ICAS responds to the IESBA Exposure Draft on Non-Assurance Services
Ann Buttery reports on the ICAS Ethics Board’s response to the IESBA Exposure Draft on Non-Assurance Services.
The ICAS Ethics Board has responded to the International Ethics Standards Board for Accountants (IESBA) Exposure Draft ‘Proposed Revisions to the Non-Assurance Services Provisions of the Code’ in relation to proposed revisions to the International Independence Standards - Part 4 of the IESBA Code of Ethics - which apply to professional accountants in public practice when providing assurance services. Auditors in the UK have to comply with the Financial Reporting Council’s (FRC) Ethical Standard but the FRC closely monitors developments in the IESBA Code.
IESBA’s proposed revisions
IESBA’s Exposure Draft on Non-Assurance Services aims at strengthening the independence provisions within the IESBA Code of Ethics in relation to non-assurance services (NAS). Its proposed revisions include:
- The establishment of a prohibition on providing NAS to an audit client that is a public interest entity (PIE) if there will be a self-review threat to the auditor’s independence.
- The withdrawal of materiality exemptions which are currently available in relation to certain NAS prohibitions for audit clients that are PIEs. Under the proposals, these services would no longer be able to be provided to audit clients that are PIEs, even if the outcome or result of the service would be immaterial.
- A prohibition on the provision of certain tax and corporate finance services for all audit clients, irrespective of materiality, when: (i) the effectiveness of the tax or corporate finance advice is dependent on a particular accounting treatment or presentation; and (ii) the audit team has doubts about the appropriateness of that treatment or presentation
- New provisions for firm communications with those charged with governance (TCWG), including the requirement to obtain pre-approval from TCWG for the provision of NAS to an audit client that is a PIE.
Overall, ICAS is generally supportive of IESBA’s proposals noted above in relation to the independence provisions for NAS. ICAS believes that the accountancy profession has a duty to act in the public interest and it is therefore important that IESBA is seen to be addressing concerns that auditor independence could be compromised as a result of the provision of non-assurance services to their clients.
ICAS also supports the proposals in the IESBA Technology Working Group Phase 1 report in relation to technology related non-assurance services, and recommends that IESBA ensure that the Technology Task Force proposals are developed, consulted on and agreed prior to the non-assurance services amendments to the Code becoming effective.
Areas for clarification
ICAS noted that the proposed provisions could be clarified in the following areas:
- IESBA proposes new application material (paragraph 600.11 A2) aimed at assisting auditors in determining whether a NAS will create a self-review threat. However, ICAS believes the proposed material has the potential to create more confusion than assistance to users of the Code, and it would be better to keep to the simple, high-level principles, in order to avoid misunderstandings.
- IESBA includes application material relating to the concept of “Materiality in relation to financial statements” (paragraph 600.15 A1). However, there is no indication in this paragraph that, within the NAS provisions of the Code, there are certain situations where the materiality qualifier is withdrawn. ICAS believes that clarity could be improved by amending the paragraph to explain that whilst the concept of materiality is retained as an example of a factor that a firm considers in evaluating the level of an identified threat, there are however certain situations in the NAS provisions where a service cannot be provided even if the outcome or result of the service is immaterial.
- ICAS also suggests that additional application material is needed, in paragraph 600.12 A1, in relation to the provision of advice and recommendations to audit clients, as the paragraph is currently very generic. For example, there might be benefit in providing examples in terms of what the IESBA would consider to be the nature of advice and recommendations that might create a self-review threat.
Please note that ICAS Code of Ethics is substantively based on the IESBA Code; however, auditors undertaking an audit in the UK, and professional accountants undertaking other public interest assurance engagements in compliance with the engagement standards issued by the FRC, are required to comply with the requirements of the Financial Reporting Council's (FRC) Ethical Standard.