Source document: https://docs-lawep.s3.us-east-2.amazonaws.com/1697742230206.pdf (Georgia)
Overview of IESBA and IESBA Code Dr. Stavros Thomadakis, IESBA Chairman Ken Siong, Senior Technical Director SARAS Virtual Seminar 16 December 2020 Page 1 | Proprietary and Copyrighted Information About IESBA • Independent global standard-setting Board formed 2005 • Mission: Serve the public interest by setting ethics standards, including auditor independence requirements, which seek to raise the bar for ethical conduct and practice for all professional accountants through a robust, globally operable Code of Ethics Page 2 | Proprietary and Copyrighted Information About IESBA • 18 members – – 9 practitioners, 9 non-practitioners (incl.
4 public members) Independent Chair • Official observers – Japanese FSA and CAG Chair • Global representation – Africa, Asia, Europe, North America, Oceania, South America • Structures and processes facilitated by IFAC Page 3 | Proprietary and Copyrighted Information About IESBA Oversight and Consultation • Oversight by PIOB – PIOB members appointed by Monitoring Group (Basel Committee on Banking Supervision, EC, Financial Stability Board, IAIS, IFIAR, IOSCO, World Bank) • Advised by Consultative Advisory Group (CAG) – 22 member organizations and 3 official observer organizations – E.g.
Basel Committee, CFA Institute, IAIS, ICGN, IOSCO, Islamic Financial Services Board, OECD, World Bank, etc Page 4 | Proprietary and Copyrighted Information About IESBA Engagement and Collaboration with Stakeholders • Strong stakeholder engagement and communications – Close dialogue with international and national regulators, e.g.

IFIAR, CEAOB, IOSCO, Basel Committee, etc – But also focused on strengthening dialogue with the profession, e.g.
Forum of Firms, IFAC SMP and PAIB Advisory Groups, IFAC member organizations • Leveraging global alliances and partnerships – E.g.
IAASB, national standard setters, IFAC, INTOSAI, etc Page 5 | Proprietary and Copyrighted Information Global Adoption (Restructured Code effective since June 2019) India, Adopted / in process of adopting new Code as of Oct 2020 (85) Albania, Australia, Austria, Azerbaijan, Bahamas, Bangladesh, Barbados, Botswana, Brazil, Bulgaria, Burkina Faso, Cayman Islands, China, Croatia, Cyprus, Czech Republic, Denmark, eSwatini, Finland, Georgia, Germany, Ghana, Guatemala, Guyana, Ireland, Jamaica, Japan, Hong Kong SAR, Hungary, Kenya, Kosovo, Kuwait, Lao PDR, Latvia, Lesotho, Liberia, Lithuania, Luxembourg, Madagascar, Malaysia, Malawi, Malta, Mauritius, Mexico, Mongolia, Montenegro, Mozambique, Namibia, Netherlands, New Zealand, Nigeria, Palestine, Pakistan, Papua New Guinea, Peru, Poland, Portugal, Romania, Russia, Rwanda, Saudi Arabia, Serbia, Singapore, Slovenia, South Africa, South Korea, Spain, Suriname, Sweden, Switzerland, Tanzania, Trinidad and Tobago, Turkey, UAE, Uganda, UK, Ukraine, United States (unlisted entities), Vietnam, Zambia, Zimbabwe  Adopted by the largest 31 international networks of firms (the Forum Indonesia, Italy, Iran, of Firms) for transnational audits  Translated in over 40 languages, including all major UN languages Page 6 | Proprietary and Copyrighted Information Page 7 | Proprietary and Copyrighted Information Page 8 | Proprietary and Copyrighted Information About the New IESBA Code Revised Architecture PART 1 Complying with the Code, Fundamental Principles and Conceptual Framework (Sections 100 to 199) (All Professional Accountants) PART 2 Professional Accountants in Business (PAIBs) PART 3 Professional Accountants in Public Practice (PAPPs) (Sections 200 to 299) (Part 2 is also applicable to individuals PAPPs when performing professional activities pursuant to their relationship with the firm) (Sections 300 to 399) PARTS 4A & 4B International Independence Standards Part 4A—Independence for Audits & Reviews (Sections 400 to 899) Part 4B—Independence for Assurance Engagements Other than Audit & Review Engagements (Sections 900 to 999) GLOSSARY (All Professional Accountants) Page 9 | Proprietary and Copyrighted Information About the IESBA Code Fundamental Principles (FPs), Conceptual Framework and Independence Self-interest Self-review Confidentiality Professional Competence and Due Care Familiarity Objectivity Professional Behavior Intimidation Advocacy Integrity THE CONCEPTUAL FRAMEWORK Independence Page 10 | Proprietary and Copyrighted Information About the IESBA Code What is the Conceptual Framework?
• A 3-step approach to deal with threats to compliance with FPs and, where applicable, independence 1.

