15_Prinsloo_External Auditing, Structure and Standards_Eng

International Federation of AccountantsExternal Auditing Structure and StandardsAlta Prinsloo, Senior Technical Manager, IAASBMay 5, 2005

AgendaCredibility in financial reportingRole of IFAC and its reformsRole of the IAASBInternational convergenceEthics ConclusionEXTERNAL AUDITING

Restoring Credibility in Financial ReportingCritical to development of capital marketsRequires a multi-faceted solutionBy all those involved in the financial reporting processFocus on the public interestCREDIBILITY

The Public InterestCorporate sectorDecisions affect groups and individuals well beyond traditional stakeholdersServed by accountants creating wealthPublic sectorPractices applied by governments affect those that receive servicesAt an international levelInternational standards affect national capital markets and service provision at national levelCREDIBILITY

Mission163 member bodies in 119 countriesSerious about its public interest responsibilityEmbraced in its mission ROLE OF IFAC

Mission (cont.)To serve the public interest, IFAC will continue to strengthen the worldwide accountancy profession and contribute to the development of strong international economies by establishing and promoting adherence to high-quality professional standards, furthering the international convergence of such standards, and speaking out on public interest issues where the professions expertise is most relevant.ROLE OF IFAC

IFAC Reforms PIOB Public Interest Oversight Board (PIOB) formedTo oversee international standard settingAuditing, Ethics, EducationTo oversee IFACs Member Body Compliance ProgramEight individuals from seven countriesROLE OF IFAC

IFAC Reforms HistoryMeeting with international regulators in February 2003How to strengthen international standard-setting processesHow to restore credibility in financial reportingBasel Committee, EC, FSF, IAIS, IOSCO and World BankConsulted with IFAC member bodies and other interested partiesProposals for Reform approved in November 2003ROLE OF IFAC

IFAC Reforms FocusStrengthening standard-setting processes of IFAC PIACsIAASB, Education Committee and Ethics CommitteeEnhancing transparency of those processesProviding for public interest oversightROLE OF IFAC

IFAC Reforms Key Role of PIOBEvaluate due process of IFAC PIACs and report publiclyApprove nomination processApprove appointment of chairs and members of IFAC PIACsMay recommend matters for inclusion in IFAC PIAC work programMay Observe at meetings during discussions pertaining to IFAC PIACs ROLE OF IFAC

Public SectorIFAC Public Sector Committee established in 1986Not ignored in reform process External review commissioned in October 2003Report presented to IFAC Board in July 2004Now International Public Sector Accounting Standards BoardSteps taken to increase public input in its standard-setting processesROLE OF IFAC

Objective of the IAASBTo serve the public interest by setting, independently and under its own authority, high-quality standards for quality control, auditing and other assurance, and related services engagements, and by facilitating convergence with them. This enhances the quality and uniformity of practice throughout the world, and strengthens public confidence in the global auditing and assurance profession.ROLE OF THE IAASB

Composition of the IAASBFull-time chairman and 17 volunteer membersThree public members (two of which are Auditors-General)Appointed by IFAC Board based on recommendations from IFAC Nominating CommitteeAppointments approved by PIOBMeets four-five times per year ROLE OF THE IAASB

IAASB ReformsMeetings are open to the publicProject histories, agenda papers and meeting summaries are posted on the websiteAudio recordings of IAASB meetings are available on the websiteExposure drafts and comment letters are posted on the websiteFull-time chairman has been appointed and technical staff have been increasedDue process has been reviewedROLE OF THE IAASB

Public Interest InputPublic membersConsultative Advisory GroupAppointed independent chairRecently revised membership and scope of activitiesProvides input on IAASB work program, priorities, and technical issuesINTOSAI is a member of CAGObserversUS PCAOB and Japanese Financial Services AgencyROLE OF THE IAASB

Other StakeholdersAnnually meets with national standard settersMaintains an ongoing dialogue with the ECParticipates in meetings of:IOSCOs Standing Committee No. 1US PCAOB Standing Advisory CommitteeBasel Committee ROLE OF THE IAASB

New ISAs Relevant to the Public InterestNew and revised quality control standardsISQC 1Quality control at firm levelISA 220 (Revised)Quality control at audit engagement levelReflects the IAASBs commitment to improve the quality of auditor performanceROLE OF THE IAASB

New ISAs Relevant to the Public Interest (cont.)Revised fraud standardBuilds on new audit risk standardsRequires auditors to:Focus on areas of risk of material misstatementDesign and perform audit procedures responsive to identified risksWill result in increased workROLE OF THE IAASB

The Road AheadFocus on issues that build confidence in the audit of financial statementsBe responsive to needs of those with an interest in financial reportingComplete implementation of reformsConsider process for interpretive guidanceStrengthen and maintain stakeholder relationshipsConsider other assurance projectsConsider needs of SMEs and SMPsROLE OF THE IAASB

Support IFACStatements of Membership ObligationsFinancial Stability Forum12 Key Standards for Sound Financial SystemsCredibility Task ForceRecommendation in report on Rebuilding Public Confidence in Financial Reporting An International Perspective INTOSAIGuidelines for Financial Audit to be based on ISAsCONVERGENCE

ChallengesWong ReportUnderstanding meaning of international convergenceTranslation of international standardsComplexity and structure of international standardsFrequency, volume and complexity of changes to international standardsChallenges for SMEs and SMPsPotential knowledge shortfallImplication of endorsement of IFRSsCONVERGENCE

RecommendationsAll participants in financial reporting process have a role to playIFAC and IAASB initiativesDeveloping the concept of international convergenceTranslations and availability of pronouncementsIFAC Member Body Compliance ProgramIAASB clarity project Addressing the needs of SMEs and SMPsCONVERGENCE

Public SectorIAASB / INTOSAI ASC Memorandum of Understanding signed in 2004Enables INTOSAI ASC to use ISAs as basis for Guidelines for Financial AuditEnables IAASB to obtain public sector expert input in standardsINTOSAI ASC nominees participate in IAASB task forcesContribute public sector perspectiveCONVERGENCE

High Ethical StandardsAccountancy profession is built on publics trustRequires commitment to:High ethical standardsIntegrityRequires effective codes of conduct for all participants in financial reporting processIFAC Code of Ethics for Professional AccountantsSpecific public-sector related issues are being considered by IFACs Ethics CommitteeETHICS

ConclusionCooperation is the cornerstone of development and common well-being in the world.Budapest Accords 2004 INCOSAIWorking with other external accountability partners to establish standards and guidelines produce mutual benefits.INTOSAI Strategic Plan 2005-2010IFAC and IAASB will continue their cooperative approach EXTERNAL AUDITING

International Federation of Accountants

Documents

15_Prinsloo_External Auditing, Structure and Standards_Eng