Playing a leadership role in international convergence: a chance to set an example on the world stage.Convergence of international financial reporting standards International Financial Reporting Standards (IFRS) are standards and interpretations adopted by the International Accounting Standards Board (IASB).
Many of the standards forming part of IFRS are known by the older name of International Accounting Standards (IAS). has received enormous attention over the last decade and particularly over the last few years. Earlier this year, the leaders of the International Accounting Standards Board An editor has expressed concern that this article or section is .
Please help improve the article by adding information and sources on neglected viewpoints, or by summarizing and and the Financial Accounting Standards Board Financial Accounting Standards Board (FASB)
Board composed of independent members who create and interpret Generally Accepted Accounting Principles (GAAP). and key regulators from the European Commission and the SEC agreed on a road map and timetable. It now seems appropriate to focus an equal amount of attention and effort on convergence of international auditing and independence standards. The U.S. profession has a unique and important opportunity to play a key role in the global community in making substantial progress on that road.
In recent years there have been significant changes to international auditing and independence standard-setting processes. These changes, reflected today in the standard-setting activities of the International Federation of Accountants The external links in this article or section may require cleanup to comply with Wikipedia's content policies. (IFAC IFAC - International Federation of Automatic Control, involved in informatics related to control systems. ), include greater direct public input, more rigorous and transparent processes and international public interest oversight. The standards set by the International Auditing and Assurance Standards Board (IAASB--an independent standard-setting body under the auspices of the IFAC) and the IFAC Ethics Committee ethics committee A multidisciplinary hospital body composed of a broad spectrum of personnel–eg, physicians, nurses, social workers, priests, and others, which addresses the moral and ethical issues within the hospital. See DNR, Institutional review board. also have been updated and made more specific.
THE WORLDWIDE PROFESSION
IFAC is an organization of 163 member bodies--including the AICPA--in 119 countries with more than 2.5 million professional accountants. IFAC's primary mission is to continue to strengthen the worldwide profession and to develop strong international economies by establishing and promoting adherence to, and furthering the international convergence of, high-quality professional standards.
The challenges and opportunities for the IFAC standard-setting bodies include balancing public interest concerns with difficult implementation issues and addressing concerns about clarity, complexity and relevance. Meeting these challenges will enhance the usability and acceptance of standards, increase the likely success of international convergence and, ultimately, lead to greater public understanding of and investor confidence in the information and assurance provided by the world's accountants.
Many of IFAC'S member organizations have already adopted its international standards on auditing International Standards on Auditing (ISA) are professional standards for the performance of financial audit of financial information. These standards are issued by International Federation of Accountants. (ISAs)-more than 70 bodies currently--and its independence standards, which are part of the IFAC Code of Ethics Code of Ethics can refer to:
Here in the United States we obviously have a much different environment in many respects. We have two primary bodies with authority to establish auditing and independence standards: the Public Company Accounting Oversight Board The Public Company Accounting Oversight Board (or PCAOB) (sometimes called "Peekaboo") is a private-sector, non-profit corporation created by the Sarbanes-Oxley Act, a 2002 United States federal law, to oversee the auditors of public companies. for public company audits and the AICPA AICPA
See American Institute of Certified Public Accountants (AICPA). for non-public-company audits. This dual arrangement certainly creates some unique challenges but also increases the need to seek convergence to avoid creating unnecessary differences. In the government area, the Government Accountability Office The Government Accountability Office (GAO) is the audit, evaluation, and investigative arm of the