January 14, 2021
The International Ethics Standards Board for Accountants (IESBA) today released revisions to the International Code of Ethics for Professional Accountants (including International Independence Standards) (the Code) addressing the objectivity of an engagement quality reviewer (EQR) and other appropriate reviewers. This project dovetailed with the International Auditing and Assurance Standards Board’s (IAASB’s) development of International Standard on Quality Management (ISQM) 2, Engagement Quality Reviews, which was finalized in December 2020.
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; and
· 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.
“It is in the public interest that individuals trusted to serve as engagement quality reviewers act with unquestioned objectivity, given the nature and importance of that role,” said IESBA Chairman Dr. Stavros Thomadakis. “This new guidance is intended to reinforce the guardrails around this important function. I commend the extensive coordination efforts between the IESBA and IAASB in finalizing this guidance, and acknowledge the Public Interest Oversight Board’s useful advice on this project.”
The enhanced guidance will become effective December 2022.