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.
In 2024 the International Ethics Standards Board for Accountants (IESBA) introduced a new definition of public interest entity (PIE) to:
- provide greater clarity and guidance to the concept of a PIE;
- bring into scope, the right entities to be subject to additional requirements such as provisions relating to non-audit services and fees; and
- seek alignment of terms and concepts between IESBA and the International Auditing and Assurance Standards Board.
ICAEW has made the following revisions to the 2025 Code of Ethics to maintain alignment with the Code of Ethics produced by IESBA.
Important note
For professional accountants undertaking audits in line with UK ISAs and other public interest engagements in the UK
ICAEW has included these revisions in the Code as part of its obligations as an IFAC member body. However, in the UK, the definition of a public interest entity (PIE) is determined by the government and the Financial Reporting Council (FRC).
Please note that professional accountants carrying out audit engagements in line with ISAs (UK) and other public interest assurance engagements in the UK:
- should apply the FRC's definition of PIE;
- are expected to comply with the requirements relating to PIEs which are set out in the FRC’s Ethical Standard for Auditors; and
- do NOT need to comply with Part 4A of the ICAEW Code.
In the Glossary of Terms, the FRC defines PIEs in the following way:
“Public Interest Entities. These are:
- (a) An issuer whose transferable securities are admitted to trading on a UK regulated market16;
- (b) A credit institution within the meaning of Article 4(1)(1) of Regulation (EU) No 575/2013 of the European Parliament and of the Council17, which is a CRR firm within the meaning of Article 4(1)(2A) of that Regulation;
- (c) A person who would be an insurance undertaking as defined in Article 2(1) of Council Directive 91/674/EEC of 19 December 1991 of the European Parliament and of the Council on the annual accounts and consolidated accounts of insurance undertaking as that Article had effect immediately before exit day, were the United Kingdom a Member State.
No other entities have been specifically designated in law in the UK as 'public interest entities'.”
However, the definition of PIE introduced by IESBA into section R400.17 of the 2025 Code will still be relevant for professional accountants practising outside the UK; and professional accountants undertaking non-public interest assurance engagements in the UK, in accordance with Part 4B of the Code.
The IESBA definition of PIE
The revisions introduce a new section R400.17 to the 2025 Code. This requires a firm to treat an entity as a PIE if it falls within any of the following categories:
“(a) A publicly traded entity;
(b) An entity one of whose main functions is to take deposits from the public;
(c) An entity one of whose main functions is to provide insurance to the public; or
(d) An entity specified as such by law, regulation or professional standards to meet the purpose described in paragraph 400.10.”
The purpose referred to in new section 400.10 is to meet the heightened expectations that stakeholders have in relation to the independence of a firm performing an audit engagement for a PIE (because of the significance of the public interest in the financial condition of that entity).
The rationale for the new PIE definition is also set out new section 400.08: ”… reflecting significant public interest in the financial condition of these entities due to the potential impact of their financial well-being on stakeholders.”
“Publicly traded entity” and “listed entity”
The new category of “Publicly traded entity” has replaced the previous category of “listed entity”.
The Glossary to the Code has been amended to define a “publicly traded entity” as: “an entity that issues financial instruments that are transferable and traded through a publicly accessible market mechanism, including through listing on a stock exchange.”
A listed entity (as defined by relevant securities law or regulation is an example of a publicly traded entity.
Evaluating the public interest
New section 400.09 sets out a list of factors to consider in evaluating the extent of public interest in the financial condition of an entity. These include:
- The nature of the business or activities, such as taking on financial obligations to the public as part of the entity’s primary business.
- Whether the entity is subject to regulatory supervision designed to provide confidence that the entity will meet its financial obligations.
- The size of the entity.
- The importance of the entity to the sector in which it operates including how easily replaceable it is in the event of financial failure.
- The number and nature of stakeholders including investors, customers, creditors and employees.
- The potential systemic impact on other sectors and the economy as a whole in the event of financial failure of the entity.
In addition, new section 400.19 A1 encourages firms to determine whether to treat other entities as if they were PIEs for the purposes of Part 4A.
