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Monitoring Group Consultation: IFAC’s future in the balance

Changes to the global audit standard-setting process have been proposed, amid concerns that is was serving professional rather than the public interest. Are these fears founded – and would reform undermine IFAC? Vincent Huck reports

A public consultation on reforming the global audit standard-setting process is under way. This was issued by the the Monitoring Group – a set of international financial institutions and regulatory bodies responsible for the overall governance of the international audit-related standard-setting process and the review of its effectiveness – as this magazine reported prior to the consultation launch. 

Currently, IFAC affiliated standard setting is carried out by three boards – the International Auditing and Assurance Standards Board (IAASB), the International Ethics Standards Board for Accountants (IESBA) and the International Accounting Education Standard Board (IAESB).

The Monitoring Group’s paper lists a series of concerns around this model. One is an adverse effect on stakeholder confidence in the standards because the profession is seen to have undue influence. It notes:

  • “IFAC, representing the global accountancy profession, manages the nomination process of the standard-setting boards, and directly funds, accommodates, and provides support and staffing for the standard-setting boards – IFAC itself is funded by member organisations and the global accountancy profession; and
  • Audit firms and professional accountancy bodies provide a majority of board members and their technical advisers.”

The group noted there was a risk that standards were not being developed fully in the public interest and highlighted that its main purpose with reforms was to ensure that standard-setting serves the public interest.”

Monitoring Group chair Gerben Everts said: “We envisage key reforms to enhance the public interest responsiveness of audit standards in order to promote the quality of audits. Removing the audit-related standard-setting activities from the profession and entering into a multistakeholder, geographically representative and independent governance structure would address concerns vis-á-vis the independence of standard setting. I hope that with your responses to this consultation, we are able to find the right balance.”

The consultation aims to acquire stakeholder views on whether the key concerns raised in the paper can be addressed through:

  • A single board, responsible for the development and adoption of international auditing and assurance standards and ethical standards for all types of audit engagement or
  • Separate boards responsible for setting (i) auditing and assurance and (ii) ethical standards and
  • IFAC continuing to set ethical standards for professional accountants in business, and educational standards under both options.

IFAC welcomed the review as a way of ensuring that the structures and processes for international standard setting remained relevant in a changing world.

“We agree that strong international standard setting includes three key elements – a multi-stakeholder model, broad geographical representation, and sufficient checks and balances. We also would add independent public interest oversight. The current system already has these elements in place and we looking forward to working with the Monitoring Group on how they can be strengthened and improved,” its statement read.

“We do, however, have reservations about the lack of an evidence based case for radical change and the fact that key issues such as governance structure, funding model and risk assessment are deferred.”

The German Chamber of Public Accountants (Wirtschaftsprüferkammer) manager for international affairs Jens Engelhardt said that the monitoring group’s consultation needed to be fully analysed before any final assessment could be delivered.

“However, an issue that already concerns us is if standard setting was removed from the profession and then took place without major involvement of the profession. This may have a negative impact on the standards and therefore also on the audit quality rather than enhancing it,” he added, stressing that these were just tentative remarks ahead of a detailed analysis of the consultation paper.

“In addition, we cannot perceive any fatal flaws in the current standard-setting model at the moment and wonder why there is a need for the changes proposed,” he continued. “In this regard, we are keen to learn from the paper about the alleged deficiencies discovered by the monitoring group.”

CPA Canada CEO Joy Thomas and Chartered Accountants Australia and New Zealand audit and insolvency leader Liz Stamford both welcomed the consultation as they support a regular review of the standard-setting process and genuine challenge to ensure the processes for developing audit standards remained strong.

“An important element of consultation in this area is to enable and ensure that all market participants contribute,” Stamford said, adding that CA ANZ would respond to it. “Both Australia and New Zealand utilise International Auditing Standards and the impact of changes to process on our domestic economies must be considered.”

A PwC spokesperson told this magazine that the network welcomed the consultation as it believe the time was right to revisit the model of both the standard setting board and how it operates and the governance model that oversees it.

“We are prepared to be bold in re-imaging the standard setting model so that it will be widely recognised as independent, fit for the future and delivering standards in the public interest,” (s)he concluded.

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