Public Interest Oversight Boardoverseeing international audit, ethics and education standards for the accounting profession

FOURTH PUBLIC REPORT OF THE PIOB

MAY 2009

PIOB

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Table of Contents

Page

Message from the PIOB Chairman 3

I. Overview 4

II. PIOB Governance 7Local Governance of the PIOB Foundation 7International Governance of the PIOB 8

III. PIOB Oversight Framework and Activities 9Overseeing in the Public Interest: The Elements of Due Process 9Comprehensive Monitoring: Observation Activities 10Regular Reporting: Dialogue with IFAC, PIAC and CAG Leadership 11Extended Review Framework: Our Independent Reviews 12PIOB Approval Activities 13Oversight of the CAP and the IFAC Compliance Program 18IFAC’s Triennial Review of the Effectiveness of PIAC Due Process 20

IV. The Importance of Coordinated International Public Interest Efforts 21

Adoption and Implementation 21Monitoring and Evaluation 22IFAC Public Interest Initiatives 23

V. PIOB Outreach Activities 24

Outreach to International Regulators 24Outreach to Decision Makers 25Outreach to the Accountancy Profession 25Outreach to the General Public 26

VI. The Future Outlook for Public Interest Oversight 27

VII. PIOB Foundation Summary Statement of Financial Performance 29

Appendix A - The PIOB 30

Appendix B - The PIOB Operating Environment 31

Appendix C - Glossary of Terms 32

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FOURTH PUBLIC REPORT OF THE PIOB

(From left to right)

Back row: David Brown, Sylvie Mathérat and Fayezul Choudhury. Middle row: Aulana Peters, Antoine Bracchi, Michael Hafeman and Toshiharu Kitamura.Front row: Kai-Uwe Marten, Donna Bovolaneas (Secretary General), Stavros Thomadakis (Chairman) and Sir Bryan Nicholson.

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On 26 February 2009 PIOB members deliberated on and ultimately approved the due processused to develop and finalize the last three clarified International Standards on Auditing. This wasthe final stage in a process that had started some years ago and culminated in approvals for 25ISAs and one International Standard on Quality Control during this past operating year. Althoughthe February meeting was a milestone marking completion of the ambitious “Clarity project”, theactual approvals seemed normal and well anticipated. We had to remind ourselves what a historicmoment this was, and how significant its impact could prove to be in today’s world. The lack ofexcitement during this meeting reflected the degree of careful screening and detailed oversightleading up to each decision point; thus, the final deliberations themselves held no surprises. Thisis an important characteristic of the brand of oversight practiced by the PIOB.

The brand of oversight crafted over the four years of PIOB operation is one of continuousmonitoring and early intervention if processes appear to derail from their public interest objective.This has been facilitated by an open channel of communication with the standard setters weoversee and the development of independent screening capabilities by PIOB staff. The fact that nosurprises were revealed at the very end also testifies to the comprehensiveness of the process andthe proper functioning of the standard setting architecture. The oversight model that we apply hasbenefited from the continuous engagement of a large complement of interested “stakeholders”. Ithas also benefited from the fact that the standard setting bodies themselves have changed radicallyin recent years, becoming more diversified in their composition. The public interest perspective isnot only imposed by the presence of external oversight. It must also be internalized within thestandard setting bodies themselves.

The members of the PIOB have continued to sharpen both the concept and the practice of the“international public interest” and have brought an extraordinary amount of collegiality andpersonal dedication to the task. I want to thank each and every PIOB member for innumerablecontributions. The members of staff have also excelled with their dedicated work and theirdiligence. The implementation of our very demanding oversight model would simply not havebeen possible without their effort. Our departing Secretary General, Donna Bovolaneas, has beenthe backbone of PIOB life over these years and has done a superb job in the construction andmaintenance of the PIOB, both as a legal entity and as an administrative unit. She has been atrusted, untiring and loyal advisor to myself and all PIOB members and deserves many thanks forher long working hours, her dedication and her decisive contribution to the attainment of ourpublic interest objectives.

I also note with satisfaction that the working relations of the PIOB with our Monitoring Groupcolleagues have been developing rapidly as our financial accountability and budget operationhave come under that group’s direct responsibility. Working to further strengthen theindependence of the PIOB through additional funding diversification will continue to be anobjective of high priority for all of us.

Stavros Thomadakis

PIOB Chairman

Message from the PIOB Chairman

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FOURTH PUBLIC REPORT OF THE PIOB

The past year will be remembered as one ofturbulence and crisis in financial markets aroundthe world. Economies have switched from growthto recession as policymakers, regulators andleaders of industry and finance seek ways tocontain the crisis and carve new paths for futuregrowth. In this setting, the ability of institutionsand standards to function under extremeeconomic and market conditions is being tested inreal time. While this crisis has yet to be resolved,it demonstrates just how closely intertwinedeconomies and markets around the globe havebecome, and therefore how importantcommunication, the generation of high qualityinformation and cooperation are for governments,market leaders and organizations. In this context,the case for agreement on the use of commonstandards becomes even more compelling.

The present crisis has also demonstrated howactions motivated primarily by the privateinterest can give rise to systemic ineffectivenessand instability. This has led to renewed focus onthe public interest in determining what needs tobe done. It can be concluded from this thatpublic interest regulation of market activity is themost likely outcome of wide-ranging discussionson how best to redesign institutions andreconfigure public and private initiatives.

The Public Interest Oversight Board (PIOB) wasconceived as a response to the crisis ofconfidence created by numerous corporate andaudit failures in the early years of this decade. Itwas established in February 2005 to oversee theauditing and assurance, ethics and educationstandard setting developed by independentstandard setting boards under the auspices of theInternational Federation of Accountants (IFAC)and related compliance activities. This decision,which would have a significant and irrevocableimpact on the process of international standardsetting for audits and auditors, reflected the needto put public interest objectives first. Today more

than ever before, accurate assessment of marketrisks and reliable measurement of theconsequences of risk-taking call for transparent,effective and clear financial reporting andauditing standards. In other words, standards thatuphold and protect the public interest.

Over the last four years, we of the PIOB havesought to achieve public interest objectives bydeveloping and applying a new oversight modelfor setting international standard in the areas ofauditing, assurance, ethics and education. Thismodel has two highly distinguishing features.First, it is a collaborative model which reflects anagreement between a group of internationalregulators and other public sector stakeholders,and a private sector body, the InternationalFederation of Accountants, to co-sponsor anindependent oversight body for the private sectorappointed by the regulators. Second, this modeleffectively combines the high competence ofexperts operating within a private standardsetting body with oversight by a separate bodythat represents and pursues public interestobjectives. In the current crisis, it is clear that theneed for high quality and broadly applicablestandards developed in an inclusive, responsiveand credible manner has taken on a greaterrelevance and urgency than ever before. ThePIOB oversight model was designed to meetthese requirements.

The past year has been a year not only of crisis.It has also been a year in which many effortsinitiated several years ago have come to fruitionand have increasingly commanded publicattention. The Clarity project, a majorundertaking for the improvement of theInternational Standards on Auditing (ISAs), hasnow been completed. Combined withsubstantive revisions to the content of certainstandards, this project has produced a completeset of reformulated standards which are nowclearer and much more amenable to translation

Section I Overview

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and implementation. The redrafted IFAC Code ofEthics, which includes two separateindependence projects, is also near completion.

Clear and globally applicable ISAs go a long waytowards offering an international infrastructurefor consistent and effective audit practice.Updated independence requirements create aparallel and supporting internationalinfrastructure to ensure the application ofindependent and objective professionaljudgment and focus on the public interest. Webelieve that these are valuable improvementsand important additions to the many regulatoryenhancements being devised in response to theglobal financial crisis.

In overseeing the completion of the Clarity andIndependence projects and the redrafting of theIFAC Code of Ethics, we have applied ouroversight policies in their most developed andintensive form. We have overseen selection ofthe standard setters, carefully reviewed theirapproach to formulating plans and projects, andclosely supervised the ongoing process ofdeliberation, consultation and finalization usedin the development of each and every standard.An increasingly prominent role has been given tothe views and deliberations of ConsultativeAdvisory Groups (CAGs) comprisingrepresentatives of public interest organizationsand other interested parties. Accordingly, we givethe standard setters final authorization to publisheach finished standard only after determiningthat all due process steps have been followedeffectively and with proper regard for the publicinterest, after obtaining assurance from the CAGsthat issues they raised have been considered, andafter conducting our own due process reviewsfor all standards.

Besides the areas at the forefront of publicattention – Clarity and Independence – oversightin the public interest has been applied to twoother core areas affecting the global accountancy

profession: standards and guidance forprofessional education and the work of IFAC’sCompliance Advisory Panel (CAP).

The importance of these areas is undisputed.Standards for professional education, which setcriteria for academic programs, initial on-the-jobtraining and continuing professionaldevelopment, are an essential complement toISAs and the IFAC Code of Ethics. In a worldwhere the need for high quality financialstatements has become more important thanever before, professional accountants andauditors who have attained the requisiteknowledge, skills and attributes embodied inthese standards will play an important role.

The work of the CAP also represents an area ofrapidly growing importance. Its program to testand promote improvement in IFAC memberbodies’ compliance with their obligationsrelative to international standards is a platform topromote and achieve effective implementationof these same standards. The CAP has organizedan extensive project of self-assessment,monitoring and encouragement toward fullcompliance by existing professional bodiesaround the world. Closely intertwined with thisprocess are the CAP’s programs to promotedevelopment of new professional organizationsof accountants and auditors in emergingeconomies to provide the infrastructure tosupport sound adoption and implementation ofinternational standards.

This past year has also marked a turning point inother important respects.