Identify threats  From professional activities, interests and relationships 2.

Evaluate identified threats 3.


Address the threats  Eliminate circumstances creating the threats  Apply safeguards; or  Decline or end the specific professional activity/service • Must use reasonable and informed third party test Page 11 | Proprietary and Copyrighted Information Page 12 | Proprietary and Copyrighted Information NOCLAR Standard: Effective 15 July 2017 • Major focus on public interest action by all PAs, including auditors.

Do not turn blind eye.


• Scope of laws and regulations covered – L&R with direct effect on material amounts/disclosures in the financial statements – Other L&R that may be fundamental to entity’s business • E.g.
L&R dealing with: – Fraud, Bribery and Corruption │ Money Laundering │ Terrorist Financing │ Financial Products and Services │ Taxation │ Data Protection │ Environmental Protection │ Public Health and Safety Page 13 | Proprietary and Copyrighted Information NOCLAR Response Framework Auditors – Taking Action Using Professional Judgment • Establish legal or regulatory obligations in PA’s jurisdiction and comply with them • Raise the matter with management/TCWG and assess appropriateness of response • Determine whether to take further action – E.g.
disclose to appropriate authority │ withdrawal • Framework guidance for exercising right to disclose – Depends on nature & extent of actual/potential harm to stakeholders; existence of appropriate authority; availability of legal protection; threats to physical safety of PA or others.

