Agenda Item 11-3

Page 1 of 4

IFAC Board Meeting – March 7-9, Merida, Mexico

International Ethics Standards Board for Accountants – 4th Quarter 2011 Report

Service Delivery
Legend
 / On target / This symbol is used if the delivery of all services in this subcategory is expected to be on target, i.e., as presented in the service delivery plan.
 / Revised target / This symbol is used when the delivery (timing or output) of one or more services in the subcategory has been revised.
 / Below target / This symbol is used when: (1) one or more services included in the service delivery plan are not expected to be delivered within the year, or (2) a service is eliminated but not replaced.
Standards and Guidance / Status
Compliance with Due Process / 
Development of high quality pronouncements in accordance with board work plan / 
Major Achievements:
Exposure Draft issued on Proposed Changes to the Code of Ethics for Professional Accountants Related to Provisions Addressing a Breach of a Requirement of the Code.
Exposure Draft issued on Proposed Changes to the Code of Ethics for Professional Accountants Addressing Conflicts of Interest
Service Delivery Not on Target:
The IESBA October meeting did not approve the Exposure Draft on responding to suspected illegal acts. This
is now scheduled for consideration at the February 2012 meeting.
Adoption and Implementation / Status
Delivery of implementation support in accordance with board work plan / 
Major Achievements:
IESBA received a report of SME/SMP working group at its October meeting.
Representation of the Accountancy Profession / Status
Presentations at and participation in relevant events and meetings / 
  • Development/maintenance of relationships with key stakeholders
/ 
  • Development of public policy positions and external submissions
/ 
Major achievements:
  • Presentation to the Forum of Firms – Ms Munro (October 5)
  • Presentation at National Association of State Boards of Accountancy 104th Annual Meeting – Mr. Dakdduk. (October 24)
  • November 22, Presentation at Dubai Financial Services Authority Regional Conference –Mr. Walsh. (November 22)
  • The IESBA submitted a comment to the PCAOB on its Concept Release on Auditor Independence and Audit Firm Rotation. (December 14)

Communications / Status
Issues of press releases; annual, quarterly and monthly reports; and other communications / 
Maintenance of the website and related initiatives / 
Major Achievements:
  • Press Release: Exposure Draft on Addressing a Breach of a Requirement of the Code.
  • Press Release: Exposure Draft on Addressing Conflicts of Interest

Project Update
  • Breach of a Requirement of the Code
At its October meeting, the IESBA approved an exposure draft providing guidance on how a professional accountant would address a breach of a provision of the Code. Under the exposure draft:
  • If a professional accountant identifies a breach of a requirement of the Code, that is not related to independence, the accountant shall take whatever actions might be available, as soon as possible, to satisfactorily address the consequences of the breach – including determining whether to report the breach to those who may have been affected by the breach;
  • If a professional accountant in public practice identifies a breach of an independence requirement of the Code, the accountant shall:
  • Communicate the matter to those charged with governance and terminate, suspend or eliminate the interest or relationship that caused the breach;
  • Consider whether there are any legal or regulatory requirements that apply with respect to the breach and, if so, comply with those requirements;
  • Evaluate the significance of the breach and its impact on the firm’s objectivity and ability to issue an audit report;
  • Determine whether action can be taken to satisfactorily address the consequences of the breach;
  • If action cannot be taken, after discussion with those charged with governance, take the steps necessary to terminate the audit engagement in compliance with any applicable legal or regulatory requirements relevant to terminating the audit engagement;
  • If action can be taken, discuss the breach and the action proposed with those charged with governance as soon as possible;
  • If those charged with governance agree that action can be taken to satisfactorily address the consequences of the breach, continue with the audit engagement. If those charged with governance do not agree, take the steps necessary to terminate the audit engagement in compliance with any applicable legal or regulatory requirements relevant to terminating the audit engagement;
  • Document the action taken and all the matters discussed with those charged with governance and, if applicable relevant regulators.
The exposure draft comment period ended on January 23, 2012. The IESBA will discuss the exposure draft comments at its February 2012 meeting.
  • Conflicts of Interest
At its October meeting, the IESBA approved an exposure draft for professional accountants in public practice and professional accountants in business on how to identify and evaluate the significance of a conflict of interest and the steps an accountant takes to address the conflict of interest. Under the exposure draft:
  • A professional accountant in public practice shall take reasonable steps to identify circumstances that may create a conflict of interest;
  • When identifying and evaluating interests and relationships that might create a conflict of interest and implementing safeguards a professional accountant shall take into account whether a reasonable and informed third party would be likely to conclude, weighing all the specific facts and circumstances available to the professional accountant at that time, that compliance with the fundamental principles is compromised;
  • A professional accountant in business shall be alert to all interests and relationships that a reasonable and informed third party would be likely to conclude compliance with the fundamental principles might be compromised.
The exposure draft also provides guidance on safeguards to manage conflicts of interest, including obtaining consent from relevant parties.
The exposure draft also proposes some conforming changes recognizing that certain ethical conflicts might arise, such as undue pressure and self-interest threats, when preparing financial information.
The exposure draft comment period ends on March 31, 2012. The IESBA will discuss the exposure draft comments at its June 2012 meeting.
  • Responding to a Suspected Illegal Act
At its October 2011 meeting, the IESBA discussed, but did not approve, an exposure draft providing guidance to professional accountants in public practice and professional accountants in business on how to respond when encountering a suspected illegal act. The exposure draft would have required:
  • A professional accountant to sequentially approach disclosure within the client or employing organization; escalating the matter to successively higher levels of management if the matter was not appropriately addressed;
  • A professional accountant to disclose certain illegal acts to an appropriate authority if the professional accountant determined that the illegal act was of such consequence that disclosure would be in the public interest;
  • The suspected illegal acts that would be disclosed to an appropriate authority would have been:
  • Suspected illegal acts that directly or indirectly affect financial reporting; and
  • Suspected illegal acts the subject matter of which falls within the expertise of the professional accountant
The IESBA did not approve the exposure draft. The IESBA will consider the project again at its February meeting and will consider a requirement to disclose such matters to an appropriate authority and a right to disclose. After comparing the two options, the IESBA wil be asked to determine the appropriate approach and approve an exposure draft.

Posted February 16, 2012 – Version 1