"Strong and clear independence standards are vital to investor trust in financial reporting," emphasized IESBA Chair Richard George. "The increase in trust and certainty that flow from familiarity with standards, including a common understanding of what it means to be independent when providing assurance services, will contribute immeasurably to a reduction in barriers to international capital flows."
The revised Code, which will become effective on January 1, 2011, includes the following changes to strengthen independence requirements:
- Extending the independence requirements for audits of listed entities to all public interest entities;
- Requiring a cooling off period before certain members of the firm can join public interest audit clients in certain specified positions;
- Extending partner rotation requirements to all key audit partners;
- Strengthening some of the provisions related to the provision of non-assurance services to audit clients;
- Requiring a pre- or post-issuance review if total fees from a public interest audit client exceed 15% of the total fees of the firm for two consecutive years; and
- Prohibiting key audit partners from being evaluated on or compensated for selling non-assurance services to their audit clients.
The revised Code maintains the principles-based approach supplemented by detailed requirements where necessary, resulting in a Code that is robust but also sufficiently flexible to address the wide-ranging circumstances encountered by professional accountants.
"This approach should also help to facilitate global convergence," saidGeorge.
The International Federation of Accountants' Statements of Membership Obligations have as a central objective the convergence of a country's national code with the Code of Ethics for Professional Accountants. Further, the requirements specify that member bodies should not apply less stringent standards than those stated in the Code.
"It is especially critical that member bodies focus on the implementation of the revised Code as soon as possible," emphasizes Mr. George. "To help them in this process, the IESBA plans to provide them with some additional support and guidance in the coming months."
About the IESBA and IFAC
The IESBA develops ethical standards and guidance for use by all professional accountants under a shared standard-setting process involving the Public Interest Oversight Board, which oversees the activities of the IESBA, and the IESBA Consultative Advisory Group, which provides public interest input into the development of the Code.
IFAC, the global organization for the accountancy profession with 157 members and associates in 123 countries, shares in the development and promotes the adoption and implementation of international standards and develops guidance to foster high-quality practice by professional accountants working in business, public practice, government, and education.