XVII' World Congress of Accountants

1
XVII. World Congress of Accountants

• Ethics and Auditors Independence The Changing
  Expectations
•  
• Dr. Harald Ring, Chair of the IDW Board of
  Directors
• Chair of the FEE Ethics Working Party

2
Structure (1)

• Recent Developments in Europe
• Conceptual approach widely accepted
• Conceptual approach versus rules-based approach
• The conceptual approach
• Despite wide implementation of the framework
  approach remaining and increasing critical
  aspects

3
Recent Developments in Europe (1)

• The revised Statutory Audit Directive
• 25 April 2006 formal adoption by the Council
  of the European Union
• 9 June 2006 publication in the Official Journal
  of the European Union
• 29 June 2006 start of 2 years period to
  implement the Directive into national law

4
Conceptual approach widely accepted (1)

• Conceptual approach versus rules-based approach
• Statutory Audit Directive / EU Recommendation /
  IFAC Code
• Based on a conceptual / framework /
  principles-based / threats safeguards approach
• Some national systems of audit regulation /
  Sarbanes-Oxley Act
• Rules-based approach cook book approach
• IOSCO

5
Conceptual approach widely accepted (2)

• The conceptual approach
• Functioning
• Threats
• Self-interest
• Self-review
• Advocacy
• Familiarity
• Intimidation
• Safeguards
• Professional, legislative or regulatory
• Within the work environment

6
Conceptual approach widely accepted (3)

• The conceptual approach (seq.)
• Advantages
• Allows for the most infinite variations in
  circumstances that arise in practice
• Can cope with the rapid changes of the modern
  business environment
• Prevents the use of legalistic devices to avoid
  compliance
• Requires auditors to consider actively, and to be
  ready to demonstrate the efficacy of arrangements
  for safeguarding independence

7
Conceptual approach widely accepted (4)

• Despite wide implementation of the framework
  approach remaining and increasing critical
  aspects
• Demanding and critical application
• Rules-based approach mere application of legal
  prescriptions or prohibitions
• Principles-based approach complex process
• Analysis of threats
• Selection and application of the appropriate
  safeguard
• Sufficient documentation of the whole process

8
Conceptual approach widely accepted (5)

• Demanding and critical application (seq.)
• Analysis and selection / application of the
  appropriate safeguard allows for a remarkable
  extent of judgement or discretion
• Danger of differing results in comparable
  situations

9
Conceptual approach widely accepted (6)

• Potential solution
• Using a clearer and more direct language by
  describing details of the potential threats and
  the effectiveness of the appropriate safeguards
• IESAB with its Task Force is currently dealing
  with this issue
• Potential danger
• Change from the framework approach to a more
  rules-based approach (finally implementation of
  prohibitions)