International Ethics Standards
Board for Accountants (IESBA)
Submitted via the IESBA website
and via e-mail to:
kensiong@ethicsboard.org
Dear Mr. Siong,
The French accountancy bodies « the Compagnie Nationale des Commissaires aux comptes » (CNCC) and « the
Conseil Supérieur de l’Ordre des Experts-comptables » (CSOEC) are pleased to provide you with their
comments on the IESBA exposure draft " Proposed Changes to Certain Provisions of the Code Addressing the
Long Association of Personnel with an Audit or Assurance Client " in the IESBA Code of Ethics for professional
accountants ("the Code").
Our response is twofold: it comprises general comments and answers to questions raised by the ED.
If you have comments or queries regarding our response, please do not hesitate to contact us.
Yours sincerely,
Yves NICOLAS
President of the CNCC
Joseph ZORGNIOTTI
President of the CSOEC
General Comments
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As an introductory remark, we would like to highlight that in our opinion the modifications which are
proposed in the exposure draft should be included in the IESBA project dealing with the structure of
the code as they are mainly guidance for the cooling off period and would not change the period on
of the engagement. Hence there is no real emergency.
We also believe that particular attention should be paid when introducing guidance in the code does
not lead to the introduction of new requirements through the use of the word shall. We would like to
emphasize that the code must remain a principle-based Code : readers can see lists of examples as
“black lists” (prohibitions) and those not listed as potentially permitted ; guidance and examples
must remain illustrative and should not be perceived as to rules in a principle-based Code. Finally, we
would like to draw your attention to the European reform of audit1 which provides rotation
requirements for key audit. The code should converge or help convergence by providing principles
that can accommodate different circumstances so that the member states can comply with both the
code and the new regulation.
(a) Small and Medium Practices (SMPs) –The IESBA invites comments regarding the impact of the
proposed changes for SMPs
We would like to highlight that when there is a small number of partners within the same firm, it may
be difficult to comply with the rotation requirements. We wish the IESBA would explore alternatives
to rotation for SMPs. In some cases, the rotation and cooling-off period rules could have an anticompetitive effect for small accountants’ offices and lead to more market concentration.
(e) Effective date – Recognizing that the proposed changes are substantive, would the proposal
require firms to make significant changes to their systems or processes to enable them to
properly implement the requirements? If so, do the proposed effective date and transitional
provisions provide sufficient time to make such changes?
We would like to emphasize the strategic importance of consistency between these proposed
provisions and the new EU audit legislation. The European Regulation (EU) No 537/2014 on specific
requirements regarding statutory audit of public-interest entities states that the “[…] the Key Audit
Partners (KAP) responsible for carrying out a statutory audit shall cease their participation in the
statutory audit of the audited entity not later than seven years from the date of their appointment.
They shall not participate again in the statutory audit of the audited entity before three years have
elapsed following that cessation. […] ”. Furthermore, the Regulation requires the statutory auditor or
the audit firm to “establish an appropriate gradual rotation mechanism with regard to the most
senior personnel involved in the statutory audit […]”.
We share the views expressed by FEE : a holistic approach is crucial to analyse how the different
rotation requirements, mandatory firm rotation, KAP rotation, and rotation of engagement partners
and senior personnel will interact together and what their impact would be on audit quality. In this
respect, the impact assessment does not disclose whether IESBA has laid sufficient emphasis on this
issue in developing the ED.
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Directive 2014/56/EU of the European parliament and of the council of 16 april 2014 amending Directive
2006/43/EC on statutory audits of annual accounts and consolidated accounts and Regulation n° 537/2014 of
the European parliament and of the council of 16 april 2014 on specific requirements regarding statutory audit
of public-interest entities and repealing Commission Decision 2005/909/EC.
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Answers to questions
General Provisions
1. Do the proposed enhancements to the general provisions in paragraph 290.148 provide
more useful guidance for identifying and evaluating familiarity and self-interest threats
created by long association? Are there any other safeguards that should be considered?
We do not have specific observations regarding this question.
2. Should the General Provisions apply to the evaluation of potential threats created by the
long association of all individuals on the audit team (not just senior personnel)?
We do not have specific observations regarding this question.
3. If a firm decides that rotation of an individual is a necessary safeguard, do respondents
agree that the firm should be required to determine an appropriate time-out period?
We think that the appropriate time-out period is different in each and every case, the
circumstances must be taken into account separately. Professional judgments should be applied
to each situation.
Rotation of KAP’s on PIEs
4. Do respondents agree with the time-on period remaining at seven years for KAPs on the
audit of PIEs?
We agree with the time-on period to remain at seven years and with the flexibility offered by the
Code to this period, which, in fact, is a maximum period. However, each country has the
possibility of deciding on a shorter time-on period if it so desires.
