By Elizabeth Kaheru, Technical Officer, ICPAU
The International Code of Ethics for Professional Accountants (the Code) is the culmination of extensive research and global stakeholder consultation. The Code, which came into effect on 15 June, 2019 brings together substantive revisions to ethics and independence provisions and clarifies how professional accountants should apply the conceptual framework to comply with the fundamental principles of ethics, and where applicable, be independent. The Code brings together key ethics advances over the past four years, including the Non-compliance with Laws and Regulations (NOCLAR) and long association provisions and includes an enhanced conceptual framework and the International Independence Standards.
Key revisions of the new Code
Significant enhancements to Conceptual Framework.
The Conceptual Framework has been enhanced to assist professional accountants in complying with the fundamental principles and meeting their responsibility to act in the public interest. The enhanced framework specifies an approach for a professional accountant to;
- Identify threats that are not at acceptable level. These must be addressed in one of three ways:
- Eliminate circumstances creating the threats
- Apply safeguards
- Decline or end the specific professional activity/ service.
- Align safeguards to identified threats in compliance with the fundamental principles.
- New requirement to ‘step back’ in forming overall conclusion.
There is an emphasis that if threats cannot be addressed, the professional accountant must decline or end the specific professional activity.
Stronger independence provisions.
The Code includes stronger independence provisions regarding long association of personnel with audit clients. Although an understanding of an audit client and its environment is fundamental to audit quality, a familiarity threat may be created as a result of an individual’s long association as a member of the audit team, with the audit client and its operations or its senior management.
Under this new Code, an individual shall not act as the engagement partner, engagement quality control reviewer or key audit partner in respect of public interest entities for a period of more than seven cumulative years (the ‘time-on’ period). After the ‘time-on’ period, the individual is required to serve a ‘cooling- off’ period of;
- five consecutive years for the engagement partner
- three consecutive years for engagement quality control reviewer
- two consecutive years for key audit partner