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IFAC Ethics Committee Revises Ethics Code on Audit Partner Rotation

The Ethics Committee of the International Federation of Accountants has approved a revision to its Code of Ethics for Professional Accountants to clarify guidance pertaining to lead partner rotation for audit clients that are listed entities.

When the Ethics Committee initially updated Section 8 of the Code, “Independence Requirements for Assurance Engagements,” in November 2001, the Code specified that lead audit partners should be rotated after a pre-defined period, normally, no more than seven years, and after such rotation, should not resume the role of lead engagement partner until a further period of time. However, the Ethics Committee recognizes that this guidance as worded might imply that the lead engagement partner would be able to assume the role of another partner on the engagement.

“Such practice would not adequately address the familiarity threat created by using the same lead partner on an audit of a listed entity for a prolonged period of time and provide a necessary fresh look at the engagement,” states Marilyn Pendergast, chair of the Ethics Committee.

Consequently, the Ethics Committee has approved a revision to make it clear that an individual who has completed a predefined period in the role of lead engagement partner for an audit of a listed entity should not participate in the assurance engagement until a further period, normally two years, has elapsed.

This revision to the Code of Ethics for Professional Accountants may be downloaded from the IFAC website by going to www.ifac.org.

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