Global Ethics Board Expands Universe of Entities that are Public Interest Entities

[News]

The International Ethics Standards Board for Accountants (IESBA) today released a revised definition of a PIE together with other revised provisions in the International Code of Ethics for Professional Accountants (including International Independence Standards) (the Code). The revised provisions specify a broader list of categories of entities as PIEs whose audits should be subject to additional independence requirements to meet stakeholders’ heightened expectations concerning auditor independence when an entity is a PIE.

“The concept of a PIE is central to the application of the IIS and determines how far an auditor must go in meeting the fundamental requirement to be independent,” said IESBA Chair Gabriela Figueiredo Dias. “The revised definition and related provisions represent the third pillar in our package of measures to significantly strengthen auditor independence in the public interest, following the release of our revised Non-Assurance Services and Fees standards last year.”

To recognize diversity in jurisdictional contexts, the IESBA has taken a novel approach of expanding the PIE definition globally at a high level while providing guidance to regulators, national standard setters and other relevant local bodies on tailoring the broad definition for jurisdictional specificities. Among other matters, the revisions also:

• Articulate an overarching objective for additional independence requirements for audits of financial statements of PIEs.
• Provide guidance on factors to consider when determining the level of public interest in an entity.
• Replace the term “listed entity” with a new term “publicly traded entity,” providing a definition of the latter term.
• Recognize the essential role local bodies responsible for the adoption of the Code play in delineating the specific entities that should be scoped in as PIEs in their jurisdictions, encouraging them to properly refine the PIE categories and adding any other categories relevant to their environments.
• Introduce a transparency requirement for firms to publicly disclose the application of independence requirements for PIEs where they have done so.

The IESBA coordinated the development of these revisions closely with the International Auditing and Assurance Standards Board (IAASB) given that some of the terms and concepts that were considered are common to both Boards’ standards. The IAASB is pursuing a project to consider a number of matters relevant to its standards arising from the finalization of the IESBA’s PIE provisions, including whether and how to address the transparency requirement noted above in the IAASB’s standards.

The revised PIE definition and related provisions become effective for audits of financial statements for periods beginning on or December 15, 2024. Early adoption is permitted and encouraged.

The IESBA is also releasing a number of conforming amendments to the Code as a result of the issuance of the IAASB’s suite of quality management standards in December 2020. These conforming amendments will be effective as of December 15, 2022.

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