International Conference of the Slovak Chamber of Auditors High Tatra Mountains, 3-4 June 2010 The Ethics and Application of the Ethical Principles in the Audit Practice Olivier Boutellis-Taft FEE Chief Executive The European Profession and Professional Ethics

Overview About FEE A few Ethics projects in FEE FEE Discussion Paper on Integrity in Professional Ethics FEE Comparison Project on Auditor Independence

About FEE So let’s start by a few words on FEE. The profession in its entirety and its diversity: 45% in public practice in both large and small firms and this is more than auditors only: accountants acting as consultants in a variety of sectors and specialities from company law to corporate finance and sustainability, tax advisors… A majority of our members are not in public practice: business and public sector. 43 professional institutes of more than 500.000 accountants all contributing to a more efficient, transparent and sustainable European economy 32 European countries, including all 27 EU MS

FEE: Representing the Profession and Adding Value to Members Catalyst in Europe With PCAOB, SEC, etc. With EC, EP, EU Council & Committees Inform, advise & influence Facilitate consensus between With IFAC & its Boards: IAASB, IESBA, IAESBA, CAGs, IPSASB, etc. EU & intl. regulation, policy standard setting, etc. institutes, accountancy firms (big & small) How do we represent them? We’re very much focused on the policy debate and especially the EU policy debate and we are engaging on all issues that have an impact on the profession or on which the profession can add value by bringing its expertise and field experience, its values and its public interest dimension. We are in regular dialogue with the different policymakers, regulators and standards setters that you can see on this slide. We’re also informing our members and hope to be a catalyst for change in the profession. It’s from that perspective that we have worked on XBRL.

Europe and Ethics

FEE Discussion Paper on Integrity in Professional Ethics

Integrity in Professional Ethics FEE Discussion Paper issued in September 2009 for comments by 31 January 2010 Analysis of responses being prepared FEE Event on Integrity To promote debate Integrity is the core principle of professional behaviour, but the hardest to understand and instil in people More focus on training on integrity rather than independence and objectivity What does it mean?

Integrity is more than Words... BEHAVIOUR Personal Professional

Behavioural Characteristics of Integrity instead of Definition

Drivers of Organisational Integrity Be honest and truthful Leadership Deal fairly Strategy Comply with laws Policies Promote public interest Show consistency Information Be open-minded Culture Take corrective action

Embedding Organisational Integrity Culture Information Policies Strategy Leadership Be honest and truthful Awareness Deal fairly Predictability Comply with laws Transparency Promote public interest Show consistency Long-term view Be open-minded People Take corrective action

FEE Comparison Project on Auditor Independence Relevance of the Code for FEE and FEE Member Bodies The Case for a Common Code

FEE Comparison Project on Auditor Independence (1) To update the 2004 comparison: EC Recommendation (16 May 2002) and Statutory Audit Directive Art. on independence (17 May 2006) IESBA Code of Ethics, independence section 290 Main sections: Factual analysis, comparison and differences in table form (being prepared) Comparison of essential requirements and guidance (o/s) Comments, discussion and conclusions on differences (o/s) Subgroup of FEE Ethics WP performs the work

FEE Comparison Project on Auditor Independence (2) Findings so far: Principles: EC & IESBA +/- = IESBA Code includes far more detailed requirements and guidance IESBA Code is usually more robust and stringent EC is sometimes more demanding, especially in relation to definitions Preliminary conclusion: the devil will be in the detail

Relevance of the Code: IFAC Statements of Membership Obligations (SMOs) SMO4: IESBA Code of Ethics for Professional Accountants IFAC/FEE Member Bodies (MB): not apply less stringent standards If responsibility with 3rd parties: MB use best endeavours to persuade them MB objective is convergence of national code with the IESBA one MB to assist in implementation

Relevance of the Code: ISA ISA 200 (objectives auditor and audit): Auditor shall comply with relevant ethical and independence requirement That is ordinarily the IESBA Code of Ethics plus more restrictive national requirements (Application Material (AM)) ISA 220 (quality control for an audit) Engagement partner’s responsibility related to relevant ethical requirement Reference to IESBA Code of Ethics in AM

Relevance of the Code: ISQC1 ISQC1 (quality control in audit firm) Audit firm policies & procedures to provide reasonable assurance on compliance with relevant ethical requirements Reference to IESBA Code of Ethics in Definitions (12q) and AM

The Case for a Common Code Regulators’ needs: Reliance on third country oversight system only if auditors apply equivalent standards Profession‘s needs/concerns: Group audit situation: reliance on other auditor‘s independence Multiple standards reduce choice in audit market Reputation risk: Multiple standards create higher risk of specific independence violations even if they don‘t differ in substance Costs of monitoring compliance with multiple standards, in particular relatively high for smaller networks with cross-border activities Investors‘ / Clients‘ concerns: Confusion and unnecessary costs (for audit committees)

Discussion and Questions

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