The International Ethics Standards Board for Accountants' (IESBA's) Code of Ethics for Professional Accountants has been revised to be stricter in cases where members encounter a breach of the code to encourage greater deterrence.
“Following a rigorous review process, the IESBA standard has now been strengthened and, as such, the APES 110 provisions can now reflect the new international provisions, including a robust framework to address any breaches of the auditor independence requirements,” said Accounting Professional & Ethical Standards Board (APESB) chair Kate Spargo.
APESB has made amendments to its APES 110 standards such that firms that encounter a breach of the code are now required to terminate, suspend, or eliminate the interest or relationship that caused the breach.
Member firms must also evaluate the breach to determine whether further actions are required and to document them, as well as any action taken.
There are also proposed changes in the area of conflicts of interest which establish more specific requirements and provide additional comprehensive requirements and guidance for members in identifying, evaluating and managing conflicts of interest, APESB stated.
The other changes are around the definition of those charged with governance, and the definition of “engagement team”, both in line with the changes made by IESBA.
The term “those charged with governance” would ensure it more closely aligns with the definitions of the term under the International Accounting and Auditing Standards Board.
“The change specifically aims to clarify that a subgroup, such as an audit committee, may assist the governing body in meeting its responsibilities. In such cases, the auditor shall determine with whom within the entity’s governance structure to communicate,” APESB stated.
The engagement team changes relate to the notion of auditor independence, with the current definition of auditor independence excluding internal auditors from assisting external auditors.
“APESB is of the view that the external auditor’s independence is a key attribute that contributes to auditor scepticism and thus to the overall quality of the external audit process,” APESB noted.
It said the existing definition of “engagement team” in APES 110 effectively precludes an external auditor obtaining direct assistance from internal audit as employees of the entity will not be independent of the audited entity.
APESB said it concurred with arguments that it is inappropriate to exclude internal auditors from the engagement team definition. However, it would not look to change the APES 110 definition as the Auditing and Assurance Standards Board has proposed to prohibit direct assistance from internal auditors.
“It is inconsistent to imply that an internal auditor providing direct assistance is a substitute for an external audit team member and yet not regard that person as part of the engagement team,” Ms Spargo said.
APESB’s proposed changes would apply from 1 July 2014.