After leading the IAASB through a period ofsignificant reform and professional challenge,including the successful completion of theClarity project, John Kellas stepped down asIAASB Chairman. The appointment of hissuccessor followed an open and competitiveprocess that brought forward many talented

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FOURTH PUBLIC REPORT OF THE PIOB

candidates from around the world. The newChairman, Arnold Schilder, combines auditingexpertise with senior regulatory experience.

The Monitoring Group, which is the forum ofinternational regulatory and public sectororganisations that appoints the PIOB membersthrough its Nominating Committee and monitorsthe PIOB and the progress of the 2003 IFACReform Implementation, also reached threesignificant and evolutionary decisions.

The first of these was the Monitoring Group’sdecision to approve the European Commission’sproposal to elevate its two existing observers tofull PIOB membership. This step reflectedincreasing EU interest in the operation of publicinterest oversight in view of pending decisionson whether to adopt International Standards onAuditing for use by EU member states. Thisadoption is clearly contemplated in the EighthCompany Law Directive and, if approved, willconstitute a significant step forward towardsachieving high quality and consistent auditpractice around the world.

The second involved a decision by allMonitoring Group members to prepare a formalCharter describing the functions of the group andits relationship with the PIOB. This was acooperative effort in which we were providedample opportunity to work with the MonitoringGroup and contribute our views and experience.One crucial aspect from our perspective was theMonitoring Group’s decision to take explicitresponsibility for PIOB budget approvals and toapply the detailed approval process to our 2009budget. This new arrangement now providesvisible reinforcement to our independence 1.

The third was the Monitoring Group’s mostrecent decision to include the Financial StabilityBoard 2 as a full member. As an original supporterof the need for public interest oversight forinternational standard setting, the FSB continuesto play a lead role in coordinating currentinternational regulatory efforts to address theglobal financial crisis.

In our last Public Report we provided ourperspectives on future public interest issues andneeds. Two elements stood out in particular. Thefirst was the new challenges posed by anticipatedstandards implementation over the near term andthe need for coordinated implementation support.The other was our belief that the array of activities,initiatives and policies aimed at achieving highaudit quality also called for stakeholdercoordination. Both these areas remain highlyrelevant to the future functioning of markets andeconomies, and the need for coordinated actionto deal with matters affecting the internationalpublic interest has been more than validated byresponses to recent global events.

In the areas of auditing and assurance services,we believe that new challenges are likely to arisefrom pressures unleashed by the global financialcrisis. In addition to the significant benefits ofusing existing global standards, the need formore comprehensive, transparent andinformative financial reporting may well createnew accounting and auditing standardsrequirements. Further alignment of auditor andregulatory objectives may also give rise to newperspectives on the purpose and conduct ofaudits. These and similar issues will likelydominate the audit quality agenda in future andit is in that broader context that the PIOB willundertake its role as an oversight bodycommitted to the international public interest.

1 The EU has recently approved the establishment of a regime to provide limited term financial support to specified EU and internationalbodies, including the PIOB, commencing in 2010. These bodies execute EU or international public interest missions aimed at enhancing thequality of financial reporting and/or auditing. 2 Formerly the Financial Stability Forum.

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Local Governance of the PIOB Foundation

The PIOB Foundation4 is constituted underSpanish Foundations law, subject to its provisionsincluding related regulations, and overseen by theSpanish Foundations Protectorate. The Foundationis governed by a Board of Trustees withresponsibilities defined in both the law and formalbylaws. In practice, this means that the Board ofTrustees is responsible for ensuring that theFoundation operates within its approved mandate,makes continuous progress toward defined publicinterest objectives, operates in a fiscally prudentmanner and remains fully compliant with allapplicable Spanish laws and regulations.

Up to this year, the eight serving members of theBoard of Trustees were drawn from among the tenexisting members of the PIOB. This year, the Boardof Trustees received local regulatory approval toexecute a bylaw change to enlarge the Board ofTrustees to a maximum of thirteen members. Thischange now provides greater compositionalflexibility including diversification through theappointment of independent trustees.

Regulatory reporting by the Foundation derivesfrom the Board of Trustees’ statutory obligationsand includes advance filing of an annualoperating and financial plan, quarterly reports oncore program activities, quarterly reporting of anyboard decisions which meet defined statutoryreporting criteria and a comprehensive annualfinancial reporting package.

Under the Foundation structure, day-to-dayoversight activity is conducted by PIOB membersoperating in the form of a Technical Committee.

Our ongoing work provides enhanced credibilityand legitimacy to the operation of the threeindependent international standard settingboards that we oversee3 and the public interestwork of the IFAC Compliance Advisory Panel.Greater awareness and recognition of our effortsand the visibility of our interventions haveinevitably brought new focus to the question ofour own governance and independence. Thefollowing diagram and related discussionprovide an up-to-date picture of the PIOBgovernance architecture including the impact ofrecent governance-related developments.

Section IIPIOB Governance

3 The International Accounting and Assurance Standards Board (IAASB), the International Ethics Standards Board for Accountants (IESBA) andthe International Accounting Education Standards Board (IAESB).4 La Fundación Consejo Internacional de Supervisión Público en Estándares de Auditoría, Ética Profesional y Materias Relacionadas, which isheadquartered in Madrid, Spain.

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FOURTH PUBLIC REPORT OF THE PIOB

International Governance of the PIOB

The fundamentals of the international governancemodel are embedded in the roles andresponsibilities assigned to the PIOB, theMonitoring Group and IFAC within the 2003 IFACReform proposals5. While interactions betweenthe Monitoring Group and the PIOB have beenguided by these descriptions, the recentMonitoring Group initiative to develop a formalcharter – summarized in Section I of this report –has provided a timely opportunity to bring greaterclarity to the overall reform model and, within it,to the governance of the PIOB.

An important impetus for this initiative has comefrom potential ISA adopters interested inconfirming the overall soundness and legitimacyof the international standard setting process. As therole of public oversight is a critical component ofthis process, stakeholders have a legitimateinterest in whether the PIOB is subject toappropriate governance arrangements and canmaintain the necessary independence from IFAC.For this reason, the new Monitoring GroupCharter has focused particular attention onclarified financial roles and responsibilities andprocesses to ensure our financial independencefrom IFAC while holding us accountable for ouruse of IFAC’s funds. This arrangement is supported

by a recently renewed IFAC commitment toprovide us with unconditional guaranteedfunding6, based on an annual budget requestwhich is reviewed and approved by theMonitoring Group. We are also required to submitan annual accountability report to the MonitoringGroup for final approval of budget execution.

Separately, the PIOB Foundation produces annualfinancial statements prepared in accordance withInternational Financial Reporting Standards andsubject to audit in accordance with InternationalStandards on Auditing. These statements arepublished in full on our public website and eachyear’s Public Report includes a financial summarypage with highlights of these results. Auditedfinancial statements are also presented to theMonitoring Group.

Other provisions of the Monitoring GroupCharter require us to provide regular operatingreports and to seek Monitoring Group input onour Public Reports prior to publication. Thesepublic reports, which are posted on our websiteand widely distributed in printed form, providean annual summary of our activities, findings,conclusions, decisions and policyrecommendations as well as our evolvingthoughts on the international public interest.

5 See the 2003 IFAC Reforms document which may be downloaded from the IFAC website at http://www.ifac.org/Downloads/IFAC_Reform_Proposals.pdf6 As part of IFAC’s agreement with the Monitoring Group, IFAC provides unconditional guaranteed funding for the operation of the PIOB. Initially, IFACagreed to guarantee funding for a five-year period, starting with the establishment of the PIOB in February 2005 (first guarantee period). During 2007,IFAC agreed with the Monitoring Group to guarantee funding for a further five-year period, starting March 2010 (second guarantee period). The initialguaranteed funding was an amount up to 1.5 million United States dollars plus annual inflation and foreign exchange adjustments unless theMonitoring Group advises IFAC that such funding is no longer necessary because of other arrangements.

From January 2007, the denomination of the IFAC guaranteed funding was converted to Euros. The amount of guaranteed funding for 2007 wasdetermined as the Euro equivalent of 1.5 million United States dollars after adjustment for inflation and exchange rate changes since January 2004. Forthe remainder of the first guarantee period, and for the second guarantee period, the funding is the 2007 amount adjusted annually for the inflation ratein the Eurozone. IFAC accepts the currency risk associated with the guaranteed funding being denominated in Euros, and understands that, on thisbasis, the PIOB will accept the currency risk associated with any operations or expenses of the PIOB incurred in currencies other than Euros.

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Overseeing in the Public Interest: The Elementsof Due Process

Over the past year we have continued to refineour oversight model based on additionalexperience and continuous assessment ofevolving external requirements.

The diagram on the right, which was firstpublished a year ago, sets out the fundamentalsof the due process applied by standard settingboards to the development of internationalstandards, practice statements and other keyPIAC pronouncements. It also illustrates the keyinteractions that occur between each standardsetting board (the IAASB, the IESBA and theIAESB), its respective Consultative AdvisoryGroup and the PIOB. The PIOB’s ultimateresponsibility to consider whether this dueprocess has been applied effectively and withproper regard for the public interest relies onthree key inputs: the results of direct andcomprehensive monitoring, reports from anddialogue with PIAC and CAG chairs, andindependent staff reviews. This model has alsobeen successfully adapted to support a range ofother PIOB approval duties, includingassessment of the due process used by the IFACNominating Committee to appoint PIAC Chairsand members, by the PIACs to update theirstrategies and work programs, by the CAGs innominating CAG Chairs and, most recently, bythe IFAC Board in undertaking a review andconsolidation of PIAC Due Process, WorkingProcedures and related Terms of Reference.

In applying the first part of this model(comprehensive monitoring) we form first-handopinions on the overall level of professionalism,efficiency, transparency, inclusiveness and publicinterest focus of each PIAC and CAG. Theseopinions, along with other inputs, also contributeto the formation of our final view on the

Section IIIPIOB Oversight Framework and Activities

appropriateness of each stage of the due processused to develop individual standards. In thesecond (regular reports), we supplement our first-hand observations with reports from anddialogue with PIAC and CAG Chairs. We alsomeet regularly with the IFAC leadership onnominations and other public interest initiativesundertaken by the IFAC Board.

