IESBA Strengthens and clarifies independence requirements for group audits

Background:

The International Ethics Standards Board for Accountants (IESBA) on February 28, 2023 released final revisions to the International Code of Ethics for Professional Accountants (including the International Independence Standards) to address in totality the various independence considerations in an audit of group financial statements.
The revisions deal with the independence and other implications of the changes made to the definition of an engagement team in the Code to align with changes to the definition of the same term in the International Auditing and Assurance Standards Board’s (IAASB), International Standards on Auditing (ISAs) and International Standards on Quality Management (ISQMs).

Revisions:

The revised definition of Engagement Team is as follows:
An engagement team for an audit engagement includes all partners and staff in the firm who perform audit work on the engagement, and any other individuals who perform audit procedures who are from:
(a) A network firm; or
(b) A firm that is not a network firm, or another service provider.
Among other matters, the revisions:

• Strengthen and clarify the independence principles that apply to:
• Individuals involved in a group audit, including those within, or engaged by, firms that audit components within a group; and
• Firms engaged in the group audit, including firms within and outside the group auditor firm’s network.
• Specify the need for, and content of, appropriate communication on independence matters between the group auditor firm and component auditor firms participating in the group audit.
• More explicitly set out the process to address a breach of an independence provision at a component auditor firm, reinforcing the importance of transparency and appropriate communication with those charged with governance of the group.
• Amend the definitions of the terms “engagement team” and “audit team” in the Code to recognize the different and evolving engagement team structures and address the implications of those definitional changes.
• Provide guidance to facilitate the determination of who is included in an engagement team or an audit team.
• Revise the definitions of a number of existing terms and establish new defined terms with respect to independence in a group audit context.

SW Remarks:
The above pronouncement by IESBA will comprehensively address various INDEPENDENCE considerations in an audit of group financial statements and the same will be effective for audits of financial statements and group financial statements for periods beginning on or after December 15, 2023 with early adoption permitted.

Aditya Rawat, Audit Associate, SW India

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