20150413-iesba - eioc - jicpa

Adoption of the IESBA Code based
on the Auditing and Accounting
Environment in Japan
Toshihiro Yasada
Vice-Chairman, JICPA Ethics Committee
Chairman, JICPA Ethics Working Group
IESBA Meeting
New York
April 13-15, 2015
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Table of Contents
1. Japanese Laws and Regulations with Standard Setters
2. Overview of Accounting and Auditing Environment in Japan
3. History
4. The CPA Act, related regulations and JICPA Code of Professional Ethics
5. The CPA Act
6. JICPA Code of Professional Ethics
7. Due Process for the JICPA Code and the Guidance
8. Overview of JICPA Code Compared to IESBA Code
9. The Structure and Layout of “JICPA Code of Professional Ethics ”
10. Difference (More restrictive and additional guidance)
11. Partner Rotation Requirements in Japan
12. Public Interest Entities
13. JICPA Member
14. Our Challenges to Respond to IESBA’s Future Changes
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1. Japanese Laws and Regulations with Standard
Setters
Professional
※1
The Diet approval or
Government
Ethics The CPA Act
Independent Standard Setter
JICPA
Code of Professional Ethics
and Related Guidance
ASBJ
- Accounting Standards
Guidance
Financial
Statement
Auditing ※2
The Companies Act
Financial Instruments and Exchange
Act (FIEA)
Ordinance on the Disclosure
The Companies Act
FIEA
Ordinance on Audit Certification
Business Accounting Council
- Auditing Standards
Auditing Standards Committee
Statements and Related
Guidance
Internal Control
FIEA
Ordinance on internal control
Business Accounting Council
- Internal Control Management
Assessment Standards(※3)
Business Accounting Council
- Internal Control Audit Standards(※3)
Accounting
Internal Control Audit
※1
※2
※3
FIEA
Ordinance on internal control
Guidance
JICPA has adopted IESBA code but there are some more stringent provisions. See page 13.
Japan GAAS is fully converged with ISA.
Internal Control Management Assessment Standards and Internal Control Audit Standards are set as a single Standard.
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2. Overview of Accounting and Auditing
Environment in Japan
•
•
•
•
•
•
Approx. 3,600 listed companies and approx. 6,000 non listed companies are subject to
statutory audit. (The Companies Act and/ or Financial Instruments and Exchange Act
(FIEA))
Japan GAAP is applied for majority of the companies subject to audit.
US GAAP and IFRS are permitted in accordance with FIEA.
US GAAP is used mostly by Japanese listed companies which are also SEC registrants
(Foreign Private Issuers).
Japanese companies which voluntarily apply IFRS, are increasing and expected to
increase more and more. HITACHI, HONDA, MITSUBISHI CORP. and so on.
Internal control audit is required for listed companies. Internal control audit in Japan is
similar to the US sox. (There are some differences, such as direct reporting vs. indirect
reporting.)
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3. History
Event
Financial Crisis
US SOX
IESBA recent
revision
IESBA
IAASB Clarity
Project ended
IAASB
1948
CPA
CPA
Act
1949
1950
Other
2001
2002
2007
2008
2009
2010
2011
2012
2013
2014
Established
JICPA
Professional
Ethics
GAAS
1966
Established the
Code of Ethics
201407
Revised
Adoption
Established
the Auditing
Standards
Revised Auditing
Standards based on
IAASB Clarity Project
Fraud Risks
Standard
・IC Audit Standards(※1)
・Q Review Standards(※2)
※1 Internal Control Audit Standards ※2 Quarterly Review Standards
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4. The CPA Act, related regulations and JICPA Code
of Professional Ethics - Overall Picture
JICPA Constitution
The CPA Act and related
regulations
Members are required to comply with the
constitution in accordance with the CPA Act
JICPA Code of Professional
Ethics
IESBA
Code of Ethics
CPA Qualification and etc.
More stringent rotation
requirements and other
requirements
Adoption
Guidance on Independence
Guidance on Conflicts of Interest
General guidance
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4.2. The CPA Act, related regulations and JICPA
code of professional ethics (The relationship
among laws, regulations, code and guidance)
The Certified Public Accountants Act（and Financial
Instruments and Exchange Act and The Companies Act）
IESBA Code of Ethics
JICPA Constitution
JICPA Code of Ethics
JICPA Code of Ethics
Annotated
Guidance on
Independence
Guidance on Conflicts
of Interest
Interpretive Guidance for
Independence (in
response to the CPA Act)
Interpretative Guidance for the Professional Ethics
Self-regulation
Laws and regulations
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5. The CPA Act
•
Chapter 1 General Provisions （ Mission, Professional Responsibilities, Services, Qualification, etc.）
•
Chapter 2 Certified Public Accountant Examination, etc.
