INTERNATIONAL FEDERATION OF ACCOUNTANTS

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International Federation of Accountants
External Auditing Structure and Standards Alta
Prinsloo, Senior Technical Manager, IAASB May 5,
2005
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Agenda
EXTERNAL AUDITING

• Credibility in financial reporting
• Role of IFAC and its reforms
• Role of the IAASB
• International convergence
• Ethics
• Conclusion

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Restoring Credibility in Financial Reporting
CREDIBILITY

• Critical to development of capital markets
• Requires a multi-faceted solution
• By all those involved in the financial reporting
  process
• Focus on the public interest

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The Public Interest
CREDIBILITY

• Corporate sector
• Decisions affect groups and individuals well
  beyond traditional stakeholders
• Served by accountants creating wealth
• Public sector
• Practices applied by governments affect those
  that receive services
• At an international level
• International standards affect national capital
  markets and service provision at national level

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Agenda
EXTERNAL AUDITING

• Credibility in financial reporting
• Role of IFAC and its reforms
• Role of the IAASB
• International convergence
• Ethics
• Conclusion

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Mission
ROLE OF IFAC

• 163 member bodies in 119 countries
• Serious about its public interest responsibility
• Embraced in its mission

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Mission (cont.)
ROLE OF IFAC

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

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IFAC Reforms PIOB
ROLE OF IFAC

• Public Interest Oversight Board (PIOB) formed
• To oversee international standard setting
• Auditing, Ethics, Education
• To oversee IFACs Member Body Compliance Program
• Eight individuals from seven countries

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IFAC Reforms History
ROLE OF IFAC

• Meeting with international regulators in February
  2003
• How to strengthen international standard-setting
  processes
• How to restore credibility in financial reporting
• Basel Committee, EC, FSF, IAIS, IOSCO and World
  Bank
• Consulted with IFAC member bodies and other
  interested parties
• Proposals for Reform approved in November 2003

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IFAC Reforms Focus
ROLE OF IFAC

• Strengthening standard-setting processes of IFAC
  PIACs
• IAASB, Education Committee and Ethics Committee
• Enhancing transparency of those processes
• Providing for public interest oversight

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IFAC Reforms Key Role of PIOB
ROLE OF IFAC

• Evaluate due process of IFAC PIACs and report
  publicly
• Approve nomination process
• Approve appointment of chairs and members of IFAC
  PIACs
• May recommend matters for inclusion in IFAC PIAC
  work program
• May Observe at meetings during discussions
  pertaining to IFAC PIACs

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Public Sector
ROLE OF IFAC

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

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Agenda
EXTERNAL AUDITING

• Credibility in financial reporting
• Role of IFAC and its reforms
• Role of the IAASB
• International convergence
• Ethics
• Conclusion

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Objective of the IAASB
ROLE OF THE IAASB

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

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Composition of the IAASB
ROLE OF THE IAASB

• Full-time chairman and 17 volunteer members
• Three public members (two of which are
  Auditors-General)
• Appointed by IFAC Board based on recommendations
  from IFAC Nominating Committee
• Appointments approved by PIOB
• Meets four-five times per year

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IAASB Reforms
ROLE OF THE IAASB

• Meetings are open to the public
• Project histories, agenda papers and meeting
  summaries are posted on the website
• Audio recordings of IAASB meetings are available
  on the website
• Exposure drafts and comment letters are posted on
  the website
• Full-time chairman has been appointed and
  technical staff have been increased
• Due process has been reviewed

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Public Interest Input
ROLE OF THE IAASB

• Public members
• Consultative Advisory Group
• Appointed independent chair
• Recently revised membership and scope of
  activities
• Provides input on IAASB work program, priorities,
  and technical issues
• INTOSAI is a member of CAG
• Observers
• US PCAOB and Japanese Financial Services Agency

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Other Stakeholders
ROLE OF THE IAASB

• Annually meets with national standard setters
• Maintains an ongoing dialogue with the EC
• Participates in meetings of
• IOSCOs Standing Committee No. 1
• US PCAOB Standing Advisory Committee
• Basel Committee

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New ISAs Relevant to the Public Interest
ROLE OF THE IAASB

• New and revised quality control standards
• ISQC 1
• Quality control at firm level
• ISA 220 (Revised)
• Quality control at audit engagement level
• Reflects the IAASBs commitment to improve the
  quality of auditor performance

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New ISAs Relevant to the Public Interest (cont.)
ROLE OF THE IAASB

• Revised fraud standard
• Builds on new audit risk standards
• Requires auditors to
• Focus on areas of risk of material misstatement
• Design and perform audit procedures responsive to
  identified risks
• Will result in increased work

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The Road Ahead
ROLE OF THE IAASB

• Focus on issues that build confidence in the
  audit of financial statements
• Be responsive to needs of those with an interest
  in financial reporting
• Complete implementation of reforms
• Consider process for interpretive guidance
• Strengthen and maintain stakeholder relationships
• Consider other assurance projects
• Consider needs of SMEs and SMPs

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Agenda
EXTERNAL AUDITING

• Credibility in financial reporting
• Role of IFAC and its reforms
• Role of the IAASB
• International convergence
• Ethics
• Conclusion

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Support
CONVERGENCE

• IFAC
• Statements of Membership Obligations
• Financial Stability Forum
• 12 Key Standards for Sound Financial Systems
• Credibility Task Force
• Recommendation in report on Rebuilding Public
  Confidence in Financial Reporting An
  International Perspective
• INTOSAI
• Guidelines for Financial Audit to be based on ISAs

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Challenges
CONVERGENCE

• Wong Report
• Understanding meaning of international
  convergence
• Translation of international standards
• Complexity and structure of international
  standards
• Frequency, volume and complexity of changes to
  international standards
• Challenges for SMEs and SMPs
• Potential knowledge shortfall
• Implication of endorsement of IFRSs

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Recommendations
CONVERGENCE

• All participants in financial reporting process
  have a role to play
• IFAC and IAASB initiatives
• Developing the concept of international
  convergence
• Translations and availability of pronouncements
• IFAC Member Body Compliance Program
• IAASB clarity project
• Addressing the needs of SMEs and SMPs

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Public Sector
CONVERGENCE

• IAASB / INTOSAI ASC Memorandum of Understanding
  signed in 2004
• Enables INTOSAI ASC to use ISAs as basis for
  Guidelines for Financial Audit
• Enables IAASB to obtain public sector expert
  input in standards
• INTOSAI ASC nominees participate in IAASB task
  forces
• Contribute public sector perspective

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Agenda
EXTERNAL AUDITING

• Credibility in financial reporting
• Role of IFAC and its reforms
• Role of the IAASB
• International convergence
• Ethics
• Conclusion

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High Ethical Standards
ETHICS

• Accountancy profession is built on publics trust
• Requires commitment to
• High ethical standards
• Integrity
• Requires effective codes of conduct for all
  participants in financial reporting process
• IFAC Code of Ethics for Professional Accountants
• Specific public-sector related issues are being
  considered by IFACs Ethics Committee

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Agenda
EXTERNAL AUDITING

• Credibility in financial reporting
• Role of IFAC and its reforms
• Role of the IAASB
• International convergence
• Ethics
• Conclusion

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Conclusion
EXTERNAL AUDITING

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

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International Federation of Accountants