IESBA Proposes New Standards on Inducements

SEPTEMBER 11, 2017   RECENT DEVELOPMENTS

The International Ethics Standards Board for Accountants (IESBA) released a proposal last week on “inducements” that professional accountants (and in some cases, their immediate or close family) may offer or accept.  The proposed standards apply to both accountants in business and public practice and update the Code’s independence standards.  The IESBA issued this proposal as part of a broader project to strengthen “Part C” of the Code, which applies to accountants in business, and to enhance ethical behavior. While revamping part C requirements, the IESBA determined that similar provisions should apply to accountants in public practice.

The standards:

-          Clarify the meaning of inducements as “an object, situation or action that is used as a means to influence another individual’s behavior, though not necessarily with the intent to improperly influence that individual’s behavior.” 

-          Inducements range from minor acts of hospitality to unlawful acts and can include (for example) such things as gifts, entertainment, political and charitable donations, and employment opportunities.

-          Require the accountant to understand the laws and regulations applicable to inducements, e.g. laws addressing bribery or corruption, and comply with them.

-          Prohibit the offer or acceptance of an inducement that the accountant believes, or thinks a reasonably informed 3rd party may believe, is offered with the intent to influence the recipient’s behavior.  Several factors for weighing whether this is the case are provided.

-          Unless the inducement's value is trivial and inconsequential, require application of the conceptual framework approach to evaluate the threats created in other circumstances and where threats are significant, apply relevant safeguards.  

-          Identify familiarity, self-interest and intimidation threats to compliance with the integrity, objectivity and professional behavior principles as relevant and provide examples.

-          Provide sample safeguards for mitigating threats such as: documenting the inducement and disclosing it to those charged with governance, second review of the accountant’s work or decisions, and donating the inducement to charity with appropriate disclosure of the act.

-          Under the independence rules, prohibit an auditor, the audit firm, or a network firm from accepting an inducement unless the inducement's value is trivial and inconsequential.  (Applies to all types of assurance engagements.)

Comments on the proposal are due December 8, 2017.

LinkedIn Users: Join New Group Devoted to CPA Ethics and Independence

SEPTEMBER 5, 2017  RECENT DEVELOPMENTS

Are you an accounting professional or someone who works closely with the profession? If so, I invite you to join a new LinkedIn group called "CPA Ethics and Independence," which I will moderate to bring members the latest news and other points of interest on these important topics. 

The group is limited to accounting professionals and persons who work with the profession (e.g. regulators, attorneys, audit committee members, etc.). We share information about the CPA profession's ethical responsibilities, including auditor independence. Members may also post questions about the AICPA Code of Conduct, GAO Yellow Book independence rules, the SEC and PCAOB independence, the IESBA Code and ethics rules of other relevant regulatory bodies, e.g., IRS Circular No 230. 

This group may be particularly helpful to quality control managers and directors, CPAs in public practice and industry, academics, attorneys/legal counsel, accountancy boards and boards of director/audit committee members.  Accounting students may also join. 

 

 

 

EY Report on Audit Cmt. Disclosures - Interesting Finding about Independence

AUGUST 24, 2017  RECENT DEVELOPMENTS

Among other findings, an EY Center for Board Matters Report, "Audit Committee Report to Shareholders in 2017," showed a sharp rise (from 15% in 2012 to 84% in 2017) in the percentage of audit committees that explicitly state that the committee considers non-audit fees and services when assessing auditor independence. 

As we know SOX is 15 years old, and the requirement for audit committees to assess the auditor's independence, including nonaudit services, is not new. So, what's driving the dramatic increase in disclosure? Are audit committees merely stating something they've been doing all along? Is it the constant drumbeat from SEC and PCAOB leadership about nonaudit services' impact on independence and that audit committees should step up, or something else? 

And the inclusion of nonaudit fees as an independence consideration (always the elephant in the room, along with audit fees)... no explicit SEC independence rule under SOX outside of proxy disclosures (the closest independence "rule" being a staff position in the Codification of Financial Reporting Policies (i.e. "15%" rule-not very widely known, I suspect). But certainly fees are always talked about and would also need to be considered under the Rule 201-b's "general standard" (under Reg S-X). 

Thoughts welcomed!