Recent changes to the Code of Ethics extended the cooling-off period for engagement partners (EPs) and engagement quality reviewers (EQRs) of audits of public interest entities as follows:

• The cooling-off period for EPs on audits of PIEs increased from two to five years for audits of financial statements for periods beginning on or after 15 December 2018 in New Zealand and 1 January 2019 in Australia.
• The cooling-off period for EQRs on audits of PIEs increased from two to three years for audits of financial statements for periods beginning on or after 15 December 2018 New Zealand and 1 January 2019 in Australia.  

There is a ‘jurisdictional provision’ forPIEs that have EP rotation requirements prescribed in law or regulation that allow a cooling-off period of less than five years. In such cases, the Code allows for a three-year cooling-off period until 15 December 2023.

Australia has applied the jurisdictional provision for listed entities under the Corporations Act 2001 and APRA regulated entities as they have a cooling-off period of two years imposed by law or regulation.

The transitional provisions in Australia for listed entities subject to the Corporations Act 2001 and APRA regulated entities are as follows: 

• The cooling-off period for EPs increased to three years from two for audits of financial statements for periods beginning on or after 1 January 2019 but before 31 December 2023.
• The cooling-off period for EPs will then increase to five years for audits of financial statements for periods beginning on or after 31 December 2023.

The IESBA is conducting a two-phase post-implementation review of the new cooling-off requirements. The focus of the first phase is on the use of the jurisdictional provision, how jurisdictions will transition, and any issues anticipated from its expiry.

In our response to the IESBA phase 1 questionnaire, we note that it is only the third year of implementation and the full impact of the new requirements may not yet be known. We highlight several potential concerns that our members have repeatedly raised that the extension of cooling-off periods for EPs and EQRs could exacerbate pressures, leading to a negative impact on audit quality.

We strongly encouraged the IESBA to gather evidence on the impact of the extension of the cooling-off period on audit quality ahead of the expiry of the jurisdiction provision on 15 December 2023. We are not in favour of the sunsetting of this provision unless there is clear evidence that an extension of the cooling-off periods has positively impacted audit quality during the first few years of implementation. For our complete response to the questionnaire – please see related download section below.

Phase two of the post-implementation review, which is scheduled for Q2 2023, will consider how the other revised long association provisions in the Code are being implemented in practice, taking into account other regulatory regimes around the world intended to address long association (e.g. mandatory firm rotation and mandatory retendering).