Ep 17. IESBA — Ethics and independence considerations, Qs&As

July 13, 2020

In this episode Diane Jules, deputy director of the International Ethics Standards Board for Accountants and Ellen Goria, associate director of the AICPA Professional Ethics Division, discuss IESBA’s recently released staff Q & A document.

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Transcript

Ellen Goria: Welcome back Diane. Thank you so much for joining me today. We’ll be discussing COVID 19 and the impact on the profession and I'm just thrilled to have you back.

Diane Jules: Thank you so much Ellen. You know, it would have been great if we could actually do this in person, like I said, when we talked last time. But, you know, we're still, you know, working from home. It's a new normal. And I'm very pleased to be back and look forward to chatting with you.

Ellen Goria: Excellent. So let's just go get right into it. So with respect to the board’s activities. How has COVID 19 kind of changed the landscape for the board.

Diane Jules: For starters, the board immediately had to move towards having all these operations being done virtually using digital platforms. It’s really interesting when the New York restrictions came into place, it was just a couple days before the March meeting was planned to take place in New York in person. And very quickly, as the staff team needed to, you know, change funds and do all of these have the meeting virtually using the zoom platform and we are grateful for, zoom, let's just say that this is that allowed the board to quickly progress, some of its agenda items. Zoom allows us the flexibility to still stay connected, we do have to take into account the different time zones, given where everyone is called in from which means that the agenda is a lot more concise and we have had to be creative in terms of how we have the side discussions that would typically occur during the breaks. So that's, that's the most obvious way. You know, the, COVID 19 pandemic also means that we are having to adjust quickly. I say I use these words to avoid myself from saying we're, you know, we're being adaptable and agile and nimble, because these are the words I think that's on top of everybody's mind when they think of how they work in in this corporate environment.

And it's no different from is in that we touch base much more frequently because we have to have to think about our priorities and adjust our priorities on a more frequent basis in light of how board members are impacted by the pandemic, of course, because that the impact changes on almost a day to day basis in terms of the work, but the work plan and the board’s work itself.  And not just with each other, but with stakeholders, particularly national standard setters and the Public Interest Oversight Board, which oversees both on the boards work and for those who don't know, we share an office with the staff of the International Audit and Assurance Standards Board. And they're responsible for developing the audit and assurance standards and as well as some other international standards like the key quality management and review as well.

So back to how the board is impacted by COVID.  In some cases, it's difficult to interact with our stakeholders get ahold of them to some outreach meetings. And, you know, I've had to be either postponed or we are trying to have them, you know, via teleconference. And of course it's not exactly the same having those discussions via teleconference. It's great, but it's not, it doesn't always achieve the same results. So the impact of that is for some of us for some initiatives, particularly the ones that are the fact finding stage like tax planning, we’re seeing that the board is having to defer this work to a later quarter.

So, with, with the hope that things will get better. So instead of having a report on the fact finding that was scheduled to come out in December, it will now be coming out in March. So that gives you a flavor. And, of course, we can’t forget the fact that the comment period on the NAS and fees exposure drafts were extended by a month because we're sensitive to the fact that people might need a little more time than just the comment period that was originally scheduled.

So I’ve talked to you a lot about how the board’s work has been affected but I do also want to spend some time and share with you that the guidance that has been put out there that has been developed to help highlight some of the topics in the code that may be relevant.

So from that perspective, the staff has developed a questions and answers publication that deals at a general level with nine topics that may be of particular relevance during this COVID pandemic era, and that includes topics like pressure because we're all under pressure. And what that typically does, it does create opportunities and incentives to where people may feel the pressure to breach different the fundamental principles of ethics and of course as you read in the news. There’s fraud and non compliance quite a bit in response to the pandemic. Unfortunately, there's no crisis that goes without a heightened fraud. So we were highlighting some of the provisions in relation to non compliance before regulation, it's in the code that may be relevant and there is an acknowledgement that professional accountants, including those included auditors may be called upon by the clients to provide services including to get an assistance for financial support to bridge some of the financial burdens.

So the, the Q and A is a great document to really go back to and draw from to ensure that professional accounts understand how to provide those services by also remaining independent of the clients.