•
Chapter 3 Registration of Certified Public Accountant
•
Chapter 4 Obligations of Certified Public Accountants
The Large Companies, etc. and the partner rotation requirements for the Large Companies
•
Chapter 5 Responsibilities of Certified Public Accountants
•
Chapter 5.2-5.5 Audit Firm etc.
Partner rotation requirements for audits of listed companies conducted by the Large Audit Firms
•
Chapter 6 CPAAOB
•
Chapter6.2 JICPA
Members must comply with the JICPA Constitution.
•
Chapter 7 Miscellaneous Provisions
•
Chapter 8 Penal Provisions
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6. JICPA Code of Professional Ethics
・ JICPA has adopted IESBA code and some rules are more stringent than those in IESBA code. See page
13.
・ JICPA Constitution Para. 43 / Members are required to comply with JICPA Code of Professional Ethics.
≪JICPA Code of Professional Ethics ≫
Chapter 1 General Application of the Code (Purpose and Fundamental Principles and etc.)
Chapter 2 Professional Accountants in Public Practice
Chapter 3 Professional Accountants in Business
≪A separate set of guidance is provided as follows: ≫
Guidance on Independence / Detailed guidance with more than 90 pages
Guidance on Conflicts of Interest / Detailed guidance provided with case examples
General Guidance / Q & A type of guidance and etc.
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7. Due Process for the JICPA Code and the Guidance
※Before the JICPA Code and / or the Guidance are finalized, JICPA issues its Exposure Draft to seek public comments.
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8. Overview of JICPA Code Compared to IESBA Code
JICPA Code
IESBA Code
●JICPA Code of Professional Ethics
Chapter1 General Application of the Code (Purpose,
Fundamental Principles and etc.)
PART A （Section100～150）
General Application of the Code (Fundamental Principles and etc.)
Chapter2 Professional Accountants in Public Practice
PART B （Section200～210・230～280）
Professional Accountants in Public Practice
Chapter3 Professional Accountants in Business
PART C （Section300・320～350）
Professional Accountants in Business
●Guidance on Independence
PART B （Section290・291）
Independence
●Guidance on Conflicts of Interest
Chapter1 Professional Accountants in Public Practice
PART B （Section220）
Conflicts of interest
Chapter2 Professional Accountants in Business
PART C（Section310）
Potential Conflicts
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9. The Structure and Layout of “JICPA Code of
Professional Ethics ”
（基本原則２公正性の原則）
第４条会員は、職業的専門家としての判断又は業務上の判断を行うに当たり、先入観をもたず、利益
相反を回避し、また他の者からの不当な影響に屈せず、常に公正な立場を堅持しなければならない。
２会員が直面する状況又は関係が、先入観や利益相反を生じさせ、会員の職業的専門家としての判断
に不当な影響を与える場合、会員は専門業務を提供してはならない。
注解２（第４条）
公正な立場を堅持することは、業務上の判断における客観性の保持を求めるものであり、専門
業務の目的の妥当性、専門業務を実施するに当たって裁量すべき事項の選定や判断において先入
観のないこと、さらに、これらの判断についての適正性が他の者により検証し得ることを含む。
Requirements
Application
and other
explanatory
material
This is the para. 4 of JICPA Code of Professional Ethics describing “Objectivity” of the fundamental
principle.
As shown in the example above, the Code distinguishes requirements clearly from guidance. In addition,
the guidance is placed close to the requirements (in the rectangle by a dotted line) to provide guidance
with a clear linkage to requirements.
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10. Difference (More restrictive and additional
guidance)
JICPA Code
The CPA Act and FIEA
More restrictive
provisions than
IESBA Code
・Referral Fees
・Gifts and Hospitality
・Confidentiality
・Partner Rotation for the Large Companies
audit ( See next page)
Additional
provision
to
JICPA Code of
Professional
Ethics
・ Mutual Conference between
Members
・Prohibited Conduct against Other
Members
・Maintenance of Quality
・Prohibition of Name Lending
・Expression of Opinions Regarding
Future Events
・Name of an Audit Firm
NOCLAR / FIEA 193-3 requires CPAs and audit firms
(correctively “PA”) to report the matter to issuers
when PA becomes aware of information concerning
an instance of non-compliance or suspected noncompliance with laws and regulations if the matter
could significantly affect the financial information.