5. Do respondents agree with the proposal to extend the cooling-off period to five years for
the engagement partner on the audit of PIEs? If not, why not, and what alternatives, if any,
could be considered?
We do not agree, we prefer not to extend the cooling-off period to five years minimum for an
engagement partner on the audit of PIEs.
It must be noted that the cooling off period provided in Regulation n° 537/20142 of the European
parliament is three years.
The adoption of a fixed cooling off period of five years in the Code would lead the European
auditors to go over and above the regulator in order to comply with the Code.
2
Regulation n° 537/2014 of the European parliament and of the council of 16 april 2014 on specific
requirements regarding statutory audit of public-interest entities and repealing Commission Decision
2005/909/EC.
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This is why we would rather support a range from a minimum of two years to a maximum of five
years for the engagement partner based on professional judgment and a range from a minimum
of two years to three years for the others KAP. The three years cooling-off period would be
coherent with the ranges provided by the Code.
We propose as alternative solution three years minimum and as the Code is a principle-based
code, it should state that the professional judgment applies to determine which KAPS should turn
and how long for.
6. If the cooling-off period is extended to five years for the engagement partner, do
respondents agree that the requirement should apply to the audits of all PIEs?
We do not agree with the extension of the cooling off period to five years, see our response
above.
Even if, in our view, the same rules should apply to all auditors of PIEs including SMPs, IESBA
should seek tangible recorded data in order to specifically assess, in particular, the potential
impact on SMPs that perform audits of PIEs, in order not to disadvantage this group. With regard
to the proposed cooling-off period for instance, five years is likely to be excessively restrictive
and SMPs may even find it impossible to comply with such rotation plans because they have a
smaller number of partners upon which to draw on.
We would like to draw your attention to the fact that in some cases, the rotation and cooling-off
period rules could have an anti-competitive effect for small Chartered accountant's offices and
lead to more concentration rather than less.
7. Do respondents agree with the cooling-off period remaining at two years for the EQCR and
other KAPs on the audit of PIEs? If not, do respondents consider that the longer cooling-off
period (or a different cooling-off period) should also apply to the EQCR and/or other KAPs?
We agree with the cooling-off period remaining at a minimum of two years for the EQCR and
other KAPs on the audit of PIEs especially as this duration joins in the range minimum of two to
five years we propose.
8. Do respondents agree with the proposal that the engagement partner be required to cooloff for five years if he or she has served any time as the engagement partner during the
seven year period as a KAP?
We don’t support a cooling off period of five years, but we consider, as we would like to have a
range of two to five years for cooling-off period of EP, that professional judgment should apply
to decide, according to the role of individuals during the conduct of the audit, the duration of the
cooling of period. Furthermore this approach would be more coherent with a principle based
code.
The Code is a principle-based code, the Code has to fix principles and not rules.
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9. Are the new provisions contained in 290.150C and 290.150D helpful for reminding the firm
that the principles in the General Provisions must always be applied, in addition to the
specific requirements for KAPs on the audits of PIEs?
Yes, we agree with the new provisions contained in 290.150C and 290.150D, which
accommodate different circumstances.
10. After two years of the five-year cooling-off period has elapsed, should an engagement
partner be permitted to undertake a limited consultation role with the audit team and
audit client?
It seems to us that the new provisions contained in paragraph 290.150B are disproportionate and
much too detailed for a principle-based Code. It is really rule based and these details don’t have
their place in this Code.
We observe that the last two paragraphs page 12 in the exposure draft are sufficient and reflect
well the ideas developed in the proposes paragraphs:
“In this respect, the IESBA proposes that during the cooling-off period the rotated partner shall
not:
• Be responsible for leading or coordinating the firm’s professional services to the audit client or
overseeing the firm’s relationship with the audit client (sometimes referred to as the “relationship
partner”); or
• Undertake any other role, including the provision of non-assurance services, that would result
in:
○ Significant or frequent interaction with senior management or TCWG; or
○ An ability to exert direct influence on the outcome of the audit engagement.”
11. Do respondents agree with the additional restrictions placed on activities that can be
performed by a KAP during the cooling-off period? If not, what interaction between the
former KAP and the audit team or audit client should be permitted and why?
Yes, we agree if the first bullet point in paragraph 290.150B is simplified.
12. Do respondents agree that the firm should not apply the provisions in paragraphs 290.151
and 290.152 without the concurrence of TCWG?
Yes, we agree with the news provisions.
Section 291
13. Do respondents agree with the corresponding changes to Section 291? In particular, do
respondents agree that given the differences between audit and other assurance
engagements, the provisions should be limited to assurance engagements “of a recurring
nature”?
We have no specific observations regarding that question.
Impact analysis
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14. Do respondents agree with the analysis of the impact of the proposed changes? In the light
of the analysis, are there any other operational or implementation costs that the IESBA
should consider?
Please refer to our general comments up front
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