Conflicts of Interest
Peter Hughes
IESBA December 2012
New York, USA
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Conflicts of Interest
Timeline
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Project approved October 2009
ED issued December 2011
IESBA June 2012: First read of Section 220 post exposure
CAG September 2012
IESBA December 2012: Final standard presented for approval
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Conflicts of Interest
Objective of Project
• To provide more comprehensive guidance on identifying, evaluating
and managing conflicts of interest
• To address issues both for professional accountants in public practice
and in business in a broadly similar way
• To recognize, however, the particular considerations for professional
accountants in public practice where conflicts might be created by
relationships of other members of the accountant’s firm
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Conflicts of Interest
Description & examples of a conflict of interest
• June IESBA supported revised description to provide a clearer linkage
between the subject of a professional service and the existence of a
conflicting interest or relationship, and revised examples.
• September CAG supported revised description but raised connection
between Conflicts and Independence:
• When the professional service is an assurance service the
professional accountant in public practice shall also comply with the
independence requirements of Sections 290 and 291 as appropriate.
• Examples added, amended and re-ordered.
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Conflicts of Interest
Third party test
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June IESBA and September CAG supported third party test.
Wording of third party test aligned with 100.7
Subjective nature of third party test raised by respondents
Task Force draws attention to requests from some respondents to
clarify meaning of third party test. Q&A to provide some help?
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Conflicts of Interest
“Reason to believe” threshold for network firms
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June IESBA in general supported “knows or has reason to believe” threshold.
September CAG: comparison made with threshold in 290 & 291 and
suggested strengthening
290/291 are limited to interests and relationships with the audit/assurance
client itself, while 220 applies more broadly to any interests and relationships
when performing any service for any client
Changes made: Linked more clearly to identification process for networks with
separate paragraph in 220.7; and strengthening with “having made enquiries
as appropriate”
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Conflicts of Interest
Disclosure and Consent
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June IESBA and September CAG proposed greater clarity on disclosure and
consent
Changes made to clarify types of disclosure and consent:
– General disclosure (e.g. standard T&Cs) and general consent
– Specific disclosure and explicit consent
– Implied consent clarified with a description
Ultimate test of conflicts involving self interest is “shall not allow a conflict of
interest to compromise professional or business judgment”
It is generally necessary to disclose and obtain consent if safeguards have
reduced the threats to an acceptable level
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Conflicts of Interest
Disclosure and Consent: Documentation
• September CAG proposed documentation of safeguards and consent
should be stronger
• Task Force is of the view that documentation does not change the
facts and is a judgment for the accountant. Specific disclosure and
explicit consent are automatically documented. Documentation is
encouraged for verbal and implied consent but should not be
mandated by the Code
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Conflicts of Interest
When consent cannot be obtained
• Respondents, June IESBA and CAG generally supportive
• Change made for IESBA comment:
– The provision was clarified so that it would not apply where implied or
general consent has already been obtained by adding “making specific
disclosure for the purpose of obtaining explicit consent” to 220.13
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Conflicts of Interest
Other issues raised at CAG
• Professional Judgment: The professional accountant shall determine
whether the significance of the conflict of interest is such that specific
disclosure and explicit consent is necessary.
• External notification of a Conflict: This includes matters notified by
external parties, for example clients or potential clients.
• Confidentiality: the professional accountant in public practice shall
remain alert to the fundamental principle of confidentiality. Moved
from 220.10 to 220.4 to provide greater emphasis.
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Conflicts of Interest
Other changes
• Paragraph regarding when to discontinue or terminate
(220.5) was given greater prominence in response to CAG
comments in particular.
• New paragraph (220.11) added to clarify the need to
decline or discontinue where consent is refused or
withdrawn.
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Conflicts of Interest
Sections 310, 320, 340
• Almost all respondents supportive of Section 310 in ED, including third
party test.
• No comments made at CAG
• Task Force aligned Section 310 with Section 220 as far as possible.
• Respondents again noted subjectivity of third party test.
• Almost all respondents supportive of conforming changes to Sections
320 and 340.
• Some editorial changes made to Sections 320 & 340.
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