International Federation of Accountants

External Auditing Structure and Standards

Alta Prinsloo, Senior Technical Manager, IAASB
May 5, 2005

EXTERNAL AUDITING

Agenda

Credibility in financial reporting

Role of IFAC and its reforms
Role of the IAASB
International convergence
Ethics
Conclusion

CREDIBILITY

Restoring Credibility in Financial Reporting

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

CREDIBILITY

The Public Interest

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

EXTERNAL AUDITING

Agenda

Credibility in financial reporting

Role of IFAC and its reforms
Role of the IAASB
International convergence
Ethics
Conclusion

ROLE OF IFAC

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

ROLE OF IFAC

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

ROLE OF IFAC

IFAC Reforms PIOB

Public Interest Oversight Board (PIOB) formed
To oversee international standard setting
Auditing, Ethics, Education

To oversee IFACs Member Body Compliance Program

Eight individuals from seven countries

ROLE OF IFAC

IFAC Reforms History

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

ROLE OF IFAC

IFAC Reforms Focus

Strengthening standard-setting processes of IFAC
PIACs
IAASB, Education Committee and Ethics Committee

Enhancing transparency of those processes

Providing for public interest oversight

ROLE OF IFAC

IFAC Reforms Key Role of PIOB

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

ROLE OF IFAC

Public Sector
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 standardsetting processes

EXTERNAL AUDITING

Agenda

Credibility in financial reporting

Role of IFAC and its reforms
Role of the IAASB
International convergence
Ethics
Conclusion

ROLE OF THE IAASB

Objective 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.

ROLE OF THE IAASB

Composition of the IAASB

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

ROLE OF THE IAASB

IAASB Reforms
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

ROLE OF THE IAASB

Public Interest Input

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

ROLE OF THE IAASB

Other Stakeholders

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

ROLE OF THE IAASB

New ISAs Relevant to the Public Interest

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

ROLE OF THE IAASB

New ISAs Relevant to the Public Interest

(cont.)
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

ROLE OF THE IAASB

The Road Ahead

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

EXTERNAL AUDITING

Agenda

Credibility in financial reporting

Role of IFAC and its reforms
Role of the IAASB
International convergence
Ethics
Conclusion

CONVERGENCE

Support
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

CONVERGENCE

Challenges
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

CONVERGENCE

Recommendations
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

CONVERGENCE

Public Sector
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

EXTERNAL AUDITING

Agenda

Credibility in financial reporting

Role of IFAC and its reforms
Role of the IAASB
International convergence
Ethics
Conclusion

ETHICS

High Ethical Standards

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

EXTERNAL AUDITING

Agenda

Credibility in financial reporting

Role of IFAC and its reforms
Role of the IAASB
International convergence
Ethics
Conclusion

EXTERNAL AUDITING

Conclusion
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

International Federation of Accountants