The China Securities Regulatory Commission seeks public comments on independence standards.

The Chinese Institute of Certified Public Accountants recently issued the "Chinese Certified Public Accountants Independence Standard No. 1 - Requirements for Independence in Financial Statement Audit and Review Business (Draft for Solicitation of Comments)" and publicly solicited opinions. This revision strengthens the relevant provisions regarding fees. First, it explicitly states that accounting firms cannot affect audit fees due to providing services other than audits to audit clients. Second, it strengthens requirements regarding the issue of excessive reliance on fees from individual audit clients. Third, for audit clients of public interest entities, it requires accounting firms to communicate with the client's governance and disclose fee-related information publicly. Original text: CICPA Solicits Opinions on Independence Standards On September 14, 2024, the Chinese Institute of Certified Public Accountants issued the "Chinese Certified Public Accountants Independence Standard No. 1 - Requirements for Independence in Financial Statement Audit and Review Business (Draft for Solicitation of Comments)" and publicly solicited opinions. The deadline for comments is October 31, 2024. In order to thoroughly implement the decision arrangements of the Party Central Committee and the State Council to strictly enforce financial discipline, crack down on financial fraud in the capital market, meet the higher requirements for integrity and independence in the practice of certified public accountants brought about by economic and social development, further enhance audit quality, maintain continuous dynamic convergence with international professional ethics standards, CICPA has absorbed and incorporated the latest achievements of international professional ethics standards, and combined with the actual situation and practice in China, comprehensively revised the "Chinese Certified Public Accountants Code of Ethics No. 4 - Requirements for Independence in Audit and Review Business." At the same time, in order to highlight the important position of independence requirements in the system of professional ethics norms, the relevant content is extracted from the Code of Ethics and a separate independence standard is formed, planned to be issued as an administrative normative document to enhance its authority and enforceability. The main revisions in this round include: 1. Extracting independence requirements from the Code of Ethics to form a separate independence standard. Independence is the soul of assurance services, and one of the basic principles of professional ethics for certified accountants. In order to emphasize the importance of the independence of certified accountants and enhance the authority and enforceability of independence requirements, a comprehensive revision of the "Chinese Certified Public Accountants Code of Ethics No. 4 - Requirements for Independence in Audit and Review Business" has been made to form a separate Chinese Certified Public Accountants Independence Standard, planned to be issued as an administrative normative document. 2. Clarifying the scope of public interest entities and strengthening related provisions. Firstly, it specifies that when an accounting firm performs financial statement audit services for public interest entity audit clients, the accounting firm needs to follow higher independence requirements and disclose this fact publicly. Secondly, it clarifies the entities that should be considered public interest entities and provides guidance on factors to consider when evaluating the impact of entities on the public interest. 3. Strengthening the relevant provisions on fees. Firstly, it explicitly states that accounting firms cannot affect audit fees due to providing services other than audits to audit clients. Secondly, it strengthens requirements regarding the issue of excessive reliance on fees from individual audit clients. Thirdly, for audit clients of public interest entities, it requires accounting firms to communicate with the client's governance and disclose fee-related information publicly. 4. Strengthening the relevant provisions on non-assurance services. Firstly, it specifies that accounting firms cannot provide non-assurance services to public interest entity audit clients that may have a negative impact on independence due to self-assessment. Secondly, it clarifies that providing non-assurance services to public interest entity audit clients requires communication with and permission from the client's governance. Thirdly, it strengthens the provisions for evaluating whether non-assurance services have a negative impact on independence and its severity, and imposes stricter requirements on providing certain non-assurance services. 5. Strengthening the provisions related to the use of technology. The provisions related to the use of technology by accounting firms when providing non-assurance services to audit clients are strengthened. CICPA will carefully analyze and incorporate feedback from all parties, further modify and improve the text, and formally issue it after completing the relevant verification, review, and approval procedures. This article is selected from the Chinese Institute of Certified Public Accountants. GMTEight Editor: Chen Wenfang.