsistent practice around the world. This standard effectively closes that gap and responds in a timely manner to a public interest need for robust and clear requirements for independence in this important area." 

The revisions would strengthen and clarify the independence principles that apply to individuals who are involved in a group audit, including those within, or engaged by, firms that audit components within a group, as well as firms engaged in the group audit, including firms within and outside the group auditor firm's network.

The changes specify the need for, and content of, appropriate communication on independence matters between the group auditor firm and component auditor firms participating in the group audit. They more explicitly detail the process to address a breach of an independence provision at a component auditor firm, reinforcing the importance of transparency and appropriate communication with those charged with governance of the group.

The revisions amend the definitions of terms like "engagement team" and "audit team" in the ethics code to recognize the different and evolving engagement team structures, and address the implications of those definitional changes. They include guidance to facilitate the determination of who is included in an engagement team or an audit team. Other changes revise the definitions of a number of existing terms and establish new defined terms for independence in a group audit context.

The changes will take effect for audits of financial statements and group financial statements for periods beginning on or after Dec. 15, 2023, with early adoption permitted. The IESBA plans to hold a global webinar explaining the changes on April 18, and will later provide a recording of the webinar and other supporting materials, such as an IESBA staff publication on frequently asked questions, on its website.