The final element (independent reviews) refers tothe work of PIOB staff conducted under theExtended Review Framework program to provideus with additional independent assessments ofthe due process applied to the development ofindividual standards and PIAC strategic plans.

TABLE 1

Meeting Date 4/2006 - 3/2007 4/2007 – 3/2008 4/2008 - 3/2009

Entity Held Observed Held Observed Held Observed

IAASB 6 6 5 5 4 4

IAASB CAG 2 2 4 4 2 2

IESBA 4 3 4 4 5 5

IESBA CAG 2 2 4 3 3 2

IAESB 3 3 3 3 4 4

IAESB CAG 2 2 2 2 2 2

CAP (from April 2007) N/A N/A 5 5 5 4

IFAC Nominating Committee 8 8 8 7 8 8

TOTAL 27 26 35 33 33 31

Comprehensive Monitoring: Observation Activities

Based on the many tangible benefits derived inprevious years, which were reported onextensively in our Third Public Report, wecontinued to apply our policy of comprehensivephysical observation to meetings of the PIACs,CAGs, CAP and IFAC Nominating Committee.This approach provided us with the opportunityto assess the ongoing activities of each group, tointervene if we identified any matter that mighthave an impact on the public interest, and tointeract with members, their technical advisors,other official observers and, on occasion,members of the general public.

We did this for three reasons. First, we believedthat our mandate to increase stakeholderconfidence in the responsiveness of these groups

to public interest needs was best served by aprogram of ongoing observation. In particular,our continuous presence at all IAASB and IESBAmeetings 7 during the final phases of the Clarityand redrafted IFAC Code of Ethics projectsenabled us to assess how well these groupsmaintained focus on the public interest whilealso dealing with an extraordinarily largeworkload and demanding deadlines. Second, wealso believed that those relying on us to addcredibility and legitimacy to the operation ofthese processes would expect this level ofattention. Finally, this approach ensured that ourjudgments on a standard by standard basiswould be fully informed.

Table 1 provides comparative information on thescope of our observation activities8:

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7 Plus all but one of the related CAG meetings.8 Including teleconferences.

While the overall volume of our observationswas similar to that of the previous year, the mixof meetings was different. The individual changesfrom PIAC to PIAC reflected several distincttrends: a shift in the IAASB’s focus from morecomplex revisions tasks to a higher volume ofredrafting activity and consideration of newproject proposals, the IESBA’s intensified effortsto complete its final changes to Independenceand redraft the full IFAC Code of Ethics, and theIAESB’s launch of its Framework ReviewExposure Draft together with several newguidance projects. Although neither theNominating Committee nor the CAP changedthe frequency of its meetings, each managed aworkload that was more demanding than inprevious years.

Based on these observations, we were positionedto provide concrete views to the PIACs and CAGsand, in some cases, recommendations onvarious public interest matters.

For example, we considered the approaches takenby PIACs to resolve differences in stakeholderviews, especially where jurisdictional mattersmight be involved. In one instance, and withoutprejudice to the robustness of the due processapplied, we conveyed some disappointmentconcerning the IAASB’s decision to resolve oneparticularly challenging public interest issue bywithdrawing proposed accounting framework-related guidance from ISA 700 on whichstakeholders could not agree. While recognizingthat a more satisfactory resolution would requireexplicit action by some of these stakeholders, weencouraged the IAASB to consider whether theycould still make a contribution and to make thisconsideration a priority.

In addition, we opined positively on PIAC effortsto incorporate the widest possible range ofstakeholder views without compromising therobustness of the standard. We also supportedproposals to provide additional guidance toassist auditors in understanding and managingthe challenges posed by the financial crisis.Finally, we stressed the importance of PIACpublic members’9 regular attendance and activeparticipation in the operation of due process.

The outcomes of our observations of CAP andIFAC Nominating Committee deliberations arepresented later in this section.

Regular Reporting: Dialogue with IFAC, PIACand CAG Leadership

This year we continued our schedule of regularcommunications with the President of IFAC andthe Chairs of all PIACs and CAGs together withrelevant senior members of IFAC staff. With oneexception, these exchanges took place at thePIOB’s regular quarterly meetings and covereditems brought to us by IFAC for consideration aswell as matters which we wished to raise withIFAC. At the presidential level, these exchangesprovided us with valuable insights into keydevelopments and initiatives having an impact onthe general public interest environment prevailingwithin IFAC and on the progress of nominationsand the development of related policies.Discussions with the Chairs of the standardsetting boards and CAGs provided similar insightsinto specific projects and the overall conduct oftheir activities. We also gained significant valuefrom the CAP Chair’s presentations on theprogress of Part 3 of the IFAC ComplianceProgram and other membership matters.

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9 See Glossary of Terms

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FOURTH PUBLIC REPORT OF THE PIOB

Finally, our Chairman or his designate continuedto attend all IFAC Board and Council meetingsduring this year to gain a first-handunderstanding of their policies and strategicdirection and to update them on our ownoversight activities and results.

Extended Review Framework: Our IndependentReviews

This year we continued to refine and improveour oversight model and policies, basedprimarily on our experience in responding to theheavy agendas of the IAASB and IESBA but alsoon our understanding of the broader changestaking place in IFAC and PIAC operatingstrategies and in the public interest needs andpriorities of other interested parties10.

In our Third Public Report we set out thefundamentals of our latest development, the“Extended Review Framework” program (seebelow) and reported on its formal launch after aperiod of successful pilot testing. We havesubsequently applied this program to individualstandards within the Clarity project.

ERF Core Principles

> ERF builds on existing PIAC and CAG due process steps

> The scope of an ERF application is determined through a risk assessment

The purpose of the ERF program is to provide anadditional measure of independent internal

analysis to our consideration of the due processused for specific projects, strategic plans orstandards, and thus to supplement our otheroversight tools. ERF procedures involve a closerlook at and consideration of the effectivenessand appropriateness from a public interestperspective of the various steps completed 11

during the life-cycle of a standard. Particularemphasis is placed on the period from thecompletion of the public consultation process(including the review of comment lettersreceived) through to finalization12 . This emphasisrecognizes the public interest embedded in theconsultation process including the adequatetreatment of the comments and input received.

As part of the evolution of this program, weinitiated staff observations of selected Task Forcemeetings as a way to obtain insights into theworkings of these groups. Further, in view of theimpending completion of the Clarity project, wedeveloped a new ERF program tool, the “focusedreview”, to provide a more targeted form ofreview for those standards not selected for a fullscope ERF application. Overall, our staffconducted full-scope or focused reviews fortwenty-four existing clarified ISAs, one new ISA,ISQC 1 and the IAASB Strategy and WorkProgram for 2009-201113.

We determined the specific scope to apply toeach standard by considering a wide variety offactors. First we considered the subject matter,whether the standard was being revised,redrafted or both, whether the standard wasgeneral or specific, and how it would interrelate

10 See Section IV of this report.11 Only certain of these steps are public and therefore not fully susceptible to routine observation by the PIOB or other interested parties. Non-public steps include analytical and other support work of IFAC staff and the deliberations of individual project Task Forces.12 This is the period during which each PIAC decides how best to respond to comments from the public and the views of its CAG andevaluates whether the resulting version of the standard should be approved and published after PIOB approval or re-exposed for furtherpublic consultation.13 See Table 2, pages 16 and 17, for further details of these approvals.

with other standards. We then considered theneeds and concerns being expressed by certainconstituents representing specific aspects of thepublic interest such as the internationalregulatory community, small and medium-sizeenterprises, and developing nations. Finally, weconsidered the potential challenges inherent ineach standard, including those faced by the PIACin setting a global standard when there wereknown differences at the jurisdictional level, andthe application challenges for auditors.

This first full year of operating the ERF programresulted in a number of positive outcomes. Inaddition to individual findings which werecommunicated to the relevant parties, wefound that these procedures could besuccessfully adapted to deal with a variety ofoversight situations. We also enhanced themethodology and identified the importance ofmonitoring for changes in the facts andcircumstances of each project that might affectour view on the type of ERF scope required.

We were also able to validate our presumptionthat, over time, these reviews had the potential toidentify more generic due process and publicinterest related issues which could then becommunicated to IFAC for corrective action.Three such findings emerged and were actionedover the course of this year. First, IFAC’s recentproposed updates to the PIAC Terms of Referenceincorporated our recommendation to clarify andstrengthen the due process steps related to re-exposure decisions. Second, the CAG Chairs

implemented our request to provide views onwhether the established due process governingPIAC interaction with the CAG had beenfollowed in each case and whether the PIAC andTask Force had dealt appropriately with finalCAG comments, Third, IFAC staff implementedimprovements to its process for communicatingwith CAGs to harmonize differences we noted inthe scope and depth of agenda papers developedfor PIAC and CAG discussions of certain issues.

While a positive PIOB conclusion on due processis not a guarantee that every matter raised bystakeholders has been reflected in a finalpronouncement, such conclusions imply that allmatters raised were considered and that thestandard setting board documented and explainedits final decisions on all significant matters in atransparent and fully accountable manner 14.

PIOB Approval Activities

Our approvals agenda this year was dominatedby the Clarity project but also included a numberof other decisions required under the terms ofour mandate.

Due Process Completion of InternationalStandards and Quality Control Standards

Our major responsibility is approval, from aninternational public interest perspective, of thedue process used to develop and finalize avariety of international standards and otherpronouncements.

14 Each CAG is provided with Report Back documents which account for the handling of all significant points raised during CAG meetings. Atthe conclusion of each project, a non-authoritative Basis for Conclusions document is also prepared to account for the disposition of allsignificant matters raised during all phases of public consultation. This document is published together with each final approved internationalpronouncement.

