PracticeAuditIFAC revamps code of ethics

IFAC revamps code of ethics

IFAC issues its first major revision of its code of ethics since 2001

With ethics becoming something of a buzzword in the profession at present, as
institutes and others seek to establish and teach ethical principles and
mindsets, IFAC, the
International Federation of Accountants – headed by new chief executive Fermin
Del Valle – has issued a review of its code of ethics.

Conducted by its International Ethics
Standard Board for Accountants
(IESBA), it is the first major revision of
the organisation’s code of ethics since 2001, and the product of two-years work.

Significant changes include moves on partner rotation requirements, guidance
on non-audit work, in particular tax work for audit clients; and extending audit
independence requirements.

The IESBA proposes to extend partner rotation requirements to all key audit
partners and all firms, irrespective of size.

On non-audit work, the code only refers indirectly to the possibility of
non-audit work compromising independence.

There are several indirect references to processes to prohibit professional
staff from non-audit management advice. The IESBA has now suggested that these
management functions should be explicitly explained.

On tax, the IESBA concluded that preparing tax returns does not compromise
independence as long as management took responsibility for the returns including
any significant judgements made.

But tax planning advice that will affect the financial statements creates a
conflict.

The IESBA said advice should not be provided for the following reasons; where
the effectiveness of the advice depends on a particular accounting treatment or
presentation, if there is reasonable doubt as to the appropriateness of the
treatment or presentation. And finally if the outcome of the advice will have a
material effect on the financial statements.

The ethics code states that enhanced safeguards be applied during audits. But
due to differences in definitions and size of the bodies being audited, the
board concluded that it was impractical to develop a single definition of an
entity of significant public interest that would have global application and be
suitable in all jurisdictions.

The IESBA also noted, for example, that several clients may be public
entities, even when not listed. It therefore left the decision to member bodies,
to determine the types of entities that are of significant public interest.

The IESBA did not address internal audit services but it is on the agenda for
deliberations this year.

Given the context of recent debates in the industry over choice in the audit
market, there is little doubt that regulators would welcome the changes, along
with investors, as these measures will seek to provide the most independent
context in which assurance work is conducted.

Related Articles

Is predictive analytics the end of the annual audit?

Audit Is predictive analytics the end of the annual audit?

5d Martin Herron, MHA MacIntyre Hudson
Auditors ‘in the dock’ over Carillion as report calls for Big Four break-up

Audit Auditors ‘in the dock’ over Carillion as report calls for Big Four break-up

1w Emma Smith, Managing Editor
PCAOB sanctions former Deloitte Turkey CEOs over altered documents

Audit PCAOB sanctions former Deloitte Turkey CEOs over altered documents

2w Alia Shoaib, Reporter
KPMG South Africa to review past audit work amid fresh scandal

Audit KPMG South Africa to review past audit work amid fresh scandal

1m Alia Shoaib, Reporter
FRC introduces £10m sanctions for Big Four firms

Audit FRC introduces £10m sanctions for Big Four firms

2m Alia Shoaib, Reporter
Ukraine’s PrivatBank files $3bn claim against PwC

Audit Ukraine’s PrivatBank files $3bn claim against PwC

2m Alia Shoaib, Reporter
Grant Thornton to exit FTSE 350 audit market, citing Big Four dominance

Audit Grant Thornton to exit FTSE 350 audit market, citing Big Four dominance

2m Alia Shoaib, Reporter
Big Four dominate FTSE 250 audit market in Q1 rankings

Audit Big Four dominate FTSE 250 audit market in Q1 rankings

3m Alia Shoaib, Reporter