When making this determination, the firm may consider the factors set out in new paragraph 400.09 above, as well as the following factors:
- Whether the entity is likely to become a public interest entity in the near future.
- Whether in similar circumstances, a predecessor firm has applied independence requirements for public interest entities to the entity.
- Whether in similar circumstances, the firm has applied independence requirements for public interest entities to other entities.
- Whether the entity has been specified as not being a public interest entity by law, regulation or professional standards.
- Whether the entity or other stakeholders requested the firm to apply independence requirements for public interest entities to the entity and, if so, whether there are any reasons for not meeting this request.
- The entity’s corporate governance arrangements, for example, whether those charged with governance are distinct from the owners or management.
Related entities and definition of “audit client”
New section R400.22 provides that an audit client that is a publicly traded entity in accordance with paragraphs R400.17 and R400.18 includes all of its related entities.
This is reflected in amendments to the definition of “audit client” in the Glossary to the ICAEW Code.
When the audit team knows, or has reason to believe, that a relationship or circumstance involving any other related entity of the client is relevant to the evaluation of the firm’s independence from the client, the audit team shall include that related entity when identifying, evaluating and addressing threats to independence. More generally, section 300.7.A7 has been amended to include as an example of new information or changes in facts and circumstances that might impact the level of a threat: when the client becomes a publicly traded entity.
For all other entities, references to an audit client in Part 4A of the Code include related entities over which the client has direct or indirect control.
Requirement for independence
In terms, new section R400.13 provides that a firm performing an audit engagement of a PIE shall be independent and new section R400.14 requires a firm to apply the conceptual framework set out in Section 120 to identify, evaluate and address any threats to independence in relation to an audit engagement of a PIE (or an entity that it is treating as a PIE).
Prohibition on assuming a management responsibility
New section R400.15 provides that a firm or a network firm shall not assume a management responsibility for an audit client.
The rationale for this prohibition is set out in new section 400.15 A2: when a firm or a network firm assumes a management responsibility for an audit client, self-review, self-interest and familiarity threats are created. Assuming a management responsibility might also create an advocacy threat because the firm or network firm becomes too closely aligned with the views and interests of management.
Definition of management responsibilities
Management responsibilities are defined in new section 400.15.A1. They involve controlling, leading and directing an entity, including making decisions regarding the acquisition, deployment and control of human, financial, technological, physical and intangible resources.
New section 400.15.A3 notes that determining whether an activity is a management responsibility depends on the circumstances, and requires the exercise of professional judgment.
The section then goes on to provide examples of activities that would constitute assumption of management responsibility, such as:
- Setting policies and strategic direction.
- Hiring or dismissing employees.
- Directing and taking responsibility for the actions of employees in relation to the employees’ work for the entity.
- Authorising transactions.
- Controlling or managing bank accounts or investments.
- Deciding which recommendations of the firm or network firm or other third parties to implement.
- Reporting to those charged with governance on behalf of management.
- Taking responsibility for:
- The preparation and fair presentation of the financial statements in accordance with the applicable financial reporting framework.
- Designing, implementing, monitoring or maintaining internal control.
New section R400.16 further provides that when performing a professional activity for an audit client, the firm shall be satisfied that the client’s management makes all judgments and decisions that are the proper responsibility of management. The section provides examples of such responsibilities.
New section 600.7A1 also notes that when a firm or network firm provides a non-assurance service to an audit client, there is a risk that the firm or network firm will assume a management responsibility unless the firm or network firm is satisfied that the requirements in paragraph R400.16 have been complied with.
Requirement for public disclosure
New section R400.20 provides that when a firm has applied the independence requirements for PIEs in performing an audit of the financial statements of an entity, the firm shall publicly disclose that fact in a manner deemed appropriate, taking into account the timing and accessibility of the information to stakeholders.
However, new section R400.21 provides an exception to the above requirement: a firm may not make such a disclosure if doing so will result in disclosing confidential future plans of the entity.
Further resources on the IESBA definition of PIE
More information on the definition of PIE introduced by IESBA:
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.