So, and, of course, communication, one of the topics. This also addresses the importance of communicating with those charge of government, which include audit committees. At this time it is fundamental that audit committees remain informed irrespective of how much more challenging that might be in life depended on it.

And then maybe if I could just also say the Q & A which which does have a forward from the IESBA chairman emphasizes the importance of, you know, the pandemic despite having to work from home, and despite the fact that, you know, it may be difficult to actually physically be in the presence of your clients, social, employment professionals accountants, whether in business or public practice. They are still required to comply with the fundamental principles of ethics.

And provisions in the code still apply. So that's something that's very strongly emphasized in the Q & A as well.

Ellen Goria: One of the items that really resonated with me was the discussion in the paper about how the changing landscape, especially the pace of change may change the threats that are present in any, specific situation whether it's with your employer or in connection with a client and I'm, you know, points out the unique opportunity that the conceptual framework has to help folks navigate that change.

Could you speak a little bit to that as far as the conceptual framework and how you view it as helping people through this difficult time?

Diane Jules: Well, thank you for asking about that Ellen. I mean the one great thing about having a conceptual framework as the one that's describing the code of ethics is that it is principal space and by that I mean that it sets out the overarching requirements to explain how to identify a threat to compliance to the fundamental principles as well as independence, how to evaluate that threat and how to respond to it. It also describes key concepts and that is so important to making sure that professional accountants get that right. And I think in this environment, that's one of the most important concepts to keep in mind is really the one that has to do with using the reasonable and informed third party test. I think it is quite critical too for professional accountants and business auditors and others who serve will have to service clients just keep in mind how another person doesn't have to be an accountant and you know being privy to the same facts and circumstances, how they would respond to the decisions that they make. And whether these decisions are ethical.

So I think that's quite that's something that's one of the ways that I think the conceptual framework helps guide and, you know, in terms of safeguards and understanding of how a reasonable and informed third party may view those safeguards and whether those safeguards are still effective is quite important.

And of course there's also the importance of professional judgment and staying alert to change in circumstances.

Ellen Goria: One of the things that really really resonated with me was the idea that we might be so busy trying to tackle the changing environment, it may not occur to us that a safeguard that was perfectly workable in a different environment or pre COVID environment is not workable in the COVID environment so you know, it's a pretty simple thing, but I thought the paper, really, you know, highlighted the importance of that.

Diane Jules: Absolutely. I mean, it's as simple as the reviewer that you have lined up to review the work may just have been sick or may have been reallocated to do something else and maybe just don't have the bandwidth to do that review anymore. So what do you do?

Ellen Goria: Right, right. You have to, you have to go back to the drawing board and

Diane Jules: And that may have implications specifically for smaller firms, I think where, you know, they may be providing the audit, as well as a non-assurance service.

Ellen Goria: The other thing that I thought was an interesting spin in the paper was, you know, highlighting the perspective of integrity and objectivity. I know you talked a little bit about it from the perspective of pressure but just, I think our profession has been, you know, given quite a bit of you know leeway and importance,  because we are required to act with integrity and objectivity and so I really liked how the paper focused on that. And I was wondering if there were any points in particular that you might want to have listeners take away regarding either one of those.

Diane Jules: Oh, thank you so much for asking me about this because you know that integrity is so key to the professional accountant, the public expects us to be straightforward and honest. Right, and that's the big part of what helps instill the trust and confidence in the professional accounting work.

So it has never been more important to really live up to that expectation, I think. And in times of crisis. You know how being clear and accurate and transparent when we communicate is so key. But let's face it, we know that communication via email, phone calls... It's not perfect, which means that there is a challenge. And I think as we work we probably need to be mindful and take extra steps to overcome the challenge of miscommunication or distractions that might such as you know personally being able to hear you even if you make a point completely clear because their audio is not working.

But the point I'm saying say is it does require a little more work or a little effort. I should say to get across those straightforward and honest communication and which, which is key to academic integrity. That’s quite important right now.

