The International Ethics Standards Board for Accountants, an independent standard-setting board within the International Federation of Accountants (IFAC), recently released an Exposure Draft that is intended to strengthen auditor independence.  The Exposure Draft revises Section 290, Independence - Audit and Review Engagements, of the IFAC Code for Ethics for Professional Accountants and proposes a new Section 291, Independence - Other Assurance Engagements.  Significant proposed modifications to the Code include:

• Extending the more restrictive listed-entity independence requirements (e.g., partner rotation, cooling-off period, non-audit services restrictions) to “all entities of significant public interest.”  Such entities are described in proposed revised Section 290 as listed entities and certain other entities which, because of their business, size or number of employees, have a large number and wide range of stakeholders. While the proposal allows some flexibility for each member body to determine which entities should be considered to be entities of significant public interest for purposes of their particular jurisdiction, there is a presumption that regulated financial institutions would be considered to be entities of significant public interest, and depending on the facts and circumstances, pension funds, government agencies, government-controlled entities and not-for-profit entities may be included.
• Removing the existing flexibility that permits firms without a large number of partners to apply other safeguards, instead of partner rotation, to address the familiarity threat. The proposal is therefore more restrictive than the SEC requirement that provides an exception for firms with fewer than five SEC audit clients and fewer than ten partners.
• Strengthening guidance related to the provision of non-assurance services, including setting out additional guidance on the provision of tax services to audit clients.  The proposal states that performing certain tax services may create threats to independence and contains guidance on four broad categories of tax services - tax return preparation, preparation of tax calculations, tax planning and other tax advisory services, and assistance in the resolution of tax disputes.

As a member body of IFAC, the American Institute of Certified Public Accountants (AICPA) must apply ethics standards that are not less stringent than those stated in the IFAC Code of Ethics. Since certain aspects of the IFAC proposed ethics rules will be more restrictive than the AICPA’s existing independence rules, it is important that AICPA members are aware of this proposal. The AICPA’s Professional Ethics Executive Committee (PEEC) will be commenting on this proposal on behalf of the AICPA.  Bruce Webb, National Director of Auditing for McGladrey & Pullen, LLP, is the chair of PEEC.

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