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.