IFAC & International Regulators Propose Reforms to Strengthen Audit Quality
The international accountancy profession, together with international regulators, are spearheading reforms to improve the quality of standards and practices in auditing and assurance worldwide and to achieve global convergence of high quality standards. Their focus is on strengthening the international auditing and assurance standards process to bolster public confidence in the work of auditors and in the financial reporting process.
The reforms are described in a paper entitled "Proposals for Reform," developed by the International Federation of Accountants (IFAC) and international regulators with input from IFAC member organizations, regional accountancy organizations and the profession at large. IFAC's Board will present the reform proposals to its Council for approval in November 2003.
The objective of the reforms, which are expected to be implemented in early 2004, is to help ensure that IFAC's standard-setting activities reflect the public interest and are consistent with the priorities of the international regulatory community. Key aspects of the reform proposals include the development of a more transparent standard-setting process, particularly with respect to audit and assurance standards, and the provision for greater public and regulatory input into that process. In addition, the proposals call for the establishment of a Public Interest Oversight Board (PIOB) to oversee IFAC's public-interest activities. Members of the PIOB will be selected by the regulatory community.
Regulatory and other international groups involved in the development of the proposals include the International Organization for Securities Commissions (IOSCO), Basel Committee on Banking Supervision, European Commission, World Bank, and International Association of Insurance Supervisors, as well as the Financial Stability Forum, which strives to promote international financial stability and improve the functioning of markets.
The International Organization of Securities Commissions (IOSCO) recently reported that it "strongly supports IFAC's efforts" to reform its public-interest activities, including the formation of a Public Interest Oversight Board.
The Financial Stability Forum (FSF) also indicated its support of the reform proposals, which they view as a positive step in ensuring that the international auditing standard-setting process is responsive to the public interest.
"The Financial Stability Forum welcomes the reforms developed by IFAC and the international regulatory community to provide assurance that IFAC's audit-related standard-setting activities are conducted in a manner consistent with the public interest," states Roger Ferguson, FSF Chairman. "We look forward to their adoption by IFAC's Council in November and implementation in the months to come."
The PIOB will comprise 10 members and will focus on IFAC standard-setting activities related to audit and assurance services, independence and other ethics standards. It will also oversee the education standard-setting process and IFAC's member body compliance program.
The reform proposals also include recommendations for strengthening and enhancing the transparency of IFAC's governance, expanding the role of Consultative Advisory Groups in standard-setting processes, and formalizing ongoing collaboration between regulators and IFAC to ensure the efficacy of the reforms.
"Countries around the world recognize the critical need for high quality audits," states Jaime Caruana, Chairman of the Basel Committee on Banking Supervision and Governor, Bank of Spain in Madrid. "Over time, IFAC's reforms should result in improvements in international audit standards and practices that will help restore the confidence of capital markets in the quality of audit services. The Basel Committee is pleased to be involved with other regulatory and international organizations in supporting this important reform effort."
"The result of this very collaborative effort is a series of proposals which we strongly believe are in the best interests of the public," adds IFAC President René Ricol. "The most effective way to build public confidence in financial markets is to develop a well-designed, rigorous and transparent standard-setting process in which external parties are fully integrated. This is what the reform proposals are designed to accomplish."
For additional information, go to the IFAC Web site to view the entire document.