Changes to Rule 216 and 204 in the CPA Code on August 26, 2016
New Rule 216 Commission or similar compensation arrangements
A new Rule 216 Commission or similar compensation arrangements was approved by CPA Ontario’s Council on August 26, 2016, for inclusion in theCPA Code of Professional Conduct (“CPA Code”). The existing Rule 216Payment or receipt of commissions was repealed. The new Rule is included in the CPA Code presented to members for ratification at the Annual Meeting on September 22, 2016.
Key features of the new Rule 216 include:
- The requirements apply to all members and firms providing “professional services” as defined in the CPA Code.
- There continues to be a specific prohibition against a member and/or firm paying or receiving directly or indirectly compensation (as defined by the Rule) in respect of a client for whom the member or firm provides assurance services, even if the compensation relates to non-assurance services being provided to the assurance client.
- Otherwise, the forms of compensation outlined by the Rule, which include commissions and referral fees, as well as other types of benefits, are allowed. The member or firm, however, is required to apply a threats and safeguards approach to identify and evaluate any threats, and unless the threats are clearly insignificant, to apply safeguards to reduce any threats to an acceptable level.
The new Rule 216 took effect as of August 26, 2016.
Guidance has been prepared to assist with understanding the new Rule and its impact.
Independence to address breaches and contingent fees
CPA Ontario’s Council has approved changes to Rule 204Independence (“Rule 204”) to align requirements with respect to breaches and contingencies with the International Ethics Standards Board for Accountants. These changes have been included in the CPA Code presented to members for ratification at the Annual Meeting on September 22, 2016.
Breaches of an Independence Rule
New Rule 204.6 Breach of a provision of Rule 204.3 or 204.4 sets out requirements and processes that should be followed when a member or firm breaches an independence rule. These changes address a number of concerns with the existing Independence Rules that currently only specifically address inadvertent breaches.
Rule 204.6 also provides requirements for communication with the audit committee or those charged with governance, as well as for reporting to CPA Ontario when breaches of the independence rules that lead to a conclusion to terminate an audit or assurance engagement, or to withdraw a previously issued a report.
New Rule 204.4(36.1) brings certain provisions and related guidance into Rule 204 that previously existed in in Rule 215 Contingent fees, such as the prohibition against receiving contingent fees for assurance engagements. Some restrictions have also been strengthened, such as regarding the ability to provide assurance services to clients for whom the member or firm provides non-assurance services on a contingent fee basis, and if networks firms have provided another engagement on a contingent fee basis.
Changes to Rule 204.4 are effective for audits and reviews of financial statements for periods beginning after December 15, 2016 and for all other assurance engagements commencing after December 15, 2016. Guidance has been provided to clarify which sections of the CPA Code apply until the new Rules come into effect.
These changes are explained in more detail in the Practice Advisory article,Changes to Rule 204 Independence to Address Breaches and Contingent Fees.