Table 2 lists twenty-five International Standardson Auditing and one International Standard onQuality Control approved this year. This table

also details the specific type of independentreview (full-scope ERF or focused review)performed in each case.

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TABLE 2

PIOB PIOBMeeting Standard Name Status Review

ISA 550 ( Revised and Redrafted) Related Parties Final ERF(1)

July ISA 250 (Redrafted) Consideration of Laws and Regulations Final FR(2)2008 in an Audit of Financial Statements

ISA 510 (Redrafted) Initial Audit Engagements - Opening Balances Final FR

ISA 570 (Redrafted) Going Concern Final ERF

ISA 200 (Revised and Redrafted) Overall Objectives of the Independent Auditor Final ERFand the Conduct of an Audit in Accordance with International Standards on Auditing

ISA 320 (Revised and Redrafted) Materiality in Planning and Performing an Audit Final FR

September ISA 450 (Revised and Redrafted) Evaluation of Misstatements Final FR2008 Identified during the Audit

ISA 530 (Redrafted) Audit Sampling Final FR

ISA 610 (Redrafted) Using the Work of Internal Auditors Final FR

ISA 705 (Revised and Redrafted) Modifications to the Opinion Final FRin the Independent Auditor’s Report

ISA 706 (Revised and Redrafted) Emphasis of Matter Paragraphs and Final FROther Matter Paragraphs in the Independent Auditor’s Report

ISA 220 (Redrafted) Quality Control for an Audit Final ERFof Financial Statements

December ISQC 1 (Redrafted) Quality Control for Firms that Perform Final ERF2008 Audits and Reviews of Financial Statements,

and Other Assurance and Related Services

(1) Full-scope ERF.(2) Focused review.

PIOB PIOBMeeting Standard Name Status Review

ISA 500 (Redrafted) Audit Evidence Final FR

ISA 501 (Redrafted) Audit Evidence – Specific Considerations for Selected Items Final FR

ISA 505 (Revised and Redrafted) External Confirmations Final ERF

ISA 520 (Redrafted) Analytical Procedures Final FR

ISA 620 (Revised and Redrafted) Using the Work of an Auditor’s Expert Final ERF

December ISA 700 (Redrafted) Forming an Opinion and Reporting 2008 on Financial Statements Final ERF

ISA 710 (Redrafted) Comparative Information – Corresponding Figures and Comparative Financial Statements Final FR

ISA 800 (Revised and Redrafted) Special Considerations – Audits of Financial Statement Prepared in Accordance with Special Purpose Frameworks Final ERF

ISA 805 (Revised and Redrafted) Special Considerations – Audits of Single Financial Statements and Specific Elements, Accounts or Items of a Financial Statement Final FR

ISA 810 (Revised and Redrafted) Engagements to Report on Summary Financial Statements Final FR

ISA 210 (Redrafted) Agreeing the Terms of Audit Engagements Final ERF

ISA 265 (New) Communicating Deficiencies in Internal ControlFebruary to Those Charged with Governance 2009 and Management Final FR

ISA 402 (Revised and Redrafted) Audit Considerations Relating to an Entity Using a Service Organization Final FR

15

Due Process Completion and Completeness ofPIAC Strategy Plans

In July 2008 we approved two aspects of theIAASB Strategy and Work Program for 2009-2011:the due process followed in developing andfinalizing this plan, and its completeness from apublic interest perspective. Given the importanceof this document to the near- and mid-termactivities of the IAASB, we performed a full-scopeERF review which considered, in addition to thenormal range of meetings and documents, thesurvey questionnaires published and twointernational forums held to seek externalstakeholder input prior to drafting the final plan.

In addition, we have monitored the IAESB’sdiscussions on its next Strategy and Work Plan for2010-2012. The IAESB expects to approve thisdocument later in 2009, after which it will besubmitted to the PIOB for due process andcompleteness approval.

Due Process Assessment and Approvals of 2009PIAC Nominations

As noted in last year’s report, the PIAC governancestructure and rotational policy have been designedto address several (sometimes competing)objectives, all of which are in the public interest.The first is to ensure that each group is comprisedof individuals with a broad variety of regional,professional and other perspectives. The second isto maintain an appropriate balance in all respects,in particular the requirement for parity betweenpractitioners and non-practitioners. This specificrequirement reflects the public interest objectiveof ensuring that the input and perspectives ofexperts from the auditing profession are matchedby those of an equal number of well-qualifiedindividuals, including designated publicmembers, drawn from other backgrounds. Thethird is the need to balance the need to introduce

fresh viewpoints and experience on a regular basisagainst the need to maintain essential continuity,especially at the leadership level.

In this context, the 2009 nominations cycle posedthree exceptional challenges for the IFACNominating Committee: the anticipated impact onexisting board membership of completing theClarity and IFAC Code of Ethics projects, a shift inthe focus and priorities of all three boards based ontheir latest approved strategic plans, and theplanned retirement of the IAASB and IAESB Chairs.

IFAC initiated its search for the new IAASB Chair inNovember 2007 following a period of planningand consultation with us on the process and criteriato be applied. Given the importance of thisparticular appointment15, the process needed to befully transparent and executed in an objective andhighly professional manner. This was accomplishedthrough a series of steps, beginning with a specialpublic call for nominations that attracted over twodozen highly qualified applicants from around theworld, and followed by the participation of aprofessional recruitment firm in developing theprocess for screening and evaluating theseapplicants. Finally, we observed all relevantmeetings and teleconferences of the Committee toevaluate the execution of the agreed process.

In determining its final nominee, the Committeeconsidered how well each candidate had metthe demanding list of criteria for this positionwhich called for a combination of strongtechnical knowledge and extensive leadershipexperience, particularly on matters highlyrelevant to current and anticipated public interestpriorities. The Committee also ensured that thefinal candidate would meet the rigorousindependence criteria attached to this full-timeremunerated position. The final recommendationof Arnold Schilder16 of The Netherlands carriedthe unanimous support of both the Committee

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FOURTH PUBLIC REPORT OF THE PIOB

15 This is the only full time and remunerated PIAC Chair position.16 A complete description of Professor Schilder’s background and credentials was provided in IFAC’s 7 July 2009 Press Release which isavailable at http://www.ifac.org/MediaCenter/?q=node/view/578.

and the IFAC Board. We approved thisappointment on 3 July 2008 with effect from 1January 2009.

In a similar way, the impending retirement ofHenry Saville as Chair of the IAESB required theNominating Committee to carefully consider notonly the attributes required in his successor butalso the broader question of whether theappointment process for other PIAC Chairsshould be more closely aligned with the oneused for the IAASB Chair.

Under Mr. Saville’s leadership, the IAESBcompleted its first full suite of educationalstandards after which it focused its attention ondeveloping companion practice statements tosupport users of the published standards andconsidering how best to respond to the evolvingeducational needs of professional accountants.From this came the launch of its frameworkreview project, intended to provide an up-to-date foundation to guide the next phase ofstandards development, and the decision toundertake development of appropriatebenchmarks for measuring adoption andimplementation success. In view of these

priorities, the IFAC Nominating Committeeselected Mark Allison, an experienced nationaleducation standards director, as its nominee tosucceed Mr. Saville.

With our active encouragement, and in view ofthe impending retirement of the IESBA and CAPChairs at the end of 2009, the IFAC NominatingCommittee also updated its existing processes fornominating all PIAC Chairs, developed detailedjob descriptions for both open positions andincorporated them into the IFAC 2010 publicCall for Nominations 17.

In reaching our conclusions on PIACappointments, we first considered thetransparency, inclusiveness, public interest focusand overall quality of the due process used toencourage nominations and evaluate theindividual nominees. We then considered thebalance and impact that each proposed newappointment would have on the composition ofeach PIAC and on the PIAC’s effectiveness inachieving its public interest goals.

Table 3 lists the nominations approved at ourSeptember 2008 meeting:

17

17 This policy change and related steps to initiate a search for a replacement in 2010 were also extended to the Chair of the InternationalPublic Sector Accounting Standards Board. 18 The number of approvals noted for each PIAC may also include certain individuals who are separately identified as appointees to relatedChair or Deputy Chair positions. The appointment of Arnold Schilder as an IAASB member has been included in the IAASB totals, but as hisappointment to the Chair’s position was approved in July 2008, it has not been repeated in this table.

TABLE 3Appointment

Group or Individual Total New Renewed

International Auditing and Assurance Standards Board 18 8 5 3IAASB Deputy Chair 1 1International Ethics Standards Board for Accountants 7 2 5IESBA Deputy Chair 1 1International Accounting Education Standards Board 5 3 2IAESB Chair 1 1IAESB Deputy Chair 1 1Compliance Advisory Panel 2 2CAP Deputy Chair 1 1

Due to a subsequent resignation, we furtherapproved the interim appointment of a new IAASBpublic member at our December 2008 meeting.

Overall, the IFAC Nominating Committeeachieved a number of specific objectives duringthis year while continuing the trend of steadyprogress noted in prior years. It successfully met allthe challenges identified earlier in this discussionand maintained the parity of practitioners andnon-practitioners on all four PIACs. It also drewfrom its accumulated experience in assessingcandidates for PIAC public member positions todevelop a more highly evolved set of criteria anda clearer distinction between the attributes ofpublic members and other non-practitioners.While progress was made toward longer-termcompositional goals, the Committee alsoidentified further strategies to be applied duringthe 2010 nominations process to address the needfor greater gender balance.

With respect to improving board and committeemember performance, the Committee reviewedthe results of its 2008 pilot program to assess theperformance of Chairs and individual members,introduced several improvements based on theseresults, gave final approval to the improvedprogram and published updated information inthe 2010 IFAC Call for Nominations. TheCommittee also introduced new safeguards19 toidentify interim changes in establishedcomposition levels and protect individual memberindependence from undue external influence.

