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July 26, 2009

Independence requirements for auditors tighten in revised Code

Independence requirements for auditors have been tightened in a revised Code of Ethics for Professional Accountants issued by the International Ethics Standards Board for Accountants (IESBA), one of the International Federation of Accountants (IFAC) standard-setting boards.

Pushing towards global convergence of ethics standards is a key objective behind the changes.

Deloitte director of global independence, Jean Rothbarth, who also sits on the IESBA, said the changes have been made to reflect an evolved business environment since the code was issued in 2000.

The board spent a lot of time benchmarking against national accountancy bodies and regulators.

“One of our objectives at IFAC and at the IESBA is convergence of global standards and with that notion we wanted our independence standards to be credible,” Rothbarth said. “To promote convergence, we felt that it was really important that we strengthen those standards.”

KPMG Europe ethics and independence partner Peter Hughes called international convergence of ethical standards a “holy grail”.

“Whenever we do global audits, which is all the time, we have to apply different standards in different countries and it is very difficult. It considerably adds to the compliance burden,” Hughes said. “It is important in that context that the code of ethics is seen as something that national standard setters can be comfortable about adopting.”

The changes to independence requirements include:

• Extending independence requirements from audits of listed entities to audits of all public interest entities;

• Requiring a cooling off period before certain members of the firm can join public interest audit clients in certain positions;

• Extending partner rotation requirements to all key audit partners;

• Strengthening some provisions related to the provision of non-assurance services to audit clients.

The IFAC statement of membership obligations encourages the convergence of national codes with the IESBA code.

The revised code takes effect on 1 January 2011.

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