The Public Interest and Integrity Committee of the Canadian Institute of Chartered Accountants today released a new draft independence standard to apply to Canadian auditors and other assurance providers. The committee is accepting public comment on the draft standard until October 31, with the new standard to be finalized later in 2002.
In a statement, the CICA said the new draft standard reflects the updated global standard and represents a significant strengthening of Canada’s audit independence standard. The new standard also proposes a shift to a more rigorous ‘principles-based’ code.
The new rules will be formally adopted into the Codes of Ethics by Provincial CA Institutes/Ordre as soon as possible. The CICA says Canada’s major CA firms have voluntarily agreed to implement the new requirements before the end of 2002 for subsequent audits of public companies.
“The core principle of the new standard is that every effort must be made to eliminate any real or perceived threat to the auditor’s independence,” said CICA president and CEO David Smith.
Highlights of the new draft standard include:
- Financial Interest — the possession of a direct or a material indirect financial interest on the part of any member of the audit engagement team in the client is prohibited outright.
- Partner Rotation — the lead engagement partner on a public company audit client must be replaced after five years and that individual cannot resume such a role for a further two-year period.
- Non-Assurance Services — a number of non-assurance services are identified as incompatible with auditor independence including: designing or implementing a hardware or software system for an audit client; internal audit services to an audit client that is a publicly listed company of a minimum size; and valuation services, where the valuation involves matters that are material to the financial statements and the valuation involves a significant degree of subjectivity.