Members of the XRB Assurance Standards team have put together this useful digest to highlight the ethical requirements you need to be keep in mind and stay up to date with.
Have you heard?
Come June next year, the revised and restructured international Code of Ethics (the International Code) will take effect. It’s more user-friendly, easier to navigate and enforce, to help you deal with any ethical dilemmas you may face.
Here’s how it will be structured.
To align with the revised and restructured international Code—issued by the International Ethics Standards Board for Accountants (IESBA)—now the NZAuASB is proposing to revise the New Zealand Code of Ethics for Assurance Practitioners (that’s the New Zealand Code).
As an assurance practitioner, here are five things you need to know to prepare for when the revamped international Code is adopted here in New Zealand:
1. How to use the enhanced Conceptual Framework
This will require you to focus on threats—including enhanced material to explain how to identify, evaluate and address threats to comply with the fundamental principles—as well as threats to independence. There are new definitions for a ‘reasonable and informed third party’, ‘acceptable level’ and ‘safeguards’.
This more robust conceptual framework is intended to drive a change in mindset in how you apply it.
You will have to think carefully how an identified threat could best be addressed, whether a proposed action would be effective in addressing that threat and whether that action would meet the revised definition of a ‘safeguard’.
The link and interaction between independence and the fundamental principles of ethics has been enhanced and clarified.
2. A more integrated approach
The new international Code emphasises that all four parts of the new Code “should be considered and applied in a holistic manner”. Thus, assurance practitioners will have to comply with the entire Code, including Part 2 “Professional Accountants in Business”.
This is because in some circumstances expanded guidance for professional accountants in business is also relevant to assurance practitioners—for example, guidance when facing pressure to breach the fundamental principles.
However, the XRB mandate applies only to practitioners who perform assurance engagements, so how the IESBA Code would apply here in New Zealand is not so simple.
The proposed New Zealand Code will include only Parts 1, 3 and 4 of the new international Code. Therefore, you will also need to look to your professional bodies’ ethical requirements to meet the obligations in Part 2 of the International Code.
CA ANZ is also looking to revise its Code of Ethics to include the international revisions.
The new international Code includes a comprehensive framework to reset expectations regarding inducements. It includes an intent test that prohibits the offering or acceptance of inducements where there is actual or perceived intent to improperly influence the behaviour of another.
4. Longer cooling off period
Don’t forget that the new auditor rotation requirements are also coming into effect. This is a key feature of recent revisions to overcome any perceived threats to independence.
5. Professional scepticism highlighted
There is a strong focus on supporting the exercise of professional scepticism and professional judgement, including new application material.
We think now is a great time to start to engage with these new enhancements and what they will mean for you.
New Zealand-specific matters
For those of you that do assurance engagements other than audits and reviews, there are some changes the Board is proposing to the extant New Zealand Code which you need to be aware of.
Given the enhancements made to the international Code, the Board has reconsidered whether all “NZ-specific” paragraphs in the extant New Zealand Code continue to be appropriate. Most of the specific NZ paragraphs added for non-assurance engagements were to align the independence requirements with those for audit and review engagements.
The Board has identified some specific NZ requirements for non-assurance engagements which it considers are no longer required to be aligned with the more robust requirements for audit and review engagements. The Board believes the more principled based approach in the new restructured Code is appropriate and is therefore proposing to make the New Zealand Code for non-assurance engagements more consistent with the international Code.
These proposals will have no impact on requirements for the audit or review of financial statements which are already closely aligned with the international Code.
The key proposed changes for New Zealand that will impact on other assurance engagements include:
Breaches of Independence
The NZAuASB is proposing to include an abbreviated framework for other assurance engagements for addressing breaches of independence consistent with the international approach.
The framework is more principles-based and less prescriptive in terms of specific matters to be communicated and who you can communicate with for other assurance engagements.
This will mean that for this type of assurance engagement, you will have to use professional judgement to determine what and with whom to communicate. It is similar to—but less prescriptive—than the requirements for audits and reviews.
Public Interest Entity independence requirements – including rotation requirements
The Board is proposing not to include the more robust and prescriptive requirements that apply to audits or reviews of public interest entities for other assurance engagements. For example, it proposes to no longer specify the time on/time off period for other assurance engagements.
Rather, you must apply the threats and safeguards approach and consider whether long association with a client creates a threat to independence. Where you think there is such a threat, you then need to consider whether the threat can be eliminated, or safeguards applied to reduce it to an acceptable level.
Non-compliance with laws and regulations
The Board is also proposing to adopt an abbreviated framework for dealing with non-compliance with laws and regulations when performing other assurance engagements.
A key difference here is that, unlike for audit and review engagements where you must discuss identified or suspected non-compliance with management and where appropriate, with those in governance, for other assurance engagements you need only discuss it with those charged with governance if you have access to them.
You can get more detail on the specific changes compared to the extant New Zealand Code and how to make comments in the invitation to comment on proposed PES 1.
If you’re a stakeholder, practitioner, preparer, someone in governance, we want to know whether you agree with changes to the extant NZ-specific paragraphs for the New Zealand-specific Code.
And to make it easier to grasp the issues, why not join us for our webinar on 18 October?
We will deal with the implications in much more detail for both the proposed International and the New Zealand-specific Codes.
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