With as far as objectivity the aftermath of the pandemic is really emphasizing the importance of what it means to make decisions, draw conclusions, and judgments that are free of bias and conflict of interest. With everyone like I mentioned, working from home and not, you know, so no one is necessary, looking over you, it’s really the test. Let's put it this way. It should try to challenge whether professional accountants are living up to what their brand is which is that objectivity making decisions for your bias and judgments and particularly when there's so much uncertainty so much anxiety, not just about not just in the professional sense but my personal life as well.

It's interesting to see the interplay of integrity and objectivity, because there are difficult discussions that have to be held. Being physically apart it’s easy to hide and not have those discussions.

I know that courage is not a fundamental principle but sometimes it feels like it should be because that's what it will take to really comply and make ethical decisions were a professional capacity honest and straightforward and free of bias.

Ellen Goria: I know when it came to kind of looking at the immediate issues that we were faced here domestically, the ethics division was, you know, trying to interpret guidance in the CARES Act and in the payroll protection program. And it really wasn't clear. So I know there was a lot of discussion that had to be had to figure out, well, what's the right answer, is this what they intended? And like you said it was a very lengthy process.  We had to be as clear as we could, with folks saying this is what we truly believe it is. It's not really what's in there and if things had to change. I know that was one of the challenges we had. And there's no opportunity to read the body language to say, yeah, you're saying that's what a thing. Yeah, so I know I found the paper, you know, really helpful and enlightening. Is there anything else that the staff is thinking of doing in this regard on COVID?

Diane Jules:  Yes. Thank you for that Ellen I’d say that the board is quite, that is, the board has really embraced that it's it's realized, you know, supporting stakeholders as they go through this pandemic and like I mentioned, when we spoke the last time, the board is staying very close to national standard setters to really understand the jurisdictional challenges arising from COVID.

So the Q & A it dealt with topics as a general level, but to further understand whether there's a need to provide more guidance, the board has convened a subgroup of national standard setters and we've representation from six major jurisdictions G 28 jurisdictions. The US is represented, and I know some of individuals from PEEC are going to be participating in this working group.

And the objective of this working group will really be to just change views ideas challenges and ultimately recommend and even take the lead actually on developing for the guidance in relation to COVID.  So the short answer is I don't know yet. But we will we will learn soon enough, and it will be based on the insights from jurisdiction.

Ellen Goria: So keeping with your, you know, opening it up to yeah to a broad base of individuals so we can figure out really what would work best for the profession. Excellent.

If there was one thing Diane that you wanted listeners to kind of take away from this whole discussion, aside from reading the paper because it's definitely worth a read, what is it that you would recommend folks take away.

Diane Jules: Well, I'd say, you know, this is a, this is a difficult time. It's a difficult time to be a professional. It's a difficult time to be parents, it's so difficult time overall for professional accountants, I think it's an opportunity. It's an opportunity to really serve their organizations, by virtue of the skills that professional accountants have and the way that the public fuse the work the professional accountants, do we give them a unique opportunity to to service the world and actually get things back to normal, at least from a you know a financial reporting perspective. Because professional accountants in business or an auditor or any, you know, public practice, they have a very important role to play in managing the outcomes of this pandemic and providing clarity, where there isn't. So I think, in doing so, and especially while also complying with the fundamental principles of ethics, it places the profession well, to really reinvigorate or to really create trust and confidence in the work of professional accountants, because let's face it. Many organizations and even regulators have been raising questions about the work of the professional accountants, particularly with respect to audit.

So this is, this isn't a this is a an opportunity to really, I'd say, you know, I don't want to say start over, because that sounds really morbid, is it sounds like the end but it's really just, it's a great opportunity to contribute the revival that's going to be needed.

Ellen Goria: Thank you so much. This has been a wonderful chat with you and thank you to our listeners for joining us today and I hope you have a wonderful afternoon.

Diane Jules: Thank you. Thank you very much. Ellen and I really appreciate and happy to come back anytime

Conclusion: We hope you found this episode helpful. It's the second of a series and you can find the first episode on aicpa.org/ethicallyspeaking.

Use the subscribe links on the show notes page to get notification of new episodes of ethically speaking as they're published. You can also find a link on the show notes page to the IESBA Qs and As. If you have ethics questions, call our hotline at 888-777-7077 option two then option three. If you'd like to comment on this episode, or if you have ideas for future episodes email us at ethicallyspeaking@aicpa.org.