Nevertheless, further improvements in thesepolicies and processes are always possible anddesirable. In this regard, we have noted evengreater specificity in the targets established forvarious boards and committees in the 2010 Callfor Nominations and look forward to reviewingthe outcomes of this strategy.

CAG Membership and CAG Chair Renewal

In December 2008, and after considering thefinal recommendations made by the IAESB CAGand the IESBA CAG Membership Panels as wellas the due processes followed in making theserecommendations, we approved thereappointments of Charles Calhoun as Chairmanof the IAESB CAG for a three year periodcommencing 1 January 2009, and of RichardFleck as Chairman of the IESBA CAG for a threeyear period commencing 1 April 2009.

We further approved the appointments of threenew member organizations and their initialrepresentatives to the IESBA CAG.

At the time of this Report, the process to replaceDavid Damant, current Chairman of the IAASBCAG, has just started. Mr. Damant’s second termof appointment will expire on 30 September 2010and, under the CAG Terms of Reference, he isineligible to stand for a third term. As the IAASBCAG Chair is a key position, we will closelymonitor the progress of this nomination.

Oversight of the CAP and the IFAC ComplianceProgram

Part 3 Action Plans 20

This year, our continuing observations of the CAPand its deliberations on the IFAC ComplianceProgram and other IFAC membership policymatters focused on the process used to evaluate andapprove member bodies’ Part 3 Action Plans. Theseobservations were complemented by periodicupdates provided by the CAP Chairman, RobertMednick, on the progress of these initiatives. Giventhe good rate of progress being achieved on Part 3,we were also in a position this year to observe andconsider all phases of the program including finalCAP deliberations on whether to approve individualmember body Part 3 Action Plans for publication.

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FOURTH PUBLIC REPORT OF THE PIOB

19 IFAC Board and Committee members are now required to report changes of employment occurring after appointment so that the impact ofthese changes on Board or Committee composition can be identified and evaluated. Members’ nominating organizations or employers mustalso declare that they will not exert undue influence, whether financial or otherwise, which might impair the member’s ability to act withindependence, integrity and in the public interest. 20 See IFAC Member Body Compliance Program in the Glossary of Terms.

In observing the interactions between the CAPand Compliance staff, we noted that thoserelated to Part 3 Action Plan issues were notrestricted to requests for final approval. Wherenecessary, Compliance staff sought the CAP’sinterim guidance on how to deal with morecomplex individual proposals and respond toemerging trends identified across a number ofplans. These additional dialogues ensured thatthe CAP remained fully apprised on both routineand exceptional situations and could assistCompliance staff to administer the ComplianceProgram in a consistent and high quality manner.

Initially, all finalized plans were presented to theCAP for approval and publication. As the yearprogressed and the volume of work increased,the CAP agreed to delegate limited authority toCompliance staff to approve and publish plans ofa more routine nature, subject to providing theCAP with a sampling of these plans for ongoinginformation and validation purposes. Based onour observations, we were comfortable that thisstep would help to improve program efficiencywithout sacrificing quality or effectiveness.

One important development on which wereported last year was the CAP’s decision torequire all IFAC member bodies, including thosewith no substantial compliance deficiencies, todevelop Part 3 Action Plans. Our interest at thetime was in the potential for these memberbodies to provide useful information concerningtheir experiences in promoting internationalstandards adoption and facilitatingimplementation, and their current plans andprograms for keeping current with theseobligations. This year, other member bodies withearly experiences in implementing variouselements within their action plans are also in aposition to document and share theseexperiences with their peers.

One of our most important observations hasbeen the attention paid by both the CAP andCompliance staff to maintaining a carefulbalance among competing factors at both theindividual and program level.

While the Compliance Program has beenestablished as a way to evaluate the quality ofmembers' and associates' efforts to meet IFACmembership requirements, its focus is onencouragement and improvement. Thisrecognizes the fact that each member body’sstate of compliance is unique and that both theextent and timing of progress toward fullcompliance are affected by uniqueenvironmental circumstances and pressures,most often in the form of financial andtechnical limitations. At the same time,Compliance Program participation ismandatory and has been established as acondition for continuing IFAC membership.This requirement is critical to maintaining theoverall credibility of the program.

A further challenge facing the CAP is to ensurethat completed plans are both substantive andrealistic given the unique circumstances ofeach member body. In this regard, we havenoted that the CAP and Compliance staff dealin the same even-handed manner with plansthat are either overly ambitious or which sufferfrom serious deficiencies.

Thirty-two final Part 3 Action Plans have beenpublished to the end of March 2009, acompletion rate of just over twenty percent. Oneof the more important outcomes of this step is theavailability of a number of completed plans fromdeveloping regions which can now be used asconcrete models by their peers.

Based on our observation of this program and itsresults to date, we believe that the CAP and

19

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FOURTH PUBLIC REPORT OF THE PIOB

Compliance staff are well positioned to gathereven more information on standardsimplementation goals and approaches and tofacilitate sharing of this and other usefulinformation among IFAC member bodies. Wealso believe that more work can be done toidentify the most critical environmental factorswhich inhibit member body progress towardcompliance and workable approaches toovercome these factors. Finally, we believe thatthe Compliance Program can become animportant platform for encouraging andfacilitating international standards convergence.

Strategic Coordination

The CAP’s role and strategic position within theIFAC structure provide it with unique scope tomobilize public interest stakeholders both withinIFAC and beyond. We have noted importantsteps taken by the CAP to interact with, clarifyand reinforce the roles of other key IFAC groupsas well as to reach out to other potentialcontributors to the common goal of internationalstandards adoption and convergence. Initiativessuch as the development of an AccountabilityFramework for Regional Organizations andAcknowledged Accountancy Groupings help toalign the mission, objectives and work programsof these bodies with those of IFAC, includingefforts to promote international standardsadoption and global convergence. For the samereason, the CAP’s relationships with public sectororganizations, developed bodies, governmentsand donor agencies will be instrumental indiscovering and promoting approaches toovercoming barriers to member body progress.Finally, the CAP’s outreach to IFIAR and itscommunity of audit regulators to providebackground on the Compliance Programrepresents an important first step towardcoordinating the efforts of member bodies andaudit regulators to achieve and maintain ongoingimprovement to local and global audit quality.

IFAC’s Triennial Review of the Effectiveness ofPIAC Due Process

Purpose and Scope of the Review

This year, IFAC conducted its first triennial reviewof the effectiveness of the PIAC due processcovering PIAC Due Process and WorkingProcedures and the PIACs’ Terms of Reference.IFAC’s stated objective for this exercise was torefine, rather than overhaul, the existing dueprocess model, and given the experience gainedin applying the provisions of the existing terms ofreferences and due process over the last fewyears, to codify changes made under PIOBoversight. For this reason, the reviewincorporated only limited consultations with keyinterested parties in September 2008. TheReview Group appointed by the IFAC Board tocarry out this exercise issued its final report inOctober. This report, together with the proposedchanges to the affected documents, wassubmitted to the IFAC Board in November 2008and approved without changes.

This review did not address the CAGs’ Terms ofReference on grounds that these were relativelynew documents and that more experience wasneeded before undertaking any further revisions.

PIOB Role and Approval

In view of the nature and scope of our mandate,we took a strong interest in this review. We firstobserved the scheduled PIAC and CAGconsultations and then convened a roundtable ofthe PIAC and CAG chairs to obtain their directviews on the outcomes. We also recommendedthat the Review Group report back to the IAASBand IESBA CAGs on the final results of the reviewproject. Finally, we considered the final changesapproved by the IFAC Board and providedfurther recommendations on specific matters.

21

Since our inception we have devoted a section ofeach year’s Public Report to our evolving views onthe nature of the international public interest.Initially these views emerged from our exposure tothe international standard setting process and ourbelief in the potential for high quality internationalstandards to contribute to the improvement ofglobal audit quality. External stakeholders werealso encouraged to participate actively in thisprocess so that the result would reflect the widestpossible expression of the public interest.

Over time, these views have been further refinedby our intensified oversight of the CAP and ourdeeper understanding of the role played by IFACmember bodies in local adoption,implementation and compliance activities. Inaddition, appropriate ways and means to provideimplementation support are under considerationby all three standard setting boards. For thesereasons, our most recent views on theinternational public interest have focused on thefull continuum of activities that flow from andpropel the international standard setting processand the importance of well-coordinated effort.

While our own mandate is clearly defined underIFAC Reform, we believe that international standardsetting in the public interest involves far more thanthe core process of standards development:credible adoption and implementation, andsubsequent monitoring and evaluation of theoutcomes of applying these standards, are essentialto the realization of all related public interestbenefits21. For this reason, we take an active interestin those processes where we do not have a directrole and stand ready to support and facilitate theseprocesses wherever appropriate.

Adoption and Implementation

International standards will deliver tangiblebenefits in the international public interest only ifthey are properly adopted and implemented

A decision to adopt international audit,assurance services, ethics and educationstandards must begin with establishing a clearunderstanding of the standards and satisfactionwith the process used in their development.

Adoption of international standards means firmlycommitting to the significant and ongoing effortrequired to ensure that the anticipated benefits ofadoption can be fully realized and sustained.Further, each adopting jurisdiction must bemindful of the broader impact its decisions andactions will have on stakeholders outside thejurisdiction. These stakeholders – investors,regulators and others who rely on financialreports to support key decisions – expect thatindependent audit opinions issued inaccordance with international standards havethe same meaning, quality and reliabilityregardless of their point of origin. In other words,individual adoption decisions are steps thatshould promote, and not undermine, theimprovement of global audit quality.

