The International Federation of Accountants (IFAC) is proposing changes in international auditor independence standards that could significantly impact U.S. CPAs.
As an IFAC member, the AICPA routinely comments on the organization’s proposals and determines whether to revise its own Code of Professional Conduct to harmonize with international standards. IFAC’s exposure draft, issued on Dec. 29, 2006, contains auditor independence standards more restrictive than those of the AICPA. To address this, the AICPA is inviting CPAs to provide comments by the April 30 deadline – preferably well before that deadline.
The exposure draft’s more restrictive revisions reveal why input from CPAs in the United States is necessary. The draft extends the reach of IFAC’s independence rules — which currently govern only auditors of listed companies — to those who audit entities of significant public interest, such as large regulated financial institutions and possibly large pension funds and government agencies, as well as government-controlled and not-for-profit entities. Additionally, small firms that audit listed entities would no longer have flexibility and would be required to rotate partners on such engagements. Moreover, regardless of size, all firms would be required to rotate partners for audits of entities considered to be of significant public interest.
The AICPA is making every effort to ensure that IFAC’s final version is balanced and sensitive to the needs of smaller firms, but all CPAs should take part in the dialogue on these important independence issues.