Communiqué NZAuASB 2012- 1: 9 January 2012
Exposure Draft
IESBA Exposure Draft Proposed Changes to the Code of Ethics for Professional Accountants Addressing Conflicts of Interest
The International Ethics Standards Board for Accountants (IESBA) has issued for comment an Exposure Draft Proposed Changes to the Code of Ethics for Professional Accountants Addressing Conflicts of Interest and the NZAuASB is issuing it for comment in New Zealand.
The ED proposes to provide additional guidance concerning conflicts of interest, and to make revisions to provide more comprehensive guidance in identifying, evaluating, and managing conflicts of interest. It:
- Includes a description of circumstances that might create a conflict of interest;
- Requires a professional accountant to take into account whether or not a reasonable and informed third party, weighing all the specific facts and circumstances available to the accountant at that time, would be likely to conclude that compliance with the fundamental principles is compromised;
- Requires the professional accountant to understand the nature of relationships and services in identifying whether a conflict of interest exists or may be created;
- Requires that potential conflicts of interest within a network of firms should be evaluated when a professional accountant in public practice has reason to believe that a conflict exists because of the interest or relationships that another firm in the network has with a client;
- Develops guidance on the nature of safeguards that may be available to manage conflicts of interest, including obtaining consent.
Click here for the exposure draft
Managing conflicts of interest in a small country like New Zealand is inevitable and has resulted in more stringent requirements than the proposals in the exposure draft. Specifically, PES 1, Ethical Standards for Assurance Providers requires disclosure of the conflict to those involved. Disclosure and a transparent process for handling conflicts of interest are always considered appropriate. The exposure draft states that it is generally necessary to disclose the nature of the conflict and to obtain written consent. The proposals also outline three conditions that must be met before a professional accountant can proceed to accept or continue with an engagement when a conflict of interest exists but consent cannot be obtained because it would in itself breach confidentiality. PES 1 requires an assurance provider to disengage from the relevant work when adequate disclosure is not possible.
One of the key strategic objectives set by the XRB Board for the NZAuASB is to adopt international auditing and assurance standards as applying in New Zealand unless there are compelling reasons not to. The scope of the NZAuASB’s responsibilities includes ethical standards for assurance providers. The exposure draft issued by the IESBA covers professional accountants in public practice and professional accountants in business. The NZAuASB only has an interest in the provisions that relate to assurance providers.
The NZAuASB currently has an active project to revise PES 1 and PES 2 in New Zealand. Responses to this exposure draft will be integrated into our main ethical project. This way the NZAuASB can still adhere to due process requirements set out by the XRB.
The XRB encourages constituents to read the Exposure Draft and submit comments to the NZAuASB. We encourage written comments to be sent to us in whatever form is easiest (not necessarily by way of formal submission).
Comments can be made to the New Zealand Auditing and Assurance Standards Board (NZAuASB) addressed to the Chairman, New Zealand Auditing and Assurance Standards Board, PO Box 11250, Manners Street Central, Wellington 6142, or by email to submissions@xrb.govt.nz.
Comments can also be made electronically to the IESBA website (www.ifac.org/ethics). Where constituents make comments directly to the IESBA, we request that a copy be sent to the NZAuASB.
Comments are due to the NZAuASB by 1 March 2012 and to the IESBA by 31 March 2012.