ASSOCIATION OF INTERNATIONAL ACCOUNTANTS

Transcription

1 ASSOCIATION OF INTERNATIONAL ACCOUNTANTS Response to International Ethics Standards Board for Accountants Code of Ethics for Professional Accountants Submitted: 14 October 2008

2 Introduction These comments are submitted by the Association of International Accountants, with input from a technical committee and members of the Association. AIA would like to thank Mr John Dunn, University of Strathclyde. for his input in this consultation response. About AIA AIA is one of six statutorily Recognised Qualifying Bodies (RQBs) in the United Kingdom for statutory auditors under the Companies Act The AIA professional qualification is recognised throughout the European Union and in other major financial centres around the world. The Association promotes and supports the advancement of the accountancy profession both in the UK and internationally. Whilst supporting international accounting and auditing standards the AIA seeks to ensure that its examinations and membership requirements support the development of the accountancy profession in the countries in which it examines. The AIA's examinations for membership have been held half-yearly on a world wide basis for 80 years. The examinations are based on International Financial Reporting and International Auditing Standards and are complimented by a range of variant papers applicable to local tax and company law in key jurisdictions together with an optional paper in Islamic Accounting. As an RQB under the UK Companies Act 2006 the AIA offers to students who take its examinations commencing in or after June 1991 and go on as members to complete special audit-based practical training under the AIA, an accountancy qualification which is recognised by the UK Government under that Act as a recognised professional qualification for statutory auditors in the UK. AIA members are fully professionally qualified to undertake accountancy employment in the public and private sectors.

3 Opening Comments AIA thanks the International Ethics Standards Board for Accountants for providing an opportunity to feedback on the proposed changes to the Code of Ethics for Professional Accountants. We provide below our responses to the questions asked by the IESBA. Questions 1. The IESBA is of the view that identifying a requirement by the use of the word shall clarifies the Code and appropriately brings the language in line with that adopted by the IAASB. Do you agree? If you do not agree please provide an explanation. The AIA agrees with the use of the word shall. In general, the language used throughout is clear and unambiguous. 2. The IESBA is of the view that separately presenting the objective to be achieved, the requirements designed to achieve that objective, and the application guidance as in the ISAs would not further improve the clarity of the Code. Do you agree? If you do not agree, please provide an explanation and an example of the separate presentation that you recommend. The AIA supports the manner in which the guidance has been presented. The identification of fundamental principles leaves no doubt as to what is required of accountants. 3. The IESBA is of the view that in exceptional and unforeseen circumstances that are outside the control of the professional accountant, the firm or employing organization, and the client, the application of a specific requirement in the Code may result in an outcome that a reasonable and informed third party would not regard as being in the interest of the users of the output of the accountant's professional services. Therefore, the Board is proposing that the Code include a provision that would permit a professional accountant, in such circumstances, to depart temporarily from that specific requirement. This would not be the same as provisions in the Code that

4 address situations in which a professional accountant has inadvertently violated a provision of the Code. The departure would only be acceptable if all of the conditions set out in paragraph are met. (a) Do you agree that the Code should contain a provision that permits any exception to compliance with a requirement set out in the Code? If you do not agree, please provide an explanation. The AIA believes that it is unrealistic to avoid any and all threats to compliance with the fundamental principles. There will almost always be a threat arising from the fact that an appointment or engagement if only because of the associated salary or fee. One advantage of the conceptual framework approach is that individual accountants can deal with potential threats on a case by case basis. Creating the possibility of exceptions to specific requirements may reduce the risk that ethical behaviour becomes a box-ticking process. (b) If you believe that the Code should contain a provision that permits an exception to compliance, are the conditions under which the exception would apply appropriate? Should there be additional or fewer conditions and, if so, what are they? The AIA believes that the requirements set out in paragraph are both proportionate and practical. Making those charged with governance aware of the problem permits senior management to take an informed view of the problem. Making users aware enables them to take account of the issue. Furthermore, this level of disclosure will create a sense of transparency that will encourage accountants who are in breach to consider their position carefully before proceeding in an appointment where the risks are unacceptable. (c) If you believe that the Code should not contain a provision that permits an exception, please explain how you would deal with the

5 types of exceptional and unforeseen situations that may be covered by paragraph The AIA supports the permission of exceptions, subject to the conditions outlined in (d) Are there any other circumstances where you believe a departure from a requirement in the Code would be acceptable? For example, should an event that is within the control of one of the relevant parties qualify for an exception? If so, please provide an explanation and specific examples of the circumstances where you believe a departure would be acceptable. The AIA believes that exceptions to the code should not be granted lightly. There may, however, be cases where the unforeseen element of the condition could create problems. For example, an accountant may have a close family member who is involved in a bank s lending decisionmaking process. In such a case, the possibility that both individuals might have to deal with one another at some point in the future is foreseeable, but the resulting potential for a conflict of interest is not necessarily insurmountable if a loan application is submitted. It may be that removing the words and unforeseen from the first sentence of would be sufficient to deal with the possibility that further exceptions could be acceptable and/or justifiable. This would mean that any exception would both have to be in exceptional circumstanced and result in an outcome that a reasonable and informed third party would not regard as being in the interest of the users of the output of the professional services. The AIA is of the opinion that these two conditions would encompass any acceptable exceptions that could be justified in terms of an event being within the control of one of the parties.

6 4. The IESBA is of the view that the proposed modification to focus the application of the conceptual framework throughout the Code, and the related documentation requirements in Sections 290 and 291, on threats that are not at an acceptable level will result in a more efficient and effective application of the framework approach. Do you agree? If you do not agree, please provide an explanation. The AIA supports the conceptual framework approach. It is difficult, if not impossible, to measure the efficiency and effectiveness of the application of any code of ethics. The approach taken by the proposed modifications has the advantage of clarity and should at least offer the possibility of improvements to both efficiency and effectiveness. 5. The IESBA is of the view that the selected point-in-time effective date with the proposed transitional provisions will provide the appropriate balance between firms and member bodies having sufficient time to implement the new standards and effecting change as soon as possible. Do you agree? If you do not agree, please provide an explanation of how you would revise the effective date or transitional provisions to achieve that balance. The AIA believes that the proposed effective date and the associated transitional arrangements are workable and appropriate. Comments on Other Matters Related to the Proposed Drafting Convention Changes Special Considerations on Application in Audit of Small Entities Respondents are asked to comment on whether, in their opinion, considerations regarding the audits of small entities have been dealt with appropriately in the proposed revisions to the Code. Reasons should be provided if not in agreement, as well as suggestions for alternative or additional guidance. The AIA does not believe that the Code requires any further provision for the audit of small entities.