Draft ethical standards for auditors
ACCA welcomed the opportunity to comment on the Auditing Practices Board's consultation paper Draft Ethical Standards for Auditors, writes David York.
ACCA began the consultation process by consulting with its members in the UK. We held meetings in Leeds, Birmingham and London, as well as utlising both our website and e-mail. The feedback we received was considered when drawing up ACCA’s formal response.
Let me begin by noting that ACCA fully supports the comments made separately by the major accountancy professional bodies in the UK and Ireland through the Consultative Committee of Accountancy Bodies (CCAB).
However, ACCA also took the opportunity to emphasise some issues which are of particular concern to ACCA because of the worldwide nature of our membership and our international outlook (see later in article).
Impact on Small Audit Firms and their Clients
Auditors in firms registered with ACCA in the UK generally provide services to small and medium-sized businesses.
We believe that the proposed Ethical Standards could have a particularly damaging impact on smaller businesses (both audit firms and clients). This is because they have been written from the perspective of large firms with large clients.
The APB needs to ‘think small first’; an approach advocated by the Company Law review and one which ACCA wholeheartedly supports. Threats and safeguards are different in smaller entities as are the public interest considerations where the economic impacts of a company are relatively minor compared with a large listed company.
As currently drafted the proposals would unnecessarily prevent clients receiving proactive advice, add to their costs and limit their choice of adviser. A fuller analysis of the threats and the adequacy of the safeguards is required, taking into account the public interest. We believe, therefore, that the proposals do not currently serve the public interest for the whole range of audited entities in the UK and Ireland.
As an international body, ACCA is in a unique position to comment from a global perspective. We believe that it is generally not helpful for any national standard setter to issue national-specific standards where those standards will necessarily have extra-territorial effect. We believe global problems need global solutions.
We recognise that ethics for auditors evolve and that, in some respects, the section of the IFAC Code of Ethics dealing with independence requires amendment. However, we believe that APB should recognise that the wider public interest is best served by it seeking international influence rather than issuing national rules which fragment the market and potentially confuse the users of financial statements. The Auditing Practices Board should be a strong voice for harmonisation, aligning its agenda not only with that of the International Auditing and Assurance Standards Board, but also with relevant aspects of the work of the IFAC Ethics Committee.
ACCA, in common with other accountancy professional bodies, needs to ensure that its members comply as a minimum with the IFAC Code of Ethics.
We are concerned that in the proposed Ethical Standards APB has not addressed all relevant matters included in that Code and also that it has diverged from the accepted principles-based framework by introducing a new concept of ‘management’ threat.
Such a change is wholly unnecessary, as it does not alter the outcome of ethical decision making. Unless the APB Standards are at least as stringent as the IFAC Code of Ethics, our auditor members in the UK and Ireland and those affected by the Standard elsewhere will have to consider two documents on independence.
David York - Head of Auditing Practice, ACCA