Additional adoption and implementationconsiderations

It is recognized that individual legal andregulatory frameworks differ in structure andoperation and that laws and regulations that mayappear similar to one another do not always haveequivalent content. Differences in the scope andconstruction of legal and regulatory frameworks22

mean that each jurisdiction will need toundertake a unique adoption plan which mayinvolve amending existing laws and regulations,developing new ones as needed, or acombination of both. Different legislative andregulation-making processes, and the degree offlexibility available within these processes, willdetermine how long the adoption process islikely to take and therefore whether desirabletarget dates for coordinated global adoption andimplementation can be achieved. Differences in

Section IVThe Importance of Coordinated International Public Interest Efforts

21 See Sections VI and VII of the PIOB’s Third Public Report, pp. 20 – 25.22 Which, for example, may establish more rigorous requirements for public interest entities compared to others, but which may also definethese entities slightly differently from one jurisdiction to the next.

the scope, style and content of individual piecesof legislation and regulation raise a host of otherplanning issues regarding what will be adopted(individual standards or the full body ofstandards) as well as where (in statute orregulation) and how (by reference or in full) theadoption will be effected.

The delicate question of balancing global againstnational objectives has never been moreimportant. Global leaders and the internationalregulatory community are working togethertowards achieving common economic recoveryobjectives through coordinated efforts anddelivery of tailored local solutions. But in thecurrent environment, the temptation forcountries to follow individual recipes has beenrecognized as a key threat to global recovery. Inthe same way, the pursuit of national publicinterest objectives through adopting internationalstandards is a process intended to align nationalaction with the broader public interest objectivesunderlying international convergence efforts.

In our Third Public Report we noted that the taskof implementing standards would involve anentirely separate education and training processand urged member bodies, firms and academiato ensure that the needs of every user communityaffected by the new standards would be met.What we did not address, but which hasemerged over this past year, is the role that IFACitself is planning to take in these efforts. This rolewill be discussed later in this section.

Monitoring and Evaluation

Robust processes for ongoing monitoring andevaluation are necessary to determine whetherinternational standards are meeting theirintended objectives. Where problems ordeficiencies are identified, it is vital tounderstand whether they result from compliancefailures, adoption or implementation issues, orshortcomings in the standard itself.

In our previous Public Reports we noted the roleof IFAC in monitoring its member bodies’ effortsto promote local adoptions and facilitateimplementations. We also explained thecomplementary role of organizations such as theWorld Bank in determining whether countrieswere in fact complying with adopted standards.Further, we highlighted the important andgrowing role of the International Forum ofIndependent Audit Regulators (IFIAR) inidentifying the processes used by audit firms toimplement international standards andevaluating how these standards were beingapplied in practice.

Over the last year, IFIAR has undertaken discussionswith each of the six largest transnational audit firmson their global quality monitoring arrangements. Asthese firms move forward on their respective ISAimplementation programs, it is hoped that similardialogues can be arranged to help audit regulatorsdevelop a good understanding of howimplementations are progressing across the majortransnational networks.

At the same time, the importance of gettingaudits right is not confined to the largest globalnetworks. In many parts of the world, particularlyin economies with developing capital marketsand few large and internationally-activeenterprises, the backbone of the local auditprofession is the small or medium-sizedpractitioner (SMP) serving the small andmedium-sized business (SME) sector. The needswithin this sector for high quality audit servicesand the added credibility provided by reliableaudit opinions are as real as those of the largestmultinational corporations seeking capital in theglobal markets. This is especially true in marketswhere lender trust and confidence is at an all-time low.

For this reason, national regimes for assessingaudit quality must not lose sight of this importantsegment of the audit market, its contribution to

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FOURTH PUBLIC REPORT OF THE PIOB

development of the local economy and the needfor a robust and consistent system of practicemonitoring and enforcement that protects thepublic interest. How to organize these regimes –including determining the roles andresponsibilities of external authorities and theprofession – depends on the uniquecircumstances of each jurisdiction and requirescareful consultation between public and privatesector stakeholders.

IFAC Public Interest Initiatives

In our previous reports we noted IFAC’scontinuing efforts to demonstrate and furtherstrengthen its commitment to serve the publicinterest. This past year, IFAC has developed atimely companion document to its 2007 policystatement on Regulation of the AccountancyProfession 23. This newest policy statement,entitled International Standard Setting in thePublic Interest 24, describes the arrangements inplace to develop international auditing andassurance, ethics and education standards basedon a model of shared responsibility betweenpublic and private sector organizations.

The need to develop clear, faithful and officialtranslations of approved English texts is a majorconsideration in many parts of the world and theimportance and complexity of this task cannotbe underestimated. To support these initiatives,IFAC recently updated and strengthened itsofficial translation policy 25 and has added furtherresources to coordinate and facilitate localtranslations of clarified ISAs.

IFAC has also recently finalized the strategic planthat will guide its efforts from 2009 through2012. One of the four core strategies within this

plan26 reflects IFAC’s commitment to activelysupport adoption and assist implementationefforts of its member bodies, national standardsetters and other organizations. In addition to itstranslation-related activities, IFAC plans to focuson ISA and IFAC Code of Ethics adoption bymajor capital markets and relevantorganizations, further adoption of InternationalEducation Standards, support to those responsiblefor local adoption and implementation activities,improvements to the applicability of standards tothe SME/SMP marketplace and promotingconvergence, sound implementation andenforcement to a broad array of audiences. IFACplans to achieve these various objectives through acombination of advocacy, facilitation/informationsharing, targeted development work andassessments of standards and implementationeffectiveness. In our view, this integrated effortreflects a clear understanding of IFAC’sresponsibility to identify and assume appropriateroles during the adoption and implementationphases of the standard setting cycle.

In addition to the strategic initiatives notedabove, and as noted in Section III of this report,the third phase of IFAC’s Compliance Programhas been extended to those member bodiesassessed as being fully compliant with theirmembership obligations. In this way, thesedeveloped bodies provide useful insights intotheir established processes for keeping currentwith international standard settingdevelopments. As the information gathered canbe shared with all member bodies, this specificinitiative will promote the broader use of bestexisting implementation practices andpromises to make an important contribution tothe public interest.

23

The referenced papers are available for download at:23 http://www.ifac.org/Members/DownLoads/Regulation_of_the_Accountancy_Profession.pdf.24 http://www.ifac.org/Members/DownLoads/international-standard-setting-in-the-public-interest.pdf 25 http://web.ifac.org/download/IFAC_Policy_Statement_Permission_to_Translate_and_Reproduce_and_Distribute_Standards_Dec_2008.pdf 26 http://web.ifac.org/download/Strategic_Plan_2009-2012.pdf

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FOURTH PUBLIC REPORT OF THE PIOB

We have consciously undertaken acomprehensive approach to external outreachactivities. This approach reflects our view that thecommunity of stakeholders sharing our publicinterest objectives and goals covers not onlyinternational regulators but also nationaldecision-makers, IFAC and its member bodies,the audit profession, and other end users ofinternational standards.

Outreach to International Regulators

Over the past year we have continued ourestablished outreach program directed at

Monitoring Group member and observerorganizations. Through this program we providedupdates to key committees or the broadermembership of these organizations, received theirquestions, input and insights and engaged indialogue on issues of mutual interest. In addition,we expanded our regulatory outreach programthis year by inviting key representatives of theseconstituencies to meet with us. This program issupplemented with interim bilateral discussions ateither the Chairman or staff level.

The following table indicates our key interactionswith the regulatory community:

Section V PIOB Outreach Activities

TABLE 4

Date Event Representative(s)/Guest(s)

April 2008 IFIAR Spring Meeting, Oslo PIOB Chairman *

May 2008 IOSCO Technical Committee, Paris PIOB Chairman

June 2008 IFIAR Observers** PIOB Chairman *IOSCO Standing Committee 1** PIOB Chairman IFIAR Leadership** PIOB Chairman IFIAR Observers** PIOB Secretary General

July 2008 PIOB Quarterly Meeting, Madrid Chairman, IFIARChairman, Auditing Subgroup of the Basel Committee Accounting Task Force

Monitoring Group, Madrid PIOB Chairman *

September 2008 IFIAR Observers** PIOB Chairman *PIOB Quarterly Meeting, Madrid Chair, IOSCO Standing Committee 1

Secretary General, IOSCO

October 2008 IAIS Technical Committee, Budapest PIOB Secretary GeneralMonitoring Group, Madrid PIOB Chairman *

December 2008 PIOB Quarterly Meeting, Brussels Chairman, Monitoring Group

* Accompanied by PIOB Secretary General** Teleconference

25

The Chairman and other PIOB members havealso addressed a number of other stakeholderaudiences in various regions of the world on thePIOB, our mission, and our views on theinternational public interest.

Outreach to Decision Makers

This year, ISA endorsement began to movehigher on the European Parliament’s agenda. Thismovement and the interest shown byparliamentarians in the governance aspects ofinternational standards development providednew opportunities to present our work and itscontribution to the public interest. Although theexact timing and likely outcome of theendorsement vote cannot be predicted, theEuropean Union’s continuing commitment togive high priority to reaching a final decision is initself a strong and positive signal. We will

continue to monitor EU developments closelyand stand ready to provide further assistance asneeded.

Outreach to the Accountancy Profession

We have continued to recognize the high valueof maintaining contact with the profession. Thishas permitted us to further strengthen anddeepen our understanding of the full range oflocal issues and needs to be taken intoconsideration in developing acceptable andbroadly useful international standards. It has alsoprovided us with a richer appreciation of themany challenges involved in achieving soundand lasting adoption and implementationoutcomes.