Then, if the issuer has not taken an appropriate
action within the required period and the matter could
substantially affect the financial information, PA must
disclose the matter to the Financial Services Agency.
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11. Partner Rotation Requirements in Japan
Listed Companies Audit
Conducted by the Large
Audit Firms （※）
Other than the above
Time on period
Cooling-off period
・LAEP
・EQCR
5
5
・ KAPs other than
LAEP and EQCR
7
2
All KAPs
7
2
(※) Audit firms which audit 100 or more listed companies (the Large Audit Firms) must follow a five year
time-on and five year time off rotation rule for the lead engagement partner and the engagement
quality control review partner, in auditing listed companies.
More than 150 small or medium firms which are not the Large Audit Firms above, audit listed
companies.
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11. 2. Partner Rotation Requirements in Japan
/ Exceptional case
Normal course of partner rotation
LAEP
LAEP
LAEP
LAEP
LAEP
5 years
cooling off
KAP
KAP
KAP
KAP
KAP
KAP
KAP
2 years
cooling off
KAP
2 years
cooling off
Exceptional case / when a LAEP or a KAP takes “off” for years less than 5 years or 2 years
LAEP
LAEP
Off
Off
LAEP
5 years
cooling off
KAP
KAP
KAP
Off
KAP
KAP
If there is an exceptional case above, the CPA Act stipulates that the interim “off” period which is less than the
required cooling off period (5 years for LAEP or 2 years for KAP) shall be a deemed “on” period.
(By deeming that an audit or audits have been provided even during the periods for which the services have
actually not been provided (the above “off” periods), 2 year or 1 year off period in the above case is included
in 5 or 7 year count. )
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12. Public Interest Entities
JICPA Code PIE
The Large Company based on
The CPA Act
-
Listed Companies
Banks, Long-term Credit Banks
Insurance Companies
Other financial institutions and certain
other companies specified in the
provision
Additional
Entities
- Certain Large
regional financial
institutions and
etc.
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13. JICPA Member（1/3）
Number of Membership (as of March 31, 2014)
Individual Members
Audit Firms
Individual Associate members
TOTAL
By gender ：Male 28,803, Female 4,559
26,263
216
7,543
34,022
※JICPA set up JICPA’s committee on
professional
accountants
in
business
in August, 2012 and
approx. 1,000 members as at
December 31, 2014 participate in
this committee. This does not cover
all PAIB, and, thus, we do not know
how many professional accountants
work in business . In addition, there
are a lot of accountants working in
business who are qualified to
become a CPA but not registered.
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13. JICPA Member（2/3）
• Mandatory Registration
–
A person who is qualified to become a certified public accountant shall register on the
certified public accountants roster in order to become a certified public accountant.
–
A certified public accountant or an audit firm shall automatically become a member of
the Institute.
–
A person who has passed the certified public accountant examination who has
interned for two years or more as prescribed in Article 15(1) and has completed the
professional accountancy education program as prescribed in Article 16(1) and
received the confirmation from the Prime Minister under the provisions of paragraph
(7) of the same Article is qualified to become a certified public accountant.
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13. JICPA Member （3/3）
• Continuing Professional Education（CPE）Requirements
– 20 credits during a year at minimum
– 120 credits during three consecutive years at minimum
– Professional ethics courses are included in the required credits.
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14. Our Challenges to Respond to IESBA’s Future
Changes（1/3）
•
Historically, non audit practices have been much smaller in size than audit
practices in Japan compared to the US and other major European countries.
Recently, non audit practices have continued to grow and will grow faster than
in the past. The provisions of JICPA code related to non audit services are the
same as IESBA code and rather more restrictive but we pay attention to EU
regulatory developments.
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14. Our Challenges to Respond to IESBA’s Future
Changes（2/3）
•
Historically, the number of PAIB has been very limited and most of JICPA
members have been professional accountants in public practice who work
with the firms or as a sole proprietorship. In particular, there has been a very
small number of senior PAIB working for the listed companies as CFO,
executive officers and other management functions. However, the number of
PAIB is increasing. Thus, we pay attention to the future revisions of IESBA
code.
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14. Our Challenges to Respond to IESBA’s Future
Changes（3/3）
•
More than 150 of small or medium audit firms audit listed companies.
•
Considering the trend in our profession in Japan, it is our important challenge
to raise awareness and enhance understandings of our code and activities
among investors and other stakeholders in Japan and to make our profession
more attractive.
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The Ethics Board
www.ethicsboard.org

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