Audit - IFAC targets audit independence.
A draft code on auditor independence issued by IFAC, the global accounting body, could lead to a worldwide standard and end a situation of ongoing ‘duplication of effort’, according to the UK’s auditing standard-setter.
The International Federation of Accountants has just issued a revised exposure draft on auditor independence which is expected to be adhered to by all of IFAC’s 153 member bodies.
Ian Plaistowe, APB chairman, said: ‘The whole world is working on updating their guidelines on auditor independence. I once calculated up to seven different national standard-setters working on the same thing. The current situation is ludicrous. It’s an enormous and unbelievable duplication of effort.’
The US Securities and Exchange Commission recently ended a long process to update its rules on auditor independence, while the European Commission is still looking at its measures to ensure auditors’ impartiality.
IFAC does not have powers to force its member bodies to adhere to the guidance, but experts say if done properly it will be taken as best practice.
‘IFAC has significant influence for its guidance to be seen as best global practice.
‘The nice thing would be if someone could say “IFAC’s done a good job.
I just want to add a few paragraphs relating to my country”,’ said Plaistowe.
But there is another factor at play. IFAC guidance would endorse a ‘principles’ based approach to accounting, something that the SEC, with its hard and fast rules-based ethics, has vigorously opposed.
Rule-makers at the SEC would then come into direct conflict with their counterparts in the EC, the UK and IFAC itself. In response to an EC paper earlier this year, ICAEW president Graham Ward said he strongly ‘endorsed the proposal that a principles-based approach should be applied’, believing it to be more efficient.
IFAC’s reissued guidance highlights the complexity and sensitivity surrounding the subject. The new proposals further open up the debate on who can influence auditors.
Among other issues, the new draft focuses on the threat to independence that could occur through contact between auditors and other partners or professional staff within a firm. Undue influence from immediate and close family members was already included in the original draft.
A statement on IFAC’s website explains: ‘The June 2000 exposure draft proposed a move to a conceptual framework approach that would require the identification and evaluation of threats to independence and the application of safeguards to reduce any threats created to an acceptable level. Comments are sought by 30 June 2001.
IFAC represents 153 accountancy bodies in 113 countries. Its close contact with Iosco, the club of global stock market regulators, means it plays a crucial role in the future of financial reporting and auditing.