Forthcoming Key Changes to the

IESBA Code
NAOFUMI HIGUCHI, CHRISTOPHER ARNOLD  |  DECEMBER 12, 2022

One of IFAC’s three strategic objectives is ‘Contributing to and promoting the

development, adoption, and implementation of high-quality international standards’.
Below is a summary of the forthcoming key changes to the International Ethics
Standards Board for Accountants (IESBA) International Code of Ethics for
Professional Accountants (including International Independence Standards) (the
Code), focused on those which are coming into effect from December 15, 2022.
Non-Assurance Services
In April 2021, IESBA released revisions to the Non-Assurance Services (NAS)
provisions of the Code. The revised NAS provisions address circumstances in
which firms and network firms may or may not provide a NAS to an audit or
assurance client. IESBA published a mapping document that details the revisions
to the extant Code by section, which assists in understanding the key changes.
These changes include:
 A new general prohibition on a firm or network firm to provide a NAS to
an audit client that is a public interest entity (PIE) if the provision of that
service might create a self-review threat to the firm’s independence.
 New provisions to assist firms and network firms in identifying and
evaluating self-review threats that might be created by the provision of a
NAS to an audit client.
 New guidance indicating that the provision of advice and
recommendations might create a self-review threat and explaining the
circumstances in which a firm or a network firm may provide advice and
recommendations to an audit client.
 New provisions to strengthen firm communication with those charged with
governance (TCWG) about NAS-related matters, especially in the case of
an audit client that is a PIE and entities within that PIE’s corporate
structure.
 Enhanced guidance to explain that the concept of materiality is not
relevant in evaluating whether a self-review threat might be created by
the provision of a NAS to an audit client that is a PIE.
 Strengthened provisions to assist firms in addressing threats to
independence that might be created by the provision of NAS to audit
clients that are not PIEs, including new application material in relation to
situations where a safeguard is not available.
  New provisions and structural refinements to promote the consistent
application of the NAS provisions. For example:
o  The revised NAS provisions identify certain situations where a
self-review threat to independence is not created.
o  The provisions that prohibit firms and network firms from
assuming a management responsibility are now more prominent
as they have been repositioned to Section 400. 
o  The provisions related to acting as a witness have been revised
and include application material to explain the circumstances in
which the advocacy threat created by acting as an expert witness
will be at an acceptable level.
These revisions are effective for audits of financial statements for periods
beginning on or after December 15, 2022.
IESBA Staff has issued a Questions and Answers (Q&A) publication to assist firms,
national standard setters, IFAC member bodies and individual professional
accountants in the adoption and implementation of the revised NAS provisions.
Fees
In April 2021, IESBA also released revisions to the fee-related provisions of Parts
4A and 4B of the Code. The changes include:
 Guidance that explains and addresses the issue of threats to
independence created when fees are negotiated with and paid by an
audit or assurance client.
 Enhanced guidance regarding factors to consider in evaluating the level
of the threats created when fees are paid by an audit or assurance client
and safeguards to address such threats.
 Clarification that the audit fee should be a standalone fee within the
spectrum of total fees from an audit client so that the provision of services
other than audit does not influence the level of the audit fee.
 Guidance for firms to evaluate and address the threats to independence
created when a large proportion of total fees charged by the firm or
network firms to an audit client is for services other than audit.
 Strengthened provisions regarding fee dependency in both
circumstances where an audit client is a PIE and where an audit client is
not a PIE, including establishing a threshold for addressing threats in the
case of a non-PIE audit client.
 A requirement for a firm to cease to be the auditor for a PIE audit client if
circumstances of fee dependency continue beyond a certain period.
 Provisions to achieve enhanced transparency with regard to fee-related
information for PIE audit clients to assist those charged with governance
and the public in forming their views about the firm’s independence.
 These revisions are effective for audits of financial statements for periods
beginning on or after December 15, 2022.
 IESBA Staff has issued a Q&A publication to assist firms, national standard
setters, IFAC member bodies and individual professional accountants in the
adoption and implementation of the revised fee-related provisions.
Quality Management
In December 2020, the International Auditing and Assurance Standards Board
(IAASB) issued its suite of quality management standards (ISQM 1, ISQM 2, and
ISA 220 (Revised)).
Objectivity of an Engagement Quality Reviewer and other
Appropriate Reviewers

In January 2021, IESBA released revisions to the Code addressing the objectivity

of an engagement quality reviewer (EQR) and other appropriate reviewers. This
project was closely coordinated with the IAASB project to develop the International
Standard on Quality Management (ISQM) 2, Engagement Quality Reviews.
The revisions provide guidance that supports ISQM 2 in addressing the eligibility of
an individual to serve in an EQR role, focusing on the critical attribute of objectivity.
Among other matters, the guidance:
 Elaborates on the need to identify, evaluate, and address threats to
compliance with the fundamental principle of objectivity that might arise in
the appointment of an individual as an EQR for a given engagement.
 Explicitly refers to and supports the requirement in ISQM 2 for a firm to
establish, as a condition for eligibility, a cooling-off period of two years
before an engagement partner can assume the EQR role on the same
engagement.
 Emphasizes that this cooling-off requirement in ISQM 2 serves the dual
objective of supporting compliance with the fundamental principle of
objectivity and the high quality of engagements.
The guidance may also apply in situations where, as a safeguard to address
identified threats to compliance with the fundamental ethics principles, an individual
is appointed as an appropriate reviewer for work performed. The enhanced
guidance becomes effective December 15, 2022.
Conforming Amendments

In April 2022 IESBA announced conforming amendments to the Code because the

Code refers to ISQC 1, which ISQM 1 replaces, as well as concepts and
terminology in ISQC 1. These conforming amendments become effective
December 15, 2022.
Note: IFAC has a dedicated webpage on quality management, which includes
multiple articles, videos, resources and guides to support implementation of the
quality management standards.
Revisions to the Definitions of Listed Entity and
PIE (not effective until December 2024, early
adoption is permitted and encouraged)
In April 2022 IESBA released a revised definition of a PIE and related provisions.
The revised PIE definition specifies a broader list of categories of entities as PIEs
whose audits should be subject to additional independence requirements. The
revisions:
 Articulate an overarching objective for additional independence
requirements for audits of financial statements of PIEs.
 Provide guidance on factors to consider when determining the level of
public interest in an entity.
 Replace the term “listed entity” with a new term “publicly traded entity,”
providing a definition of the latter term.
 Recognize the essential role local bodies responsible for the adoption of
the Code play in delineating the specific entities that should be scoped in
as PIEs in their jurisdictions, encouraging them to properly refine the PIE
categories and adding any other categories relevant to their
environments.
 Introduce a transparency requirement for firms to publicly disclose the
application of independence requirements for PIEs where they have done
so.
Conclusion
It is critical that stakeholders, and in particular firms, keep up with all the above
upcoming changes to the Code. The IESBA also has a number of current
projects covering changes to the definition of an engagement team, independence
in a group audit context, technology, tax planning and related services, and
sustainability reporting and assurance, which will result in further changes. In
addition, a consultation will be issued in Q2 2023 on the IESBA’s future strategy
and work plan for 2024-2027.
IFAC will continue to support the adoption and implementation of international
standards and develop and facilitate the sharing of resources to assist
stakeholders as they navigate these changes. Please see the Exploring the Code
Series, with 13 installments (as well as audio-versions) focusing on specific
aspects of the Code using real-world situations in a manner that is relatable and
practical, as well Ethical Leadership in a Digital Age, with four thought leadership
publications developed by CPA Canda, ICAS, IESBA and IFAC.