The Monitoring Group of international financial regulators issued a
It includes a role for the International Federation of Accountants and its two affiliated standard-setting boards, the International Auditing and Assurance Standards Board and the International Ethics Standards Board for Accountants, but with some important composition and governance changes. Many details have yet to be determined, and would be worked out during a transition period.
The paper said standard-setting activities will be carried out by two expert and objective multi-stakeholder boards. One board would continue to be responsible for setting audit, review, assurance and quality control standards, while the other board would continue to be responsible for setting international ethics standards for professional accountants, including auditor independence requirements.
“In this regard, the boards will retain the current mandates of the IAASB and IESBA, respectively,” said the paper. “Continued enhanced coordination between the boards is essential to enable each to work more closely on key projects that impact their respective mandates.”
The paper also includes recommendations aimed at improving the process by which global audit, assurance and ethics standards for the accounting profession are developed and issued in the public interest, and comes after a lengthy consultation process that had some at IFAC and the standard-setting boards concerned that their role would be diminished. However, they greeted the release of the paper with relief and said they welcomed the next phase of engagement with the Monitoring Group as they move into a transition-planning phase.
The changes have been under development since 2015, after concerns were raised about the independence of the standard-setting process and complaints that the boards were dominated by accountants and auditors. A public consultation began in 2017 and received 179 responses.
IFAC said that it’s pleased that the paper recognizes the important and necessary role that the federation and the profession will continue to play in the standard-setting process and that the recommendations are aligned with IFAC’s strategy. It added, though that there are a number of important issues that have yet to be addressed before moving forward with implementation. IFAC believes it will be able to work collaboratively with all the key stakeholders involved to reach a satisfactory resolution during the transition planning phase.
“We have worked hard to build trust and collaborate with all of the stakeholders involved in this process,” said IFAC's president, Dr. In-Ki Joo, in a statement. “The recommendations provide us with a foundation to move forward. We look forward to working with the Monitoring Group and all other stakeholders involved in the transition planning phase to agree on an implementation plan.”
Among the recommendations in the report, the Monitoring Group said it wants all levels of the governance and oversight framework to be subject to transparent accountability processes, including regular effectiveness reviews and enhanced reporting in the public domain.
Specifically, the Monitoring Group recommends retaining a “three-tier model, with the roles and responsibilities of each level clearly delineated and properly balanced, to demonstrate transparency and accountability.” The aim of the Monitoring Group is to provide a formal link between its own Public Interest Oversight Board and public authorities in order to protect the PIOB from undue influence while also enhancing its public accountability.
The Monitoring Group plans to periodically review the effectiveness of the system as a whole to address any public concerns and to safeguard the effectiveness of oversight. The Monitoring Group will perform an effectiveness review of these recommended reforms within five years after their implementation.
“The PIOB will provide oversight of the standard-setting process to ensure that international audit-related standards are responsive to the public interest, including that they are developed in accordance with the principles of the Public Interest Framework,” said the paper. “It shall oversee that the standard-setting activities follow due process throughout the standard-setting development cycle, including that the boards appropriately considered and balanced input from stakeholders.”
The PIOB will retain direct oversight of the public interest responsiveness of any final standards, including through ongoing engagement with the standard-setting boards throughout the standard-setting development cycle.
“The PIOB’s governance responsibilities will include the nomination and appointment process for board members, protecting the boards from undue influence, such as commercial, political, and economic influence, in the public interest and overseeing the administration that supports standard-setting, including the ethics and conduct criteria for the PIOB, boards and staff,” said the paper. “The PIOB will have the appropriate powers, resources, staffing, and expertise to support these additional responsibilities.”
The paper said the PIOB would be responsible for the governance of the standard-setting boards and public interest oversight of their agreed responsibilities: “The recommendations are written with an overarching objective that standard-setting activity would be independent from IFAC and that the associated governance and public interest oversight activities will reside within the PIOB Foundation legal entity. The legal structure should be defined considering that the standard-setting boards should be housed in a separate legal entity outside of and independent from IFAC.”
The PIOB, IFAC, and the Monitoring Group plan to sign a memorandum of understanding that will detail the steps toward accomplishing any fundamental future changes.
“Global audit, assurance and ethics standards are the bedrock on which our profession is built, and an important safeguard in protecting the public interest that is part of our professional mandate,” said IFAC CEO Kevin Dancey in a statement. “We were pleased to have worked with the Monitoring Group, the Public Interest Oversight Board and other key stakeholders over the course of the consultation period to continue to enhance a sustainable, independent and transparent standard-setting process that has the trust and confidence of all stakeholders.”
The current leaders of the IAASB and IESBA indicated that they’re on board with the Monitoring Group recommendations.
“The Monitoring Group’s conclusions highlight the importance of high-quality international standards, set by independent and technically expert bodies with effective oversight,” said IAASB's chairman, Tom Seidenstein, in a statement. “We support change that can advance our ability to deliver enhanced standards in the public interest.”
“The task now at hand is to draw the most benefit from these changes,” said IESBA's chairman, Dr. Stavros Thomadakis, in a statement. “We are committed to collaborating with the Monitoring Group and others to achieve a smooth transition and effective implementation of the new arrangements.”
The Association of Chartered Certified Accountants also reacted positively to the news. “This is a much-anticipated announcement following an extensive consultation, and it presents a positive development for the future,” said Maggie McGhee, executive director of governance at the ACCA, in a statement Wednesday. “Their advice brings certainty to the various standard-setting boards responsible for this important work, and it also provides clarity about the future roles of the Public Interest Oversight Board (PIOB), and the International Federation of Accountants. These recommendations will reinforce stakeholder confidence in a technical and expert global system that defines accountancy standards and ethics, with the aim of instilling trust in business and the public sector. The enhancements defined in the Monitoring Group’s paper maintain many of the strengths of the existing system, but ACCA believes that the new arrangements should further improve the independence of the International Audit and Assurance Standards Board (IAASB) and the International Ethics Standards Board for Accountants (IESBA), with recommendations also further clarifying the roles between them and the PIOB. The recommendations will also importantly maintain these boards’ technical experience and expertise.”
