An overview of the key revisions to the 2025 edition of ICAEW's Code of Ethics which relate to the definition of 'listed entity' and 'public interest entity' (PIE).
Supporting the Code
This document is no substitute for reading the revised ICAEW Code of Ethics in full. It is your professional responsibility to familiarise yourself thoroughly with the Code when it is published in March 2025.
IESBA has introduced a new Section 325 to its Code of Ethics for Professional Accountants which specifically deals with the objectivity of an engagement quality reviewer and other appropriate reviewers. The section sets out application material and provides guidance on applying the Conceptual Framework in relation the objectivity of such reviewers. The new section:
- identifies the threats to compliance with the Fundamental Principle of Objectivity that might be created, in circumstances where an individual is being considered for appointment as an engagement quality reviewer for a given engagement;
- provides guidance on the factors that professional accountants should consider when evaluating the level of the identified threats; and
- recommends safeguards that should be put in place to address such threats.
ICAEW has made these revisions to the 2025 Code of Ethics to maintain alignment with the Code of Ethics produced by IESBA.
Purpose and role
Here we look at the purpose of an engagement quality review and the role of an engagement quality reviewer.
New section 325.5 A1 notes that quality engagements are achieved through planning and performing engagements; and reporting on them in accordance with professional standards and applicable legal and regulatory requirements.
In accordance with ISQM1, firms have a responsibility to establish a system of quality management, including the design and implementation of responses to address quality risks to engagement performance. This includes establishing policies and procedures addressing engagement quality reviews in accordance with ISQM2.
The Glossary to the Code of Ethics has been amended to define an engagement quality review as: “An objective evaluation of the significant judgements made by the engagement team and the conclusions reached thereon, performed by the engagement quality reviewer and completed on or before the date of the engagement report.”
By new section 325.5 A2 (and the amended Glossary), an engagement quality reviewer is defined as: “A partner, other individual in the firm, or an external individual, appointed by the firm to perform the engagement quality review. “
An engagement quality reviewer is also an example of an “appropriate reviewer” (as defined in section 300.8 A4). This is a person who has the necessary knowledge, skills, experience and authority to review work provided or services performed by a firm in an objective manner, and thus to provide a mitigating safeguard against identified threats, in accordance with the Conceptual Framework.
New section 325.4 confirms that the application material in section 325 therefore also applies, where a professional accountant has been appointed as an Appropriate Reviewer.
Objectivity of reviewers
New section 325.1 emphasises that professional accountants are required to comply with the Fundamental Principles, and to apply the Conceptual Framework set out in Section 120. This requires them to identify, evaluate and address threats.
New section 325.2 notes that a threat to compliance with the fundamental principle of objectivity might be created in circumstances where an engagement quality reviewer has been involved in the work being reviewed or has close relationships with those responsible for performing that work.
Identifying threats
New section 325.6 A1 identifies circumstances in which four types of potential threats to objectivity might be created:
- Self-interest threat: two engagement partners each serving as an engagement quality reviewer for the other’s engagement.
- Self-review threat: an accountant serving as an engagement quality reviewer on an audit engagement, after previously serving as the engagement partner.
- Familiarity threat: an accountant serving as an engagement quality reviewer has a close relationship with, or is an immediate family member of, another individual who is involved in the engagement.
- Intimidation threat: an accountant serving as an engagement quality reviewer for an engagement has a direct reporting line to the partner responsible for the engagement.
New section 325.7 A1 sets out factors that are relevant in evaluating the level of identified threats. These include:
- The role and seniority of the individual.
- The nature of the individual’s relationship with others involved in the engagement.
- The length of time the individual was previously involved with the engagement, and the individual’s role.
- When the individual was last involved in the engagement prior to being appointed as engagement quality reviewer, and any subsequent relevant changes to the circumstances of the engagement.
- The nature and complexity of issues that required significant judgment from the individual in any previous involvement in the engagement.
Section 300.6 A1 has been amended to include a new example of a threat to compliance, under the sub-heading familiarity threats: an individual who is being considered for appointment as an appropriate reviewer, who has a close relationship with an individual who performed the work being reviewed.
Actions to address threats
New section 325.8 A1 provides an example of an action that might eliminate an intimidation threat: reassigning reporting responsibilities within the firm.
New section 325.8 A2 provides an example of an action that might be a safeguard to address a self-review threat: implementing a period of sufficient duration (a cooling-off period), before the individual who was on the engagement is appointed as an engagement quality reviewer.
Cooling off period
New sections 325.8 A3 and 325.8 A4 incorporate the ISQM2 requirement that the firm should establish policies or procedures which specify, as a condition for eligibility, a cooling-off period of two years before the engagement partner can assume the role of engagement quality reviewer.
This requirement serves to enable compliance with the fundamental principle of objectivity and the consistent performance of quality engagements.
New section 325.8 A4 clarifies that the cooling-off period required by ISQM 2 is distinct from, and does not modify, the partner rotation requirements in Section 540, which are designed to address threats to independence created by long association with an audit client.
Why has ICAEW revised the Code of Ethics?
ICAEW’s 2025 Code of Ethics is based on the Code of Ethics for Professional Accountants of the International Ethics Standards Board for Accountants (IESBA) published by the International Federation of Accountants (IFAC) in 2024 and is used with permission of IFAC.
As a member of IFAC, ICAEW is required to incorporate revisions to its Code of Ethics which have been introduced by IESBA.