Creating confidence is the key.
Efficient capital markets require high-quality financial information which itself relies on high standards of accounting and auditing. Internationalisation of financial markets requires these standards to be global.
The International Federation of Accountants, having promoted high standards of accounting through the creation of the new International Accounting Standards Board, is now focusing on auditing. The current review of the International Auditing Practices Committee is the touchstone for change.
It makes clear that IAPC must act in the public interest and be seen to be doing so through a robust and inclusive approach. Responses to this review have now been received from across the globe.
There are two keys to success: involving the right people and the transparency of IAPC’s processes.
To achieve the first, IAPC will comprise a full-time chairman, five representatives from international audit firms, seven from IFAC member bodies (with a majority from countries with strong national standard setters) and three non-auditors.
The three non-auditors will underline IAPC’s public interest role and provide users’ views. Technical input will be further strengthened by close co-operation between IAPC and national standard setters.
Transparency will be achieved by IAPC opening its meetings to the public and making its agenda papers and minutes available. It will also publish a strategic plan for public comment and prepare annual reports on its activities. In addition, a consultative advisory group, including representatives of regulators and major international bodies, such as the World Bank and the European Commission, will ensure that the public interest can be expressed fully and fairly. Each international standard of auditing will result from an exposure draft subject to public scrutiny and comment.
All comment will be published online, allowing interested parties to follow through a standards progress. Finally, IAPC’s activities will be reviewed by the IFAC public oversight board, which will report its views publicly.
Using the right people and the power of public process, combined with seeking regulatory endorsement of international standards of auditing through IOSCO, the club of global stock market regulators, will ensure that investors will benefit from global standards which are principled and effective.
– Graham Ward, board member, International Federation of Accountants
GLOBAL AUDIT BODY LACKS BALANCE
The changes proposed by IFAC on the way in which IAPC should operate in future will make it open to claims that it is dominated by too few countries and subject to undue influence.
Of IAPC’s 12 auditor members, five are to come from major audit firms and most of the other seven from countries where member bodies have experience of particularly well-developed national standard-setting procedures. These proposals do not go far enough in promoting the geographical and cultural balance that is necessary.
There should be an appropriate balance between small, medium and large firms operating on a national, regional or local basis. IAPC’s standing could be damaged by the perception that major firms are exerting undue economic or other influence on it. The review itself makes the point that IFAC can draw on a pool of very able and experienced professionals so there seems to be no reason to focus on having members from countries with well-developed standard-setting processes.
A proposal to include three non-auditors on the committee has not taken account of the role of IFAC’s new public oversight board. Coupled with reductions in auditor members, restrictions on technical advisers and elimination of non-voting observers, the proposals conflict with the IAPC’s needs to act in the public interest – which is to produce high quality standards.
In some cases, the review proposals appear to be no more than attempts to inspire the confidence of regulators, whereas others are to the detriment of the technical capability of IAPC and hence its public interest role.
IAPC must make major improvements in the way it engages with its stakeholders.
Unless IAPC becomes much more active in seeking views on its proposed output and on its future work programme, it will lack authority. It is particularly worrying that focus on recognition by regulators and the agendas of major firms has resulted in work stopping on a much-needed standard on assurance on environmental reports.
The proposed changes will leave IAPC vulnerable to claims that it is dominated by English-speaking representatives from the major firms in supposedly developed countries. It must have a better balance to ensure it can inspire global confidence from the people it is there to serve.
Unless IAPC hears the views of all the interested groups the standards it sets will fail because many will see them as irrelevant or unrepresentative.
– Jonathan Beckerlegge is chairman of the ACCA’s auditing committee.
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