The International Federation of Accountants is outlining some possible ways forward to resolve a disagreement with the Monitoring Group of financial regulators over the standard-setting process for global auditing and accounting education.
The Monitoring Group, which includes the International Organization of Securities Commissions, the Basel Committee on Banking Supervision, the European Commission, the Financial Stability Board, the International Association of Insurance Supervisors and the World Bank Group, has been reviewing the international standard-setting process since early 2015. Last November, the Monitoring Group published a
In response to the Monitoring Group paper, IFAC commissioned a
The plans didn’t include the IAASB, but on Wednesday, IFAC published some possible solutions for both boards in a paper, “
“These analyses demonstrate that while there still are diverse views, there is agreement on a number of proposals and a timely resolution is needed,” IFAC said Wednesday in announcing the paper.
The document identifies some of the main areas of concern and proposes improvements to ensure the continued development of high-quality international audit and assurance standards and ethics standards in the public interest. It stresses the need to finalize the current review in a timely, responsible manner.
“Concluding this process will allow all parties to focus on implementation of improvements and on the continued development, adoption and implementation of high-quality standards,” said IFAC.
The paper suggests improvements should be made in five interrelated areas:
• Clarifying the distinct roles between oversight and standards development;
• Enhancing multi-stakeholder representation on both the oversight body and the standards boards;
• Improving the timeliness of standards development while retaining their quality and relevance, focusing on standards related to auditor performance; quality management within firms; the implications of new accounting standards; and emerging areas of reporting and new technology;
• Addressing the perception that the accountancy profession is able to exert undue influence;
• Increasing funding sources to support the proposed improvements above, and to ensure sufficient, sustainable and preferably diverse funding for the future.
“The Monitoring Group process has been lengthy,” said the IFAC paper. “It is in the public interest to address the five issues identified above and finalize this process in a timely and responsible manner. Broad support and agreement for a Public Interest Framework (PIF) is important to provide a firm foundation on which to base any significant changes to the model. A multi-stakeholder approach to achieve consensus is essential.
IFAC noted that improvements would need to be appropriately funded, but a new, viable, diverse funding model hasn’t yet been proposed or agreed.
“While stakeholders need to understand all of the significant changes as an integrated package, implementation of the changes should be in a logical sequence,” said IFAC. “A key, initial step is to clarify the roles and responsibilities of an oversight body, reflecting good governance and due process. The oversight body should have a distinct role as the guardian of the standard-setting model on behalf of all stakeholders. Key elements include a multi-stakeholder, diverse composition; open and transparent nominations process; and no right to intervene in a technical standard or veto its approval.
Once the oversight structure is agreed, enhancements to the standard-setting boards’ structures can be finalized. Key elements include a multi-stakeholder, diverse membership; resolution of the issue of separate audit & assurance and ethics standards boards; proactive strategy and increased project coordination between the two boards; and enhanced staff and more efficient processes, including better use of technology.”
IFAC still envisions an important role for itself for the future, no matter what changes are made to the standards boards.
“The widespread adoption and implementation of international standards demonstrates that the current process, in which IFAC plays a significant role, has produced high-quality, credible standards,” said the paper. “IFAC should, therefore, continue to play a significant role ensuring the profession’s constructive engagement in the standard-setting process in a public/private collaboration model that ensures the standard-setting activities operate, in fact and in appearance, in the public interest and independently from IFAC.”
The paper notes that changes probably won’t happen before 2021 or 2022. “To mitigate disruption risk, changes need to be implemented in a sequential manner,” said the document. “Full implementation will likely not occur until 2021/2022 even if consensus is reached by early 2019.”
The changes could be expensive. Implementing the proposals could cost an additional $7 million to $11 million per year, IFAC estimated, and that would require new funding, either in cash or in-kind.
