Global Ethics Board takes major step forward in strengthening auditor independence

Tuesday, 4 May 2021 00:00 - - {{hitsCtrl.values.hits}}

Comprehensive package of new measures to safeguard auditor independence in relation to non-assurance services and fees paid by audit clients

The International Ethics Standards Board for Accountants (IESBA) last week released revisions to the Non-Assurance Services (NAS) and fee-related provisions of the International Code of Ethics for Professional Accountants (including International Independence Standards) (the Code).

The revised NAS and fee-related provisions significantly strengthen the guardrails around auditor independence in two important areas that have the potential to create incentives influencing auditor behaviour – non-assurance services provided to audit clients and fees.

“Independence is fundamental to the role of auditors as corporate guardians and ultimately to public confidence in financial reporting and market integrity,” said IESBA Chairman Dr. Stavros Thomadakis. “With the significant strengthening of the NAS and fees provisions, we have taken bold steps to set an even higher bar for the standards of independence required of auditors globally, especially in relation to public interest entities. We believe these changes represent a major advance in the public interest.”

The package of new measures includes:

A far-reaching prohibition on audit firms from providing a NAS that might create a self-review threat to an audit client that is a public interest entity
New provisions to enable and promote more robust engagement between auditors and those charged with governance of public interest entities about independence matters relating to NAS and fees
Strengthened provisions to address undue fee dependency on audit clients
Provisions to stimulate greater public transparency about fees paid by audit clients that are public interest entities to assist stakeholder judgments about auditor independence

Comprehensive guidance to steer auditors’ threat assessments and actions in relation to NAS and fees

“The revised NAS and fee-related provisions reflect current public interest expectations with respect to auditor independence in two important areas,” said IESBA Consultative Advisory Group (CAG) Chair Gaylen Hansen. “The IESBA CAG, with its diverse membership base, has unanimously supported and encouraged the IESBA’s formidable leadership in effecting these changes.”

The revised NAS and fee-related provisions have been informed by extensive research, global roundtables and other outreach to investors, the corporate governance community, regulators, audit oversight bodies, national standard setters, accounting firms, preparers of financial statements, and others. In addition, the development of the provisions has benefited from close coordination with the International Auditing and Assurance Standards Board (IAASB).

The revised NAS and fee-related provisions become effective for audits of financial statements for periods beginning on or after 15 December 2022. Early adoption is permitted and encouraged.

In support of global adoption and implementation of the new standards, the IESBA has developed Bases for Conclusions and other resources which are available on the IESBA’s website. Additional support materials and resources will be published in 2021.