IESBA releases staff alert on ethics and PE investment

The International Ethics Standards Board for Accountants has released a staff alert on private equity investment in accounting firms and the related ethical and independence concerns.

The staff alert discusses ethical matters that accounting firm leaders should pay special attention to when considering or accepting an investment from PE firms.

The alert points to the ethics and independence provisions in IESBA’s International Code of Ethics for Professional Accountants (including International Independence Standards) that are applicable both before and after a PE investment in an accounting firm. 

From an ethics perspective, they include threats to compliance with some of the ethics code’s fundamental principles, such as confidentiality; shifts in a firm’s ethical culture resulting from organizational restructurings, different incentives and evolving growth expectations that may undermine ethical obligations; or undue pressure to act unethically in pursuit of new revenue goals.

From an independence perspective, they include concerns arising from a PE organization holding a controlling interest in the firm while also having a financial interest in the firm’s audit clients; the inclusion of new entities as network firms and the complexities in identifying them, and potential related independence threats, if the firm becomes part of a larger, evolving post-investment structure; or situations where individuals in the PE organization’s management could fall within the ethics code’s “audit team” concept and the applicable independence framework.

The alert stresses the importance of firms maintaining ongoing monitoring for changes in clients, services, business and network relationships, and other relevant factors with potential ethics and independence implications, both during the pre-investment phase and after completion of the PE transaction, and continuing to act in the public interest.

Sustainability assurance guidance

Separately, IESBA also released two implementation support publications on Wednesday to help sustainability assurance practitioners understand and apply the International Ethics Standards for Sustainability Assurance (including International Independence Standards. The Key Differences Between IESSA and Parts 1 to 4A of the Code provides an overview of how the IESSA compares to the ethics and independence provisions in the IESBA Code that apply to audits of financial statements. It aims to support firms that already follow the ethics code in understanding and implementing the IESSA for sustainability assurance engagements. For reference purposes, the publication comes with a marked-up version of the IESSA showing changes from the corresponding sections of the ethics code.

The List of Prohibitions for PIEs in IESSA summarizes the specific interests, relationships, non-assurance services and other circumstances prohibited under the IESSA when performing sustainability assurance engagements for public interest entities to help sustainability assurance practitioners further understand the prohibitions in the IESSA.