Date posted: 1/12/2017

Standards are important – get involved

“The new proposals may replace the current International Federation of Accountants (IFAC) role in setting auditing and ethical standards for audits”

In brief

  • There are proposals to change who, and how international standards in audit and ethics are set
  • The proposals could change how standards are established and funded in Australia and New Zealand
  • There is a short consultation period and the views of CAs about the changes are important and sought after

Proposals have been issued by a subset of the International Organisation of Securities Commissions (IOSCO) which, in summary, suggest setting up a new group, managed mainly by regulators, to establish standards. If enacted, the new proposals may replace the current role of the International Federation of Accountants (IFAC) in setting auditing and ethical standards for audits.

Why does this matter?

The Australian and New Zealand governments have a policy to adopt the international audit and ethical standards set by IFAC. The role of the domestic standard setting bodies, which are government agencies, is to provide input into the development of the international standards, and approve them for adoption in the local market. Any change to how these international standards are developed will impact the standards applied in Australia and New Zealand.

What are the changes?

The main changes relate to the structure of the body setting the standards, and the funding for that body. An overview of the structural and funding changes are presented in the tables below.

Table 1: Structural changes

From To Pros Cons
18 members for International Auditing and Assurance Standards Board (IAASB) and 17 members for International Ethics Standards Board for Accountants (IESBA) 12 members for a single combined board Smaller board will enable quicker decisions Less representation from all geographies and business environments Fewer subject matter experts
Representing a range of geographies, and a 50:50 mix of practitioners and non-practitioners Major economy regulators will contribute a third of  board members with practitioners
and non-practitioners each contributing a third of the board members
Regulators have direct membership Standards will be set by people who do not have current practical experience or audit skills
Separate boards for auditing standards and ethical standards covering all professional accountants Single board for auditing standards and for ethical standards relating to auditors One board covering all matters relating to audit Base ethical standards apply to all accountants. Current processes already allow for additional ethical considerations in relation to audit specific situations

Table 2: Funding changes

From To Pros Cons
IAASB and IESBA staff and costs paid for by IFAC
IFAC funded by professional body membership fees, Forum of Firms and grants
Public Interest Oversight Board (PIOB) and single board to be paid for by contractual levy on network audit firms Transparent funding Levy on network firms brings direct accountability to these firms
Board members' time is volunteered by their organisation
Board members' travel costs are generally paid for by the professional body of the country they represent
Public Members’ travel costs are paid by IFAC
Board members remuneration and travel costs will be met by PIOB Transparent funding and board members will not be beholden to their funding organisations Costs will be considerably higher due to board remuneration and additional technical staff

What are the implications?

Based on the consultation proposals, the standards being issued by the proposed new body would focus on large international audits.  This is based on the board representation being drawn only from major economies, and monitoring group regulators who police the large end of town. 

This possibility could mean that these standards won’t be relevant for all audits in Australia and New Zealand. As a result, our current standard setting boards may have to start establishing local standards for other types of audit, or the IFAC will have to change its remit to cover only audits for entities not covered by the new body. If this is the case, it will create additional costs for our governments, as there will need to be legislative and regulatory changes and adjustments to the constitution and funding of domestic standard setters.

Practitioners will also incur additional costs for learning new standards, and in some cases two different sets of audit standards for different types of entities.

Alternatively, our governments could choose not to mandate the new international standards for domestic entities. If the government chooses this course of action, international corporations in Australia and New Zealand could be audited by different standards to those used in other major markets. 

Other markets may also take this view which would result in a loss of global consistency. Currently over 120 countries adopt IFAC auditing standards. 

What’s next?

There is a limited time for responding to the proposals, with 9 February 2018 the deadline for comments. Given these proposals could have a major structural and governance impact in our markets, Chartered Accountants ANZ will be making a submission shortly. Our organisation has been liaising extensively with members and other parties to understand and assess the implications.  

It is likely our response will focus on how the current processes can be amended, rather than supporting wholesale changes. We thank the many stakeholders who have provided us with their views.

The Monitoring Group paper

Strengthening the government and oversight of the international audit-related standard-setting boards in the public interest.

Paper here

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