Revisions to Ethics Standards to Safeguard Audit Independence

Audit is rarely out of the news and the International Ethics Standard Board for Accountants (The IESBA) has just revised its standards to strengthen and safeguard auditor independence in two key areas. Firstly, for when auditors are providing non-assurance services, and secondly regarding the resulting fees that are paid by audit clients.

Obviously there have been various well-publicised accounting scandals over recent years that have called into question auditor independence, and as a result audit regulators have wanted to bring in reforms to create more separation between the audit and non-audit sides of firms, particularly the Big Four that currently dominate the audit market.

So, the IESBA (affiliated to the International Federation of Accounting) is revising the rules:

"Independence is fundamental to the role of auditors as corporate guardians and ultimately to public confidence in financial reporting and market integrity. 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." said IESBA Chairman Dr Stavros Thomadakis.

The revisions will take effect for audits of financial statements for periods starting on or after 15th December 2022 and include:

• 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.

Find out the full details about the new measures that can, and are be encouraged to be, adopted prior to them coming into effect in December next year.