The Monitoring Group, a group 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, has released a public consultation on reforming the global audit standard-setting process, as previously reported by The Accountant.
Currently, standard setting is carried out by three separate boards: International Auditing and Assurance Standards Board (IAASB), International Ethics Standards Board for Accountants (IESBA) and International Accounting Education Standard Board (IAESB).
But the Monitoring Group in its paper lists a series of key concerns around this model including the adverse effect on stakeholder confidence in the standards as a rest of a perception of undue influence by the profession because:
- 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 organizations and the global accountancy profession; and
- Audit firms and professional accountancy bodies provide a majority of board members and their technical advisors.”
As such the Monitoring Group noted a risk that standards are not developed fully in the public interest and highlighted that its main purpose of the options for reform is 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.”
As such the consultation aims to acquire stakeholder views on whether the key concerns raised in the paper can be addressed through:
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- 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.
Comments should be submitted by 9 February 2018, and the consultation paper can be accessed here.
IFAC in a statement welcomed the review as a mean to ensure that the structures and processes for international standard setting remain relevant to 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,” the 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.”