Use professional judgment.
Page 14 | Proprietary and Copyrighted Information Page 15 | Proprietary and Copyrighted Information Part 4A – IISs for Audit and Review Engagements Section 400, Applying the Conceptual Framework to Independence for Audits and Reviews • S 410, Fees • S 411, Compensation and Evaluation Policies • S 420, Gifts and Hospitality • S 430, Actual or Threatened Litigation • S 510, Financial Interests • S 511, Loans and Guarantees • S 520, Business Relationships • S 521, Family and Personal Relationships • S 522, Recent Service with an Audit Client • S 523, Serving as a Director or Officer of an Audit Client • S 524, Employment with an Audit Client • S 525, Temporary Personnel Assignment • S 540, Long Association of Personnel with an Audit Client • S 600 Provision of Non-Assurance Services to an Audit Client • S 800, Reports on Special Purpose F/S (Restriction on Use…) Page 16 | Proprietary and Copyrighted Information About the New Code: IIS Gifts and Hospitality • Clarifies appropriate boundaries for offering and accepting of inducements • Can be illegal (e.g.
bribery/corruption) • Even if not illegal, prohibited to offer or accept inducements with intent to improperly influence behavior (even if trivial & inconsequential) • If no improper intent, apply conceptual framework Gifts Hospitality Entertainment Political/charitable donations Appeals to friendship & loyalty Employment, commercial opportunities Preferential treatment Page 17 | Proprietary and Copyrighted Information About the New Code: IIS Long Association – Strengthened Requirements  Creating an Partners Time-on Cooling-off environment for more effective fresh look EP EQCR Other KAPs – Adequate time – Restrictions on activities by previous partner 7 7 7 5 3 2 Technical/industry-specific consultation with audit team or client (except matters in last year of audit) Relationship partner Leading/coordinating services to the audit client Significant or frequent interaction with senior management or TCWG Exert influence on audit Page 18 | Proprietary and Copyrighted Information About the New Code: IIS Breach of Independence Requirements • Evaluate significance, determine whether action can be taken or whether resignation necessary • Report all breaches asap to TCWG, unless TCWG have specified alternative timing for less significant breaches – Communication should be in writing • Consider reporting to professional body or regulator when common practice or expected • Documentation of all identified breaches, actions taken to address them, and all matters discussed with TCWG and, if applicable, relevant regulators Page 19 | Proprietary and Copyrighted Information Page 20 | Proprietary and Copyrighted Information About the New Code: IIS Revised Fees-related Provisions • Responds to regulatory stakeholders and PIOB concerns about fees charged by audit firms • IESBA fact finding report June 2018 • Fees project closely coordinated with – Non-assurance Services (NAS) project – IAASB • Final provisions approved Dec 2020 – Effective Dec 2022, subject to PIOB approval Page 21 | Proprietary and Copyrighted Information Fees –
 Key Changes Fees Paid by Audit Client and Level of Audit Fees • Guidance on factors to evaluate level of self- interest and any intimidation threats created when fees (audit or non-audit) are paid by audit client • Revisions emphasize importance of audit fee as a standalone fee – Requirement for a firm not fee to be influenced by provision of services other than audit by firm or network firm to allow audit – But firm may take into account cost savings achieved as a result of experience derived from provision of services other than audit Page 22 | Proprietary and Copyrighted Information Fees – Key Changes Proportion of Fees Audit Fees Non Audit Fees • No threshold/ratio as a cap or to reevaluate threats • Fees charged by firm and network firms to the audit client + related entities • No specific period included → period during which independence is required Page 23 | Proprietary and Copyrighted Information Fees – Key Changes Fee Dependency – Non-PIE Audit Clients 1st to 4th year From 5th year Evaluate level of threats; and address such threats if they are not at an acceptable level be could the a Determine whether any of following actions safeguard and, if so, apply it (a) Pre issuance review by a PA outside of the firm (b) Post-issuance review by a PA outside by the professional body firm or of Fees from audit client exceed 30 % of total fees of the firm Page 24 | Proprietary and Copyrighted Information Fees – Key Changes Fee Dependency – PIE Audit Clients 1st year From 2nd year From 5th year Evaluate level of threats and address threats that are not at an acceptable level Determine whether a pre-issuance review performed by a PA outside of the firm can be a safeguard, and if so apply it Exit the engagement, unless: 1.
There is a compelling reason in public interest 2.
