The International Ethics Standards Board for Accountants (IESBA) has issued for public comment proposals to strengthen auditor independence by addressing the risks of long association in audit.
The Exposure Draft (ED), Proposed Changes to Certain Provisions of the Code Addressing the Long Association of Personnel with an Audit or Assurance Client, consults on amendments to IESBA’s Ethic Code, released in response to stakeholder concerns about auditor independence and the threats created by the long association of audit firm personnel with an audit client, IESBA said.
Through the ED, IESBA proposed to enhance partner rotation requirements by increasing the mandatory "cooling-off" period for the engagement partner on the audit of a public interest entity, from two to five years.
The proposals also strengthen restrictions on the type of activities that can be undertaken with respect to the audit client and audit engagement by any former key audit partner during the "cooling-off" period.
The ED clarified that, during the "cooling-off" period, the rotated partner shall neither be responsible for leading or coordinating the firm’s professional services to the audit client. It also proposed prevent the rotated partner from overseeing the firm’s relationship with the audit client (as a "relationship partner") or have significant or frequent interaction with the clients management.
In addition to the enhanced partner rotation requirements, the draft also includes several amendments to the general audit provisions applicable to all audit clients, providing a "more robust framework for identifying and evaluating threats to independence created by long association," the ED read.
According to the IESBA, the ED proposals have been developed after a benchmarking exercise of jurisdictional requirements, stakeholder outreach, and a survey that yielded more than 400 responses from standard setters, audit committees, regulators, and firms.
The ED is open for comment until 12 November 2014 and IESBA intends to finalise the revisions in the first half of 2015.