ICAS ICAS logo

Quicklinks

  1. About Us

    Find out about who we are and what we do here at ICAS.

  2. Find a CA

    Search our directory of individual CAs and Member organisations by name, location and professional criteria.

  3. CA Magazine

    View the latest issues of the dedicated magazine for ICAS Chartered Accountants.

  4. Contact Us

    Get in touch with ICAS by phone, email or post, with dedicated contacts for Members, Students and firms.

Login
  • Annual renewal
  • About us
  • Contact us
  • Find a CA
  1. About us
    1. Governance
  2. Members
    1. Become a member
    2. Newly qualified
    3. Manage my membership
    4. Benefits of membership
    5. Careers support
    6. Mentoring
    7. CA Wellbeing
    8. More for Members
    9. Area networks
    10. International communities
    11. Get involved
    12. Top Young CAs
    13. Career breaks
    14. ICAS podcast
    15. Newly admitted members 2022
    16. Newly admitted members 2023
  3. CA Students
    1. Student information
    2. Student resources
    3. Learning requirements
    4. Learning updates
    5. Learning blog
    6. Totum Pro | Student discount card
    7. CA Student wellbeing
  4. Become a CA
    1. How to become a CA
    2. Routes to becoming a CA
    3. CA Stories
    4. Find a training agreement
    5. Why become a CA
    6. Qualification information
    7. University exemptions
  5. Employers
    1. Become an Authorised Training Office
    2. Resources for Authorised Training Offices
    3. Professional entry
    4. Apprenticeships
  6. Find a CA
  7. ICAS events
    1. CA Summit
  8. CA magazine
  9. Insight
    1. Finance + Trust
    2. Finance + Technology
    3. Finance + EDI
    4. Finance + Mental Fitness
    5. Finance + Leadership
    6. Finance + Sustainability
  10. Professional resources
    1. Anti-money laundering
    2. Audit and assurance
    3. Brexit
    4. Business and governance
    5. Charities
    6. Coronavirus
    7. Corporate and financial reporting
    8. Cyber security
    9. Ethics
    10. Insolvency
    11. ICAS Research
    12. Pensions
    13. Practice
    14. Public sector
    15. Sustainability
    16. Tax
  11. CPD - professional development
    1. CPD courses and qualifications
    2. CPD news and updates
    3. CPD support and advice
  12. Regulation
    1. Complaints and sanctions
    2. Regulatory authorisations
    3. Guidance and help sheets
    4. Regulatory monitoring
  13. CA jobs
    1. CA jobs partner: Rutherford Cross
    2. Resources for your job search
    3. Advertise with CA jobs
    4. Hays | A Trusted ICAS CA Jobs Partner
    5. Azets | What's your ambition?
  14. Work at ICAS
    1. Business centres
    2. Meet our team
    3. Benefits
    4. Vacancies
    5. Imagine your career at ICAS
  15. Contact us
    1. Technical and regulation queries
    2. ICAS logo request

ICAS responds to IESBA on proposed revisions to the Code relating to the definition of engagement team and the independence requirements of group audits

  • LinkedIn (opens new window)
  • Twitter (opens new window)
By Ann Buttery, Head of Ethics, ICAS Policy Leadership

6 June 2022

  • ICAS is generally supportive of IESBA’s proposed revisions but suggests a few amendments to improve the clarity of IESBA’s intentions for users, and, on a specific matter, questions if the proposals are sufficiently comprehensive.
  • ICAS agrees with the proposed revision to the definition of “engagement team” to include individuals from non-network component auditor firms and other service providers who perform audit procedures on the engagement.
  • ICAS also supports the proposed new Section 405 to the Code to address independence in a Group Audit context.

ICAS has responded to the International Ethics Standards Board for Accountants (IESBA) Exposure Draft on its proposed revisions to its Code of Ethics relating to the definition of engagement team and the independence requirements in the context of group audits.