Professional body or independent regulatory body concurs to continue Fees from audit client exceed 15 % of total fees of the firm Page 25 | Proprietary and Copyrighted Information Fees –Enhanced Transparency for PIEs Communication with TCWG Audit Fees • Fees for audit of f/s • Firm’s evaluation of level of threats & safeguards applied Non-audit Fees • Total fees for services other than audit (charged during the period of f/s and only to downstream related entities) • Firm’s evaluation of level of threats & safeguards applied Fee dependency • Fact of fee-dependency (no exact ratio) • Safeguards applied • Any proposal to continue after 5 years Page 26 | Proprietary and Copyrighted Information Fees –Enhanced Transparency for PIEs Public Disclosure • Requirement for firms to ensure public disclosure of: Fee for the audit of f/s (firm and network firms) Total fees for services other than audit (client and controlled related entities consolidated) Fact of fee dependency, if applicable • Flexible approach to transparency (timely and accessible manner) • Comply first with legal or regulatory disclosure requirement; if none, discuss with TCWG benefits of disclosure by client • To the extent disclosure not made by client, firm required to publicly disclose Page 27 | Proprietary and Copyrighted Information Page 28 | Proprietary and Copyrighted Information About the New Code: IIS Revised Non-assurance Services (NAS) Provisions • Responding to regulatory concerns regarding permissibility of NAS to audit clients – A set of high quality, globally operable provisions – Shift in public expectations re auditor independence – Maintaining relevance of the Code re new services – Changing laws & regulations, and in some cases firm policies • 2018 Global roundtables (Washington DC Paris Tokyo Melbourne) • Approved Dec 2020; effective Dec 2022 subject to PIOB approval Page 29 | Proprietary and Copyrighted Information2 9 About the New Code: IIS Revised Structure of NAS Subsections / M A d n a s t ’ q e R General Provisions Relevant factors in evaluating level of threats Examples of actions that might be safeguards Prohibitions Entities that are not PIEs (e.g.
recruitment services) PIEs (e.g.
preparing current and deferred tax calculations) Page 30 | Proprietary and Copyrighted Information NAS – Key Changes Self-review Threat (SRT) Prohibition • New prohibition on providing NAS that might create SRT – SRT created by providing a NAS to a PIE cannot be eliminated, and safeguards are not capable of being applied to reduce that threat to an acceptable level • Evaluate whether there is a risk that: – Results of NAS will form part of, or affect, accounting records, internal controls over financial reporting, or f/s – As part of audit, audit team will evaluate or rely on any judgments made or activities performed by the firm or network firm in providing the NAS • Guidance to help in identifying and evaluating NAS- related threats A firm or network firm shall not provide a NAS to an audit client that is a PIE if the provision of that service might create a self-review threat in relation to the audit of the f/s.
Page 31 | Proprietary and Copyrighted Information3 1 NAS – Key Changes Materiality • Materiality qualifier withdrawn (both PIEs and non-PIEs) – Tax planning/tax advisory services when effectiveness of advice is dependent on a particular accounting treatment or presentation that the audit team has doubts about – Corporate finance services when effectiveness of advice depends on a particular accounting treatment or presentation that the audit team has doubts about • Materiality qualifier withdrawn (PIEs) – Acting in an advocacy role in resolving a dispute or litigation before a tribunal or court Page 32 | Proprietary and Copyrighted Information3 2 NAS – Key Changes Providing Advice and Recommendations (A&R) • Provision of A&R to an audit client might create a self-review threat – Depends on specific facts and circumstances • In the case of PIEs, if: – Self-review threat might be created  NAS is prohibited – Self-review threat will NOT be created  NAS permissible if management responsibility not assumed and other threats are addressed • Examples of A&R that might be provided in the course of the audit Page 33 | Proprietary and Copyrighted Information3 3 NAS – Key Changes Tax Advice that Does Not Create Self-review Threat Provision of tax advisory and planning services permitted provided such services: (a) Are supported by a tax authority or other precedent; (b) Are based on an established practice (being a practice that has been commonly used over a long period and has not been challenged by the relevant tax authority); or (c) Has a basis in tax law the firm is confident is likely to prevail.
Page 34 | Proprietary and Copyrighted Information3 4 NAS – Key Changes Acting as an Expert Witness • New prohibition on acting as an expert witness in a dispute involving an audit client that is a PIE unless appointed by a tribunal or court • Enhanced clarity about circumstances in which firm might give evidence to court or tribunal – No advocacy threat if appointed by court or tribunal Page 35 | Proprietary and Copyrighted Information3 5 NAS – Key Changes Communication with TCWG for PIE Audit Clients • Guidance for firms to agree suitable communication and clearance process with TCWG • For PIEs, firms to obtain concurrence from TCWG before providing NAS to the audit client, to related entities over which the audit client has direct or indirect control, or to a parent entity • Matters to be considered with TCWG include: ✓ Nature and scope of NAS to be provided ✓ Basis for firm’s assessment regarding threats to independence For listed entities – ISAs require auditor communications with TCWG about independence All entities – Code encourages firm communication with TCWG about independence matters Page 36 | Proprietary and Copyrighted Information3 6 Page 37 | Proprietary and Copyrighted Information The Ethics Board www.ethicsboard.org