IAASB Encourages Broad Stakeholder Participation in IESBA Consultation on Public Interest Entity Definition

The International Auditing and Assurance Standards Board (IAASB) welcomes the release by the International Ethics Standards Board for Accountants (IESBA) of its Exposure Draft, Proposed Revisions to the Definitions of Listed Entity and Public Interest Entity in the Code.

The IESBA Exposure Draft broadens the definition of a public interest entity (PIE) to include more categories of entities, given the level of public interest in their financial condition. It also replaces the term “listed entity” as a PIE category with “publicly traded entity” and redefines the category.

“The IAASB closely coordinated with IESBA on this project, recognizing that public interest entities play crucial roles in global markets. Convergence between audit and ethics standards on terms and concepts is in the public interest and is a leading priority,” said IAASB Chair Tom Seidenstein. “The IAASB has reflected on the possible implications for its Standards and urges all IAASB stakeholders to participate in the consultation because of the possible future implications for IAASB Standards.”

The aspects of the IESBA proposals that may have implications for the IAASB Standards, include:

• The introduction of an overarching objective for additional requirements to enhance confidence in the audit of financial statements of PIEs.
• The broadening of the definition of PIE to include additional categories of entities, and applying an approach whereby the categories are specified at a high level and expecting regulators, national standard setters or other relevant local bodies to refine these high-level categories so that the right entities in the local context are captured.
• Replacing the term “listed entity” with the term “publicly traded entity” and redefining that PIE category. In this regard, the Explanatory Memorandum explains the use of “listed entity” in IAASB Standards and the outcome of the IAASB’s preliminary deliberations in relation to the possible review of the use of “listed entity” and PIE in the IAASB Standards.
• Introducing a new requirement in the IESBA Code for firms to publicly disclose if an audit client was treated as a PIE. The Explanatory Memorandum provides information regarding the IAASB’s preliminary consideration of options in pursuing the possibility of transparency through the auditor’s report.

To enhance understanding of the Exposure Draft and encourage participation in the public consultation, the IESBA will publish additional guidance materials in February and host two webinars in March.

The IAASB encourages all stakeholders to participate in the public consultation, especially Question 15, which will help the IAASB conduct a preliminary assessment of relevant aspects of the proposal, by May 3, 2021 via the IESBA website.

About the IAASB
The International Auditing and Assurance Standards Board develops auditing and assurance standards and guidance for use by all professional accountants under a shared standard-setting process involving the Public Interest Oversight Board, which oversees the activities of the IAASB, and the IAASB Consultative Advisory Group, which provides public interest input into the development of the standards and guidance. The structures and processes that support the operations of the IAASB are facilitated by the International Federation of Accountants (IFAC). For copyright, trademark, and permissions information, please go to permissions or contact permissions@ifac.org.