On January 21, the International Ethics Standards Board for Accountants (IESBA) issued two comprehensive Exposure Drafts (EDs) to change the International Code of Ethics for Professional Accountants (including International Independence Standards), the "Code". The first, "Proposed Revisions to the Non-Assurance Services Provisions of the Code", significantly strengthens the Code's independence provisions for performing nonassurance services (NAS), especially when the client is a public interest entity (PIE).
Among other things, proposed revisions would:
- Prohibit the auditor from providing NAS to an audit client that is a PIE if a self-review threat to independence will be created;
- Further tighten circumstances in which materiality may be considered in determining the permissibility of a NAS;
- Strengthen provisions regarding auditor communication with those charged with governance (TCWG), e.g., PIEs would be required to have all NAS pre-approval by TCWG; and
- Impose stricter requirements regarding the provision of some NAS, including certain tax and corporate finance advice.
To facilitate review, the proposal incorporates comments with each paragraph to describe the proposed provisions. A comparison mapping table is also available.
The second proposal, "Proposed Revisions to the Fee-related Provisions of the Code," enhances the existing guidance on identifying, evaluating and addressing threats to independence in relation to fee-related matters, including fee dependency, level of fees and the proportion of fees for NAS to audit fees.
Among other things, the proposed revisions would:
- Prohibit firms from allowing the audit fee to be influenced by the provision of NAS to the audit client;
- For PIEs, require the auditor to cease acting as auditor if fee dependency on the audit client continues beyond a specified period; and
- Communicate fee-related information to TCWG and the public to assist their judgments about auditor independence.
The IESBA plans to host webinars during the comment period to provide an overview of the NAS and Fees EDs.
Comments on both EDs are due by May 4, 2020.