August 2000

IFAC Proposes International Independence Standards

The International Federation of Accountants (IFAC) Council recently unanimously approved the release of an exposure draft that proposes revised independence rules for the world's accountants.

The Exposure Draft on Independence: Proposed Changes to the Code of Ethics for Professional Accountants sets out a conceptual framework describing the factors that could threaten a reporting accountant's independence and the safeguards that could be put in place to preserve that independence. In addition, the proposal includes a series of specific cases and suggests how the risk to independence can be minimized.

"Professional accountants are introducing new services and business practices at an ever-increasing rate," IFAC Ethics Committee Chair Marilyn Pendergast said. "While some of these changes can create new risks to independence, others may actually reduce them. The proposed new independence rules apply to these new circumstances."

Key changes to IFAC's current ethics code are-

Redefinition of "reporting accountant." The new definition takes into account the individuals ultimately responsible for the outcome of the assurance engagement: those who supervise or have direct managerial responsibility for the assurance engagement or provide technical consultation, quality control, or other oversight of partners and staff in the assurance engagement.
Redefinition of "immediate family" and "close relative." For example, in certain cases, family members are prohibited from involvement with the assurance client in order to preserve the professional accountant's independence. ·
Clarification of the role of national laws. The proposal also makes clear that national laws on independence are not superseded by IFAC rules and that the reporting accountant should comply with both national regulation and IFAC guidance.

The IFAC Ethics Committee developed the exposure draft with input from IFAC member bodies and various organizations such as the Fédération des Experts Comptables Européens (FEE), the European Union Audit Committee, and the U.S. Independence Standards Board. The committee invites comments, particularly with respect to whether

1) the change from a prescriptive approach to an approach that sets out a framework of risk and safeguards is acceptable;
2) the risks identified in this exposure draft are considered serious and whether the safeguards identified are adequate; and
3) the definition of reporting accountant and immediate and close family members are appropriate.

The deadline for comments is September 15. Comments may be sent via e-mail to EDComments@ifac.org or mailed to the technical director's attention at the secretariat. IFAC's membership consists of 153 professional accountancy bodies in 113 countries, representing more than 2 million accountants in public practice, education, government service, industry, and commerce.

Auditor Independence Center

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