On January 29th, the International Ethics Standards Board for Accountants (IESBA) released an exposure draft (ED) that would revise the definitions "public interest entity" ("PIE") and "listed entity" in the International Code of Ethics for Professional Accountants (including International Independence Standards), "the Code."
The proposed revisions would have far-reaching impact on the international independence standards. They introduce an overarching objective for additional requirements to enhance confidence in the audit of financial statements of PIEs, provide factors to consider when determining the level of public interest in an entity, and broaden PIE to include additional categories of entities.
Comments are due May 3, 2021.
Revisions to NAS and Fees
In December 2020, IESBA adopted revisions to the Code's independence provisions related to nonassurance services (NAS) and fees. Both sets of standards await approval by the Public Interest Oversight Board (PIOB) and are expected to be released by May 2021; the new provisions will be effective for audits of financial statements for periods beginning on or after December 15, 2022 and early adoption will be permitted.
Brief highlights of the revisions follow.
Among other things, the revised NAS provisions will:
- prohibit auditors from providing NAS to an audit client that is a PIE if a self-review threat to independence will be created,
- further restrict the provision of some NAS, including certain tax and corporate finance advice, to any audit client,
- tighten the circumstances in which auditors may consider materiality when determining the permissibility of a NAS, and
- strengthen provisions regarding auditor communication with those charged with governance (TCWG), e.g., PIEs would be required to have all NAS pre-approved by TCWG.
Among other things, the revised Fees provisions will:
- prohibit firms from allowing the provision of NAS to the audit client to influence the audit fee,
- for PIEs, require the auditor to cease acting as auditor if fee dependency on the audit client continues beyond a specified period,
- for non-PIEs, require the auditor to apply certain safeguards when fees exceed a certain threshold over an extended period, and
- communicate fee-related information to TCWG and the public to assist their judgments about auditor independence.
For more information about the NAS and Fees projects, click here (see Agenda Items 2 and 3).