Canada’s chartered accountants have voted to adopt new auditor independence requirements that will hold auditors to higher professional and ethical standards, thereby further protecting the public interest.

The new standard, the result of a rigorous review, consultation and approval process lasting more than a year, reflects the features of the standard issued by the International Federation of Accountants in 2001, combined with the rigor of United States’ Sarbanes-Oxley legislation and SEC requirements for public companies. The core principle of the new standard is that every effort must be made to eliminate all real or perceived threats to the auditor’s independence.

“The independence and objectivity of auditors is critical to public and investor confidence in the integrity of financial statements, and to our capital markets. This is a world-class standard. I want to thank and congratulate our members for approving this standard and for recognising that protecting the public interest is our highest priority,” said David Smith, president and CEO of the Canadian Institute of Chartered Accountants, in a news release.

Chartered accountants voted over the past 10 days on whether to adopt the new standard. Voting took place in every province except Quebec, where implementation requires approval by the government.

The new standard, first released for public comment in September 2002, is effective for engagements starting after December 31, 2003 with some transitional provisions for implementation. The CICA says the standard marks a shift to a more rigorous “principles-based” approach, meaning its applicability goes beyond any specific situation and mandates a proactive approach, based on clearly articulated principles. The standard also recognizes that there are certain activities for which there are no adequate safeguards, so it prohibits specified activities and relationships.

The new standard requires auditors to ensure that their independence is not impaired by threats that could arise from providing assurance on their own work, benefiting from a financial interest in a client, promoting a client’s position or opinion, becoming too sympathetic to a client’s interests or being intimidated by a client.

The new standard prohibits the firm and members of the engagement team and their immediate family from holding a financial interest in an assurance client.

For audit and review clients the standard also prohibits partners who practice in the same office as the lead engagement partner from holding a financial interest in that client.

The new standard also prohibits certain non-audit services including bookkeeping, valuations, actuarial, internal audit outsourcing, and IT system design.

As well it prohibits compensation of audit partners for cross-selling non-audit services to their audit clients.