A group of international regulators is seeking to restore investor confidence by forming the Public Interest Oversight Board to set auditing standards, the New York Times reported.
The new body was established by the International Organization of Securities Commissions, the Basel Committee of Banking Supervisors, the International Association of Insurance Supervisors, the World Bank and the Financial Stability Forum. All but the World Bank are groups of national financial regulators, the Times reported.
While the Board will have the authority to set the standards, it will be left to national regulatory bodies to ensure the standards are properly administered. The challenge lies in that some of these national regulatory bodies are still being formed, the Times reported.
The formation of the new Board is a reaction to a wave of accounting scandals in many countries that have served to uncover poor auditing procedures. The standards to be promulgated by the Board cover the way audits are conducted and set out what constitutes conflicts of interest and ethical standards for auditors. Auditing standards differ from accounting standards, which set forth the rules auditors should enforce, the Times reported.
"For a long time, the accounting profession and the auditing profession were regulating themselves," the chairman of the new board, Stavros Thomadakis, said. "This is not really a regulatory organization. It is put together to establish public interest oversight of auditing standards."
In the past, auditing standards were set by auditors with little involvement from governments. The International Auditing and Assurance Standards Board, a unit of the International Federation of Accountants, will continue to do the work, but the new board will oversee the process and have a veto over appointments to that group, the Times reported.
The chairman of the French Financial Markets Authority, Michel Prada, said the creation of the board shows "a sense of responsibility among audit practitioners and the international institutions and regulatory organizations involved in promoting financial stability in a globalized economy." He said it would help "in enhancing the quality of financial reports and restoring public confidence."
The international groups were also acting to keep the United States from becoming the de facto setter of auditing standards following the establishment of the Public Company Accounting Oversight Board (PCAOB) following accounting scandals in the U.S., the Times reported.
Before the establishment of the PCAOB by the 2002 Sarbanes-Oxley Act, U.S. auditing standards were set by a unit of the American Institute of Certified Public Accountants. The PCAOB, which is appointed by the Securities and Exchange Commission, both sets auditing standards and enforces them by reviewing audits, the Times reported.