Improving international comparability: the IAASB's new standard for an auditor's report aims to ease cross-border reporting concerns; meanwhile, AcSB re-examines its priorities.

Improving international comparability of reporting practices is a concern for accounting bodies around the world. As reports from Europe and Canada late in 2004 suggest, convergence continues, but how it should be managed continues to be debated.

Urgency in Europe

The International Auditing and Assurance Standards Board (IAASB) of the International Federation of Accountants (IFAC) constantly works toward enhancing the transparency and comparability of reporting practices internationally.

To that end, in late December the Board issued an International Standard on Auditing (ISA) that establishes a new form of auditor's report. The newly updated standard, ISA 700, The Independent Auditor's Report on a Complete Set of General Purpose Financial Statements, creates a framework separating audit reporting requirements in connection with an ISA audit from additional supplementary reporting responsibilities required in some jurisdictions. This is a critical issue for European states currently adopting international accounting standards.

The standard sets out clear guidance to auditors in circumstances where an audit is conducted in accordance with both ISAs and the auditing standards of a specific jurisdiction, and in particular on preparing an auditor's report to meet both the report structure required by the national jurisdiction and the requirements of the ISA.

"The European Commission asked the IAASB to look at this project as a matter of urgency to contribute to harmonized audit reporting within the EU," explained IAASB Chairman John Kellas. "Many EU and other countries require the auditor to report on matters additional to the financial statements, but these requirements differ between countries. Our solution is to require a two-part report: the first deals with the financial statements, and should be essentially the same for all audits conducted in accordance with ISAs; the second deals with any further matters that may be required by local regulations. We thereby require comparability where it matters, while allowing appropriate flexibility to deal with local circumstances."

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Although this new ISA didn't require any fundamental reconsideration of reporting practices, the IAASB did take the opportunity to update the requirements of the standard. In particular, new guidance is given on the auditor's consideration of whether an accounting framework is acceptable, and on the need for the auditor to consider whether the financial statements are misleading even when they comply in all respects with that framework.

According to IFAC, the new wording for the auditor's report includes:

* Better explanations of the responsibilities of management and the auditor;

* An updated description of the audit process to reflect the new IAASB Audit Risk Standards; and

* Clarification of the scope of the auditor's internal control responsibilities.

A variety of other standards were revised as a result of this revision. For details visit www.ifac.org.

Measured change: recharting the course

Meanwhile, the Accounting Standards Oversight Council (AcSOC), established in September 2000, presented its third annual report at the end of December. Within that, it outlined the challenge the Accounting Standards Board (AcSB) has ahead of it in 2005, as it attempts to address the complex issue of convergence--whether it be with U.S. GAAP (generally accepted accounting principles) or global standards.

As AcSOC chairman Thomas Allen points out in the report, "Not everyone views the trend to global convergence with the same amount of favour. Canadian financial statement preparers and auditors appear to be much more interested in U.S. GAAP than in IASB standards. Also, companies not involved in international capital markets may feel it unnecessary to meet the requirements of global standards when the resulting financial information goes beyond the perceived needs of the users of their financial statements."

Allen's address also noted that Canada's listed companies are just a fraction (0.2%) of all companies within the country, and only 10% of all listed companies in Canada are interlisted on U.S. markets. Canadian Securities Administrators recently issued National Instrument 52-107, which allows these public companies the choice of satisfying Canadian securities legislation by filing U.S. GAAP financial statements.

With this in mind, AcSOC and the AcSB are reassessing the AcSB's strategic plan for the next five years (2005-09), trying to determine whose needs require the most attention. Tentative conclusions were to be presented at a February 2005 meeting of the AcSOC, with a view to finalizing a draft plan for public comment in March or April 2005. Questions to be addressed included whether harmonization with U.S. GAAP should continue to be an objective; whether convergence with globally accepted standards should continue to be a goal; and how such changes will affect the cost and nature of reporting for Canadian companies.

For updates on the Board's conclusions visit www.acsbcanada.org.