London/UK. The members of the International Forum of Independent Audit Regulators (IFIAR) have approved establishing a permanent secretariat in Tokyo (Japan), at their annual meeting held this week in London.

Speaking to this magazine on the sidelines of the meeting, IFIAR chair Janine van Diggelen said: "This is an important step as it will provide us with more organisational capabilities to further accelerate our ability to take actions to improve audit quality."

Asked why Tokyo, considering the recent audit quality issues in Japan and the questions around corporate culture and behaviour, Van Diggelen said: "Yes but it is the third largest country by market cap and it is an important founding member of IFIAR. We want to be global so from our perspective there are advantages in our outreach to potential new members."

Following on last year’s agreement to change IFIAR’s governance structure from an officer-led structure to a board-led structure, IFIAR members have this year agreed on a road map to have a board in place by April 2017, Van Diggelen continued.

Beyond purely organisational decisions, IFIAR members took three major decisions during their 2016 annual meeting:

  • Establishing a global investor and other stakeholders’ advisory group,
  • Setting a target with the largest six global networks to reduce the number of deficient audits over the next four years, and
  • Enhance its focus on standards and dialogue with standards setters to improve audit quality.

Advisory group
While IFIAR always had investors and other stakeholders’ panel at its meeting; the newly established group will provide a continuous dialogue between regulators and the investors’ community to enhance audit quality, IFIAR vice-chair Brian Hunt explained.

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"We want to understand their expectations, where the gaps are and how can we close those gaps," he continued. "We want to close the investors’ expectation gap by bringing them as advisors and understand what is it that they are looking for what are the challenges, how would they rate audit quality, how do we get that discussion going."

Audit quality target
Van Diggelen told this magazine that in the course of the annual meeting, IFIAR had met with the CEO of the six largest networks and had agreed to reduce by 25% the number of deficient audits over the next four years.

IFIAR annual inspection findings survey shows only small improvement over the years, she continued. "We think the pace of improvement is too slow and as such we have agreed this target with the firms."

Some might say that a 25% reduction over four year is not significant, but Hunt said: "I just want to reassure your readers that if we hit that in two years, that is not where we will stop, we will go for another 25%."

IFIAR annual survey of inspection findings is a lagging indicator, Hunt and Van Diggelen argued, as the audit need to be performed, IFIAR members need to go through their inspections and only then does IFIAR gets through the findings.

As such the target which has to be reached in 2019, refers roughly to the audits performed on financial statements of 2016, 2017.

Asked whether they are confident firms can put in place the necessary measures in the next year or two years, Van Diggelen said there will be an inter-measurement two-year period from now to see if there is continued improvement.

Hunt said: "The key here is that we have set up a target, that we hope focuses people to drive improvement."

"People manage what they measure," Van Diggelen added. "So that is what we are trying to stimulate."

As part of their annual meeting, IFIAR also met with the chairs of the IAASB, the IESBA and the PIOB and discussed the role of standards setting in enhancing audit quality.

"Standards drive auditor behaviour so it is also very important to start thinking on how can we improve audit quality through the standards and looking at where they can be improve so they can better drive the consistency and the auditor behaviour," Van Diggelen concluded.