The following table illustrates the scope of thisoutreach activity:

TABLE 5

Date Audience PIOB Representative

May 2008 IFAC BRIC Conference, New York Stavros Thomadakis

September 2008 Malaysian Institute of Accountants Fayez ChoudhurySeminar, Kuala Lumpur

October 2008 ICAEW27 Audit Quality Forum, London Stavros Thomadakis

NASBA28, Boston Aulana Peters

November 2008 IFAC Council, Rome Stavros Thomadakis

December 2008 FEE29 Conference Stavros Thomadakison Audit Regulation, Brussels

March 2009 International Auditing and Ethics David BrownStandards Developments, Dubai

27 The Institute of Chartered Accountants in England & Wales28 National Association of State Boards of Accountancy29 Fédération des Experts Comptables Européens

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FOURTH PUBLIC REPORT OF THE PIOB

Outreach to the General Public

Finally, we continued to develop and improveour two main platforms for communicating withthe general public – our Public Reports, and ourwebsite.

Readers of our previous Public Reports will havenoted a steady trend of increasing detail andgreater transparency in explaining the nature ofour due process model and its operation. Thisyear, in addition to further discussion of ouroversight work, our attention has turned to ourgovernance arrangements so that those partiesdeeply interested in the legitimacy andcredibility of these arrangements will havecomplete and factual information which mayassist them in their impending decisions.

In addition, beginning with our spring 2008meeting, we are now publishing quarterlymeeting summaries on our website; we trust thatreaders find these a useful addition to ourcomprehensive Public Reports which willcontinue to be published once a year.

Finally, a project to redesign and update ourwebsite is nearing completion. Our focus hasbeen on improving content and functionality inways which will better serve our existing usersand which will also attract new users interestedin learning more about our work and the publicinterest environment within which we operate.

Chairman Stavros Thomadakis, FEE Conference, Brussels, 9 December 2008.

Fayez Choudhury, MIA Seminar, Kuala Lumpur, 9 September 2008.

27

When the PIOB started out four years ago, theClarity and Independence projects were still intheir formative stages. We recognized that theseprojects would become the most importantinitiatives on the agendas of the respectiveboards and that an important part of our missionwas to ensure that the conduct of these projectswould fully satisfy demanding public interestcriteria. At the same time, focusing on theseprojects did not prevent these standard settingboards from identifying and proposing newinitiatives or from planning for future standardsdevelopment. Now that the Clarity andIndependence projects are complete, these newagendas have come to the fore and will absorbmuch of our oversight attention going forward.

As a result of enhanced strategic planninginvolving extensive consultations with standardsusers and other public interest stakeholders, allthree standard setting boards are giving priorityto revising several existing standards andincorporating new conditions and public interestpriorities into their future work. Initiatives such asthe IAASB’s projects to provide assurance oncarbon emissions information and on financialinformation used in public offerings areexamples of projects intended to address currenthigh profile public interest concerns. In the sameway, the IESBA’s new focus on ethicalresponsibilities when fraud is encountered,conflicts of interest and serving the needs ofaccountants in government, as well as theIAESB’s current framework review, are directresponses to the public interest needs of theirconstituents. PIOB oversight will continue itsfocus on all these initiatives, and on the ongoing

strategic planning efforts of these boards, toensure that new standards and standardsrevisions will continue to reflect therequirements of the public interest.

Public interest oversight is also an activity withexpanding horizons.

Adoption of international standards in the areasof audit practice, assurance services, ethics andeducation for professional accountants will bringnew requirements and challenges to theforefront. Their implementation will confrontinternational standard setters with possiblerequests for interpretation, practice guidance andrevision of the existing standards and, potentially,the creation of brand new ones. Current worldconditions and wide-ranging needs for financialreform may also give rise to entirely newrequirements for transparency, with standardsdevelopment and application expanding to newareas and populations of economic agents seento be significant to the public interest. Thus,international standard setters will need to dealwith a constantly growing and evolving body ofrequests and pressures for change andinnovation.

The value of international standards rests in theircredibility together with their capacity toaccommodate new situations. In other words,standards must be stable but not inflexible. In thisregard, the evolution of any body of standardsretains credibility only if it comes about as aresult of processes that continue to betransparent, inclusive and focused on theevolving public interest.

Section VIThe Future Outlook for Public Interest Oversight

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FOURTH PUBLIC REPORT OF THE PIOB

The PIOB model for public interest oversight isnow a seasoned tool which has served well inthe execution of an important international task:managed evolution of comprehensive bodies ofstandards such as the clarified ISAs and the IFACCode of Ethics. We have recently taken time toreflect on the substance and operation of ouroversight function in the context of future needsand more sharply defined concepts of theinternational public interest. The results of thisreflection, together with our continuousinteraction with the Monitoring Group and abroad spectrum of other public intereststakeholders, will help to identify any necessaryclarifications to our mandate and possibleimprovements to our practices.

There is no doubt that the future will presenteven more complex challenges than the past andthat these challenges will arise for the most partfrom implementing international standards. Atthe same time, implementation is not the same ascompliance, although it involves numerousactivities and actors to help set the stage forsuccessful compliance. Some of these tasks andprocesses include standards translation, thedevelopment of implementation methodologies

by all sizes of audit practice, practitionereducation and training, development ofprofessional bodies in emerging markets orregions, and the creation of mechanisms andcommunications channels to promoteachievement of uniform implementation practiceoutcomes around the world. While these arelargely local activities, the creation of necessaryconditions to support compliance success is anarea of implementation support that requiresinternational coordination subject to commondue process disciplines.

Standards compliance is a joint responsibility ofaudit practitioners, other accountingprofessionals and those who regulate their localactivities. Ultimately, the achievement of highaudit and financial reporting quality will resultfrom a combination of standard setting,adoption, implementation, application andcompliance monitoring that responds to thepublic interest.

In this context, transparency, credibility, expertiseand independence remain the pillars of theinternational public interest and will continue toguide the practice of public interest oversight.

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Section VIIPIOB Foundation1,2 Summary Statement of Financial Performance

(1) The PIOB operates as a Technical Committee of its Spanish not-for-profit foundation, La Fundación Consejo Internacional de SupervisiónPúblico en Estándares de Auditoría, Etica Profesional y Materias Relacionadas (“the Foundation”.)

(2) In addition to local regulatory responsibilities, the PIOB Foundation is operationally and financially accountable to the Monitoring Group.This accountability includes the presentation of periodic operating reports, the PIOB’s annual Public Reports, the PIOB Foundation yearlyaudited financial statements, and an annual budget for the Monitoring Group’s review and approval.

(3) PIOB total revenues for 2008 were contributed by the International Federation of Accountants (IFAC) under a revised agreement to fund theoperating expenses of the Foundation to a limit of € 1,317,000 per year, adjusted for inflation. This replaces a previous commitment to provideup to US $1,500,000 per year, adjusted for both inflation and foreign currency exchange movements. Revenue is recognized on an accrual basisand any revenue amounts in excess of annual operating expenses are deferred and recognized as revenue of the following year. In 2008, theremainder of revenue over expenses of € 107,270 was retained to strengthen the Foundation’s capital base for the near term.

The PIOB Foundation’s auditor, BDO Audiberia S.L., delivered an unqualified opinion on the complete financial statements of the Foundation.The full version of these statements and the auditor's report are available separately on the PIOB web site at www.ipiob.org.

(in Euros) 2008 2007

TOTAL REVENUES 3 1,216,384 1,008,021

EXPENSES BY ACTIVITY

Board-related operating costs

Oversight Program 644,711 551,951

External Relations Program 215,677 208,574

Foundation Board Meetings 48,462 57,198

Other ongoing operating costs 200,244 190,298

TOTAL EXPENSES 1,109,094 1,008,021

SURPLUS 107,290 0

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Dr. Stavros Thomadakis, ChairmanProfessor of Finance, University of Athens, Greece. Former Chairmanof the Hellenic Capital Market Commission, the European RegionalCommittee of IOSCO, and the expert group on Market Abuse of theCommittee of European Securities Regulators

Mr. Antoine BracchiFormer Président, ConseilNational de la Comptabilité

Mr. David A. Brown, Q.C.Former Chair of the Ontario SecuritiesCommission, Canada. Founding Chairof the Council of Governors of theCanadian Public AccountabilityBoard. Member of the Council ofSenior Advisors to the Auditor Generalof Canada

Mr. Fayezul ChoudhuryController and Vice-President,Strategy and Resource Management,The World Bank

Mr. Michael HafemanActuary and independent consultanton supervisory issues. Chairman,Insurance Advisory Board, TorontoCentre, Canada. Former AssistantSuperintendent of FinancialInstitutions, Canada

Mr. Toshiharu Kitamura Professor of Financial Economics,Waseda University, Japan. FormerSenior Executive Director,Development Bank of Japan

Prof. Dr. Kai-Uwe MartenProfessor of Accounting and Auditing,University of Ulm, Germany. DeputyChairman of the Auditor OversightCommission, Federal Republic ofGermany

Mme Sylvie Mathérat*Director of Financial Stability,Banque de France, Member of theBasel Committee on BankingSupervision and current Chair ofthe Basel Committee’s AccountingTask Force

Sir Bryan Nicholson, GBEFormer Chairman of the UK FinancialReporting Council

The Hon. Aulana L. PetersRetired lawyer. FormerCommissioner of the U.S. Securitiesand Exchange Commission. Formermember of the Public OversightBoard of the American Institute ofCertified Public Accountants.Member, Accountability AdvisoryBoard to the U.S. ComptrollerGeneral

Ms. Donna M. Bovolaneas, CASecretary General

*Replaced Prof. Dr. Arnold Schilder, RA, who resigned on 3 July 2008

Appendix A The PIOB

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Appendix B The PIOB Operating Environment

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FOURTH PUBLIC REPORT OF THE PIOB

This glossary has been prepared to guide readersof this report by explaining various terms usedin its preparation. It is not intended to be usedor cited as a source of authoritative definitions.

Accountancy: the profession of accounting.Accounting comprises measurement,preparation, validation, disclosure, auditing ofand provision of assurance and advisory serviceson financial information.

