In a carefully worded refutation, the International Federation of Accountants (IFAC) has published its initial reaction to the Monitoring Group Consultation Paper on proposed changes to the international audit and ethics standard-setting process.
According to a statement published on its website, IFAC agrees with certain proposals in the Monitoring Group’s paper, “Strengthening the Governance and Oversight of the International Audit-Related Standard-Setting Board in the Public Interest.” But the federation’s concerns target “far-reaching proposals [by the group] that would fundamentally dismantle the current model,” according to the statement.
What’s more, IFAC is concerned that the group’s paper doesn’t substantiate such a drastic change and that key issues are either omitted or deferred.
Those issues include funding, oversight and governance, transitions, and an impact and risk assessment. Further, IFAC believes that the group’s paper inaccurately reflects the current standard-setting process and proposes changes that differ from the group’s stated aims.
Instead, IFAC contends that its proposals would improve the independence of international standard-setting but keep separate audit and ethics boards. Ethics standards would still apply to all accountants, including auditors.
IFAC believes its proposals reinforce a multi-stakeholder approach to standard-setting and include the Public Interest Oversight Board (PIOB) and Nominating Committee; clarify what role the PIOB plays, improve the transparency of independent oversight, and seek a funding method to which all stakeholders contribute.
The federation, in the position paper referenced in the IFAC link above, has asked the Monitoring Group to gather all stakeholders in a forum to evaluate the current model, explore how to ensure that standards are relevant and enhance confidence in global economies. “Unfortunately, this forum was never established,” IFAC states in the paper.
Created in 2005, the Monitoring Group is a function of several groups, including the International Organization of Securities Commissions (IOSCO), that oversee governance of standard setting and ensures public accountability, according to its report referenced in the IOSCO link above. IOSCO and other groups work with IFAC “with the objective of restoring confidence that standard-setting by IFAC’s independent boards is responsive to the public interest,” the report states.
According to the Monitoring Group’s position paper, “the reason for dealing with reform in stages is to avoid disrupting or otherwise undermining confidence in the current standard-setting process. This would ensure that further changes needed to the governance in the Monitoring Group and PIOB and associated oversight arrangement build on the changes already agreed upon.”
Further, the group indicates there is a “legitimate concern among many stakeholders that the influence of the profession is at least perceived to be too strong and that addressing this issue could further strengthen public confidence as well as encourage still-wider global adoption of the International Standards on Auditing (ASAs).”
The Monitoring Group wants feedback on how necessary the proposed changes are, if they will be more effective than current arrangements and if they will improve transparency and public understanding of how the governance is structured. Further, the group acknowledges that the possible reforms are interlinked and seeks feedback on possible unintended consequences from any particular proposal.
IFAC, too, may be affected by the group’s proposal. IFAC has an intellectual property stake in the current model and any revisions will require approval.
The proposal also will change IFAC’s role but it would continue to play a key role in global development of the profession and in strengthening the quality of its work, the Monitoring Group’s paper states.
Terry Sheridan is an award-winning journalist who has covered real estate, mortgage finance, health care, insurance, personal finance, and accounting and taxation issues for newspapers, magazines, and websites. A Chicago native and former South Florida resident, she now lives in New England.