Auditors following global standards will want to review new guidance released by the International Ethics Standards Board for Accountants (IESBA) that broadens the definition of a public interest entity (PIE) and complements other recently revised provisions to the International Code of Ethics for Professional Accountants.
The IESBA’s newly revised definition of a PIE now includes more categories of entities “whose audits should be subject to additional independence requirements to meet stakeholders’ heightened expectations concerning auditor independence,” the IESBA stated.
“The concept of a PIE is central to the application of the IIS (International Independence Standards) and determines how far an auditor must go in meeting the fundamental requirement to be independent,” said IESBA Chair Gabriela Figueiredo Dias.
Other provisions in the International Code of Ethics for Professional Accountants were also revised, including International Independence Standards. “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,” Dias said.
The IESBA said it closely coordinated with the International Auditing and Assurance Standards Board (IAASB) on the development of the revisions, “given that some of the terms and concepts that were considered are common to both boards’ standards.”
“The IAASB worked closely with the IESBA as it reshaped the definitions of listed and public interest entities,” said IAASB Chair Tom Seidenstein. “In March, the IAASB approved a project proposal to consider changes to certain IAASB standards to support convergence between the definitions used in the revisions to the IESBA Code and the relevant IAASB standards. This will allow the IESBA Code and the IAASB standards to continue to work in tandem, thereby instilling confidence in the work of auditors and accountants worldwide.”
As noted by the IAASB last year, in addition to the revised definition of PIE, other aspects that could have implications for IAASB standards include:
- The introduction of an overarching objective for additional independence requirements for audits of financial statements of PIEs;
- Replacing the term “listed entity” with a new term, “publicly traded entity,” providing a definition of the latter term; and
- Introducing a transparency requirement for firms to publicly disclose the application of independence requirements for PIEs where they have done so.
Local bodies that are responsible for the adoption of the code play an “essential role” in tailoring the intentionally broad definition of PIE to their own jurisdictions and are encouraged “to properly refine the PIE categories and adding any other categories relevant to their environments,” the IESBA stated.
The revised PIE definition and related provisions become effective for audits of financial statements for periods beginning Dec. 15, 2024. However, the IESBA said it encourages early adoption.