Basis for Conclusions: the final publicaccountability document prepared at theconclusion of a standard setting or otherapproved PIAC project and published on theIFAC website. The Basis for Conclusions providesbackground information on the project, sets outthe main comments received in response to thepublic exposure draft, explains how the relevantstandard setting board has addressed thesecomments and provides the rationale used tosupport the board’s conclusions. This documentis not part of the approved final pronouncementand is non-authoritative.

Basel Committee on Banking Supervision(BCBS): the international body comprised ofcentral banks and banking supervisoryauthorities from certain key markets thatformulates and encourages convergence towardsbroad supervisory standards, guidelines andstatements of best practice.

Clarity project: a comprehensive IAASB programto enhance the quality and consistency of globalaudit practice through applying a new draftingformat to all existing and future ISAs. The draftingconventions adopted for this purpose involve anew three-part structure – objectives,requirements and application guidance – andsimplified English to clarify intent, improveunderstandability and facilitate translation. Thisproject was completed in December 2008.

Code of Ethics redrafting: an IESBA initiative toenhance the clarity and understandability of theprovisions of the IFAC Code of Ethics through theapplication of new drafting conventions. Theconventions adopted for this purpose focus onclarified language and do not change thefundamental structure of the Code.

Consultative Advisory Group (CAG): the groupconstituted to provide advice, includingtechnical advice, to one of the IAASB, IAESB andIESBA. Regular interaction between each CAGand its respective standard setting board is part ofthe board’s formal consultation processes. ThePIOB oversees the work of each CAG.

Compliance Advisory Panel (CAP): the panelresponsible for overseeing the implementationand operation of the IFAC Member BodyCompliance Program. The objective of thisprogram is to evaluate the quality of IFACmember and associate member bodies’endeavors to meet the requirements of IFACmembership. The PIOB oversees the work ofthe CAP.

Due process completion: the point at which thedue process to be followed by the IAASB, IAESBand IESBA in developing internationalpronouncements is determined to be complete.Prior to publication of an internationalpronouncement, the PIOB receives certificationfrom the IFAC Executive Director for ProfessionalStandards that all required due process stepshave been completed. The PIOB’s decision isbased on evaluation of this certificate togetherwith the results of its own oversight activities.

European Commission (EC): the ExecutiveBranch of the European Union (EU). The EC maymake legislative proposals and is ultimatelyresponsible for the implementation of EUlegislation throughout Member States.

Appendix CGlossary of Terms

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Extended Review Framework (ERF): a risk-basedframework which provides the PIOB with anadditional measure of independent analysis andassessment of the due process applied in thedevelopment and finalization of a specificstandard, practice statement, other authoritativeinternational pronouncement or PIAC Strategyand Work Plan.

Financial Stability Board (FSB): (formerly theFinancial Stability Forum), the forum thatpromotes international financial stability,improved functioning of markets and reducedsystemic risk through information exchange,cooperation in financial supervision andsurveillance, and coordination of efforts. The FSBbrings together representatives of nationalfinancial authorities responsible for financialstability in significant international financialcenters, international financial institutions,international regulatory and supervisorygroupings, and committees of central bankexperts.

Independence project: An IESBA Project,conducted in two phases (Independence I, whichis complete, and Independence II, which isanticipated to be completed by mid-2009), andintended to update and strengthen theindependence requirements contained in existingSection 290 of the IFAC Code of Ethics. Onestructural consequence of this project will involvenarrowing the scope of Section 290 to address theindependence requirements for audit and reviewengagements only. The independencerequirements for all other assurance engagementsare being transferred to new Section 291.

International Auditing and Assurance StandardsBoard (IAASB): the independent standard settingboard that develops international standards andother pronouncements dealing with auditing,review, other assurance, quality control andrelated services. The PIOB oversees the work ofthe IAASB.

International Accounting Education StandardsBoard (IAESB): the independent standard settingboard that develops international educationstandards and other pronouncements forprofessional accountants. Thesepronouncements deal with education, practicalexperience and tests of professional competencefor accreditation, and the nature and extent ofcontinuing professional education. The PIOBoversees the work of the IAESB.

International Association of InsuranceSupervisors (IAIS): the global organization thatrepresents insurance regulators and supervisors,issues global insurance principles, standards andguidance papers, provides training and supporton related issues, and promotes effectiveinsurance supervisory regimes.

International Ethics Standards Board forAccountants (IESBA): the international standardsetting board that develops ethical standards andother pronouncements for use by professionalaccountants. The PIOB oversees the work of theIESBA.

International Federation of Accountants (IFAC):the global organization representing theaccountancy profession. IFAC is committed toprotecting the public interest by developing highquality international standards, promoting strongethical values, encouraging quality practice, andsupporting the development of all sectors of theprofession around the world. The IAASB, IAESBand IESBA are three of IFAC’s independentstandard setting boards.

IFAC Member Body Compliance Program: theprogram to determine member bodies’compliance with a series of Statements ofMembership Obligations (SMOs) that requirethese bodies, on a best endeavors basis, topromote adoption and assist in theimplementation of international auditing,accounting, ethical and educational standards,

as well as quality assurance and enforcementmechanisms. In Part 1 of this program, memberbodies provide fundamental information abouttheir structure and operations. In Part 2, membersundertake a self-assessment of their level ofcompliance with each of the seven SMOs. Basedon IFAC evaluation of Part 2 information andmember body agreement on areas forimprovement, Part 3 requires member bodies todevelop a proposed action plan for IFACapproval and to execute the approved plan.

IFAC Nominating Committee: the committeethat recommends to the IFAC Board theappointment of chairs, deputy chairs, membersand public members for IFAC PIACs. The PIOBhas the right to observe and speak at NominatingCommittee meetings with respect to PIACappointments.

IFAC Reform: the 2003 reforms agreed betweenIFAC and the Monitoring Group to introduceprocesses for oversight and monitoring designedto strengthen IFAC international standard setting,achieve convergence to international standardsand ensure that the international accountancyprofession is responsive to the public interest.

International Forum of Independent AuditRegulators (IFIAR): a forum of national auditregulators from several jurisdictions that conductinspections of auditors and audit firms. Amongits objectives are the sharing of knowledge andpractical experience, promotion of collaborationand consistency in regulatory activity andengagement with other organizations with aninterest in audit quality.

International Organization of SecuritiesCommissions (IOSCO): the cooperative forum forsecurities regulatory agencies and internationalstandard setter for securities markets.

International pronouncements: the standards,codes, interpretations, practice statements andinformation papers issued by the IAASB, theIAESB or the IESBA.

Monitoring Group (MG): the regulatory andinternational organizations responsible formonitoring the implementation of IFAC Reform.The MG nominates PIOB members and engagesin dialogue with the international accountancyprofession, receives operating and financialreports from the PIOB, and updates the PIOBregarding significant events in the regulatoryenvironment. Members of the MG are the BCBS,EC, IAIS, IOSCO, World Bank and FSB. IFIAR isan observer.

Non-practitioner Member: a member of theIAASB, IAESB or IESBA who is not a member oremployee of an audit practice. If previously amember or employee of an audit practice firm,the individual would normally be subject to acooling-off period of three years.

Practitioner Member: a member of the IAASB,IAESB or IESBA who is also a member oremployee of an audit practice.

Public accountability documents: documentsproduced at various points during the execution ofdue process which explain the PIAC’s dispositionof input received during a specific phase of publicconsultation. See also Basis for Conclusions.

Public consultation: various types of publicengagement between a standard setting boardand a broad spectrum of external interestedparties. The standard setting board may hold oneor more public forums or roundtables or issue aconsultation paper in order to solicit views on amatter under consideration. All draftinternational pronouncements are published asExposure Drafts on the IFAC website for public

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comments. In addition to comments made byrespondents to an exposure draft, the standardsetting board seeks advice from its CAG and mayalso consider whether to conduct a field test of itsproposals. After approving the revised content ofan exposed international pronouncement, thestandard setting board assesses whethersubstantive changes have been made to theexposed document that may warrant its re-exposure.

Public Interest Activity Committees (PIACs): thegroups established under the auspices of IFACand identified in IFAC bylaws as public interestactivity committees subject to PIOB oversight.These consist of three independent standardsetting boards – the IAASB, the IAESB and theIESBA – and the CAP. Each of the boards isindependent from the IFAC Board and iscomposed of Practitioner, Non-Practitioner andPublic Members.

Public Interest Oversight Board (PIOB): theindependent body nominated by the MonitoringGroup responsible for approval of appointmentsand ongoing oversight of IFAC public interestactivities. The PIOB’s mandate requires it toincrease public confidence that those activitiesare properly responsive to the public interest.PIOB Public Reports cover the operating periodfrom 1 April to 31 March.

Public Member: a member of the IAASB, IAESBor IESBA who satisfies the requirements of a non-practitioner member, is capable of reflecting thewider public interest, and does not have a directinterest in the subject matter under development.Public members are not required to hold aprofessional accounting designation. However,they should have a strong technical knowledgeof subject matters encompassed by the board onwhich they serve.

Task Force (TF): a group of individuals (drawnfrom PIAC members, Technical Advisors andIFAC technical staff and occasionally externalexperts) responsible for developing aninternational pronouncement for considerationand PIAC approval.

Terms of Reference (ToR): the document that setsout the objective, scope of activities andmembership for each of the IAASB, IAESB, IESBAand their respective CAGs and the CAP. Thesedocuments are available on the IFAC website.

World Bank: the international financialinstitution which provides financial andtechnical assistance to developing countrieswhile furthering its mission to reduce globalpoverty and improve living standards.

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PIOB Secretariat in Madrid.

Public Interest Oversight Boardoverseeing international audit, ethics and education standards for the accounting profession

Oquendo, 12

28006 Madrid, Spain

Telephone: + 34 91 782 05 28

www.ipiob.org