The International Independence Standards (Part 4 of the Code) are set out as follows:

  • Part 4A – Independence for Audit and Review Engagements (Sections 400 to 899).
  • Part 4B – Independence for Assurance Engagements Other than Audit and Review Engagements (Sections 900 to 999).

Auditors undertaking an audit in the UK are required to comply with the requirements of the Financial Reporting Council's Ethical Standard. There is therefore no requirement on auditors undertaking an audit in the UK to also comply with Part 4A of the Code however the FRC closely monitors developments in the IESBA Code.

ICAS is generally supportive of IESBA’s proposed revisions, although suggests a few amendments to improve clarity for users of the Code and, on a specific matter in relation to loans and guarantees, questions whether the proposals are sufficiently comprehensive.

Proposed revised definition of “engagement team”, “audit team”, “assurance team” and “review team”

IESBA proposals

The IESBA is proposing changes to the definitions of “engagement team” and the related terms “audit team,” “assurance team” and “review team”.

Proposed definition of “engagement team”

In the extant Code, the definition of “engagement team” is as follows:

“All partners and staff performing the engagement, and any individuals engaged by the firm or a network firm who perform assurance procedures on the engagement. This excludes external experts engaged by the firm or by a network firm.

The term “engagement team” also excludes individuals within the client’s internal audit function who provide direct assistance on an audit engagement when the external auditor complies with the requirements of ISA 610 (Revised 2013), Using the Work of Internal Auditors.”

The IESBA proposes to revise the definition of “engagement team” in the Code to align with the more generic definition of engagement team in International Standard of Quality Management (ISQM) 1 as follows:

“All partners and staff performing the engagement, and any other individuals who perform procedures on the engagement, excluding an external expert and internal auditors who provide direct assistance on an engagement.”

In paragraphs 400.A to 400.D of Part 4A, the IESBA also proposes to introduce explanatory guidance in relation to “Engagement team and Audit Team” with proposed paragraph 400.A aligning with ISA 220 (Revised) stating that an engagement team for an audit includes individuals from non-network component auditor firms and other service providers who perform audit procedures on the engagement:

“400.A An engagement team includes all partners and staff in the firm who perform audit procedures on the engagement, and any other individuals who perform such procedures who are from:

(a) A network firm; or
(b) A firm that is not a network firm, or another service provider.

For example, an individual from a component auditor firm who performs audit work on the financial information of a component for purposes of a group audit is a member of the engagement team for the group audit.”

Proposed definitions of “audit team,” “assurance team” and “review team”

The IESBA believes that Engagement Quality Reviewers, whose independence plays a vital role in promoting audit quality, should be subject to the same independence requirements regardless of whether they come from within or outside the firm or its network. Similarly, the IESBA believes that individuals who (a) recommend the compensation of, or who provide direct supervisory, management or other oversight of the engagement partner in connection with the performance of the audit engagement, or (b) provide consultation regarding technical or industry-specific issues, transactions or events for the engagement, should be members of the audit team, regardless of whether they come from within the firm.

As such, the IESBA proposes to amend the definitions of “audit team,” “review team,” and “assurance team” by adding the phrase “or engaged by” to subparagraph (b) of those definitions to include all such individuals.

ICAS Response

ICAS agrees with IESBA’s proposed changes to the definitions of “engagement team” and the related terms “audit team,” “assurance team” and “review team”, however suggests a number of amendments, particularly in relation to proposed paragraph 400.3 and the Explanatory Guidance proposed in paragraphs 400.A to 400.D “Engagement team and Audit Team”, to improve the clarity of IESBA’s intentions for users.

Independence in a Group Audit context

The IESBA approached independence in a Group Audit context from two different perspectives:

(a) Independence principles for individuals involved in the group audit engagement; and

(b) Independence principles for firms, inside and outside of the network, involved in the group audit engagement.

To elaborate on these principles, the IESBA is proposing a new Section 405 (Group Audits) to the Code.

Proposed new defined terms that are used in Section 405 in addressing independence considerations in a group audit – “audit procedures” versus “audit work”

For the purposes of specifying independence provisions for group audits, the IESBA proposed a set of new defined terms for inclusion in the Glossary to the Code.

ICAS notes that ISA 220 (Revised), and proposed new paragraph 400.A (above), both refer to auditors performing “audit procedures” however the IESBA’s new proposed definitions of “Audit team for the group audit”; “Component auditor firm” and “Group audit client” refer to “audit work” rather than “audit procedures”.

ICAS appreciates that the IESBA has gone to some considerable lengths to be as consistent as possible with ISA 220 (Revised) with its proposals in this Exposure Draft, and therefore suggests that IESBA should consider using the term “audit procedures” rather than “audit work” in these new definitions in Section 405 for consistency with ISA 220 (Revised).

Independence principles for individuals

ICAS agrees with the IESBA view that the work of the individuals from non-network component auditor firms contributes to the audit opinion on the group financial statements just as much as the work performed by individuals from the group auditor firm and component auditor firms within the network.  Accordingly, the same independence provisions that apply to individuals from the group auditor firm and component auditor firms within the network should apply to individuals carrying out audit work at the component level from non-network firms.

Financial Interest in the Group Audit Client

The IESBA noted that the extant Code specifically prohibits a firm and its network firms from holding a direct or material indirect financial interest in an entity that controls the audit client, regardless of whether the audit client is a PIE. Given that financial interests by their nature have the greatest potential to create significant threats and the fact that the work performed by non-network component firms forms an integral part of the group audit, the IESBA believes that there should be a similar prohibition for non-network component auditor firms.

ICAS agrees with the IESBA proposal to introduce an explicit prohibition on non-network component auditor firms from holding a direct or material indirect financial interest in the entity on whose group financial statements the group auditor firm expresses an opinion in respect of both PIE and non-PIE group audit clients.

Loans and guarantees

The IESBA also came to the view that loans and guarantees are a further area that should be specifically addressed in the proposed Section 405 because of the financial nature of those relationships. Section 511 of the Code addresses loans and guarantees with an audit client. The IESBA considered the scope of application of the prohibitions in Section 511 to a non-network component auditor firm, specifically whether those prohibitions should apply only with respect to the group audit client or whether they should apply also with respect to related entities of the group audit client.

The IESBA considered that the public interest would be better served and the objective of setting proportionate standards better met if the prohibitions in Section 511 on loans and guarantees were to apply only with respect to the group audit client. For loans and guarantees between the non-network component auditor firm and an intermediate holding entity or any other related entities of the group audit client, the IESBA believes that the conceptual framework provides a robust, principles-based approach to identify, evaluate and address any threats that might be created in such situations.

ICAS harbours doubts as to whether this proposed approach is rigorous enough. ICAS believes that there would be merit in extending the proposed prohibition for loans and guarantees to cover those between the non-network component auditor firm and an intermediate holding entity or any other related entities of the group audit client

Non-Assurance Services (NAS)

The IESBA is proposing guidance in Section 405 to highlight some important considerations for non-network component auditor firms in a group audit context when applying the NAS provisions. ICAS agrees with IESBA’s proposal that where the group audit client is a PIE, the independence requirements for NAS provided by a non-network component auditor firm to the component audit client are those applicable for PIEs even if the component audit client is a non-PIE.

Breach of Independence by a Component Auditor Firm

The extant Code sets out a process a firm should follow when it concludes that a breach of a requirement of the International Independence Standards has occurred. If a breach is identified at the group auditor firm level, the group auditor firm should follow this process. The IESBA is proposing requirements and guidance in Section 405 to deal with circumstances where a breach is identified at the component auditor firm level. ICAS agrees with IESBA’s proposals.

Read the ICAS response in full

Read the response


ICAS ethics resources

ICAS is committed to providing ethics resources and support to its Members. Since 2015, ICAS has published a series of publications, guidance and resources as part of The Power of One initiative which are all available on icas.com.

In November 2020, to mark the fifth anniversary of The Power of One, ICAS issued second editions of its series of publications on ethical leadership:

  • Ethics -The Power of One
  • The Power of One – Personal responsibility and ethical leadership
  • The Power of One – Moral Courage
  • The Power of One – Personal Reputation
  • The Power of One – Organisational culture and values
  • The Power of One – The CA and the organisation
  • The Ethical Journey – The Right, the Good and the Virtuous
  • Organisational culture: The importance of listening

ICAS also offers the following:

  • guidance on conflict of interest;
  • an ethical decision making framework;
  • ethics videos;
  • case studies; and
  • research.
  • From 1 January 2021, compulsory ethics CPD was introduced for all ICAS Members. This does not involve compulsory attendance at courses or the purchase of material – it could simply mean some reading of ethics-related material available online. In addition to ICAS’ own ethics resources as noted above, other websites provide useful sources of information as explained here.
  • If you have an ethical query, ICAS provides an ethics helpline service.  In addition, ICAS  offers an Ethics Buddy Service which enables a CA with an ethical dilemma, where deemed appropriate, to have confidential, informal, discussions with an experienced ICAS Member in order to explore their issue and assist them in considering how they might approach their dilemma.
  • ICAS is also partnered with whistleblowing charity Protect to provide Members and Students with access to an independent, confidential helpline. This service offers free advice regarding whistleblowing and speaking up.

ICAS Code of Ethics

The ICAS Code of Ethics applies to all members of ICAS, affiliates, students, employees of a member firm or an…

IESBA publishes Exposure Draft on proposed revisions to the Code relating to the definition of engagement team and the independence requirements in the context of group audits

By Ann Buttery, Head of Ethics

21 March 2022

2023-03-MarksElectrical 2023-03-MarksElectrical
ICAS logo

Footer links

  • Contact us
  • Terms and conditions
  • Modern slavery statement
  • Privacy notice
  • CA magazine

Connect with ICAS

  • Facebook (opens new window) Facebook Icon
  • Twitter (opens new window) Twitter Icon
  • LinkedIn (opens new window) LinkedIn Icon
  • Instagram (opens new window) Instagram Icon

ICAS is a member of the following bodies

  • Consultative Committee of Accountancy Bodies (opens new window) Consultative Committee of Accountancy Bodies logo
  • Chartered Accountants Worldwide (opens new window) Chartered Accountants Worldwide logo
  • Global Accounting Alliance (opens new window) Global Accounting Alliance
  • International Federation of Accountants (opens new window) IFAC
  • Access Accountancy (opens new window) Access Acountancy

Charities

  • ICAS Foundation (opens new window) ICAS Foundation
  • SCABA (opens new window) scaba

Accreditations

  • ISO 9001 - RGB (opens new window)
© ICAS 2022

The mark and designation “CA” is a registered trade mark of The Institute of Chartered Accountants of Scotland (ICAS), and is available for use in the UK and EU only to members of ICAS. If you are not a member of ICAS, you should not use the “CA” mark and designation in the UK or EU in relation to accountancy, tax or insolvency services. The mark and designation “Chartered Accountant” is a registered trade mark of ICAS, the Institute of Chartered Accountants of England and Wales and Chartered Accountants Ireland. If you are not a member of one of these organisations, you should not use the “Chartered Accountant” mark and designation in the UK or EU in relation to these services. Further restrictions on the use of these marks also apply where you are a member.

ICAS logo

Our cookie policy

ICAS.com uses cookies which are essential for our website to work. We would also like to use analytical cookies to help us improve our website and your user experience. Any data collected is anonymised. Please have a look at the further information in our cookie policy and confirm if you are happy for us to use analytical cookies: