Draft Ethical Standards for Auditors
An Auditing Practices Board Consultation Paper
Comments from ACCA
February 2004
General Comments
ACCA welcomes the opportunity to comment on the Consultation Paper Draft Ethical Standards for Auditors. We fully support the comments made separately by the major accountancy professional bodies in the UK and Ireland through the Consultative Committee of Accountancy Bodies. We take this opportunity, however, to emphasis some issues which are of particular concern to ACCA, not least because of the worldwide nature of our membership and our international outlook.
International harmonisation
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. To that end we believe global capital markets benefit most from the application of high quality international standards in all jurisdictions.
We recognise that ethics for auditors evolves and that, in some respects, the section of the Code of Ethics for Professional Accountants issued by the International Federation of Accountants (IFAC) dealing with independence requires amendment. However, we believe that the Auditing Practices Board (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. APB 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, seeks to ensure that its members comply as a minimum with the IFAC Code of Ethics. We are concerned that the proposed Ethical Standards do not address all relevant matters included in that Code and also that the draft 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 Standards elsewhere will have to consider two documents on independence.
Impact on small audit firms and their clients
Auditors in firms registered with ACCA in the UK 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.
APB should ¿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 to a large listed company.
As currently drafted, the proposals would unnecessarily prevent clients receiving pro-active 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.