Strengthening auditor independence

The independence of auditors was the focus of an international forum hosted by the Ethics Committee of the International Federation of Accountants in Brussels on October 11 and attended by approximately 150 people. Forum participants, who included regulators, standard- setters, leaders of accountancy organizations and members of the profession, supported the principles-based approach to independence expressed in the IFAC Code of Ethics for Professional Accountants and suggested ways in which it might be clarified or augmented. In addition, the participants emphasized the need to educate not only members of the profession but also regulators, management, boards and audit committees on the expectations of auditors with respect to independence.

Suggested ways to enhance the code included:

implementation guidance, including examples of appropriate and inappropriate safeguards to independence threats;
guidance with respect to public-interest entities and the ethics concepts that apply to such entities;
greater clarity regarding the application of the code with respect to tax services.

The Ethics Committee will be considering these and other issues raised through its public consultation as it updates the independence section of the Code.

An important objective of the Ethics Committee is to promote international convergence with the principles in its code. Recent approval of the 8th Company Law Directive in the European Union is providing further impetus to the convergence movement.

“The consensus of forum participants was that convergence could best be achieved through a principles-based approach to ethical standards. One of our greatest challenges, however, is the need to balance the principles-based approach with the rules-based approach that has been historically favored by some regulators,” stated Ethics Committee Chair Richard George. “The forum provided important input on how this might be accomplished.”

Guest speakers at the forum, Canadian Public Accountability Board Chair Gordon Thiessen and IFAC President Graham Ward, emphasized that auditor independence was central to building trust in financial information and to the development of capital markets. Both viewed achieving convergence in this area as a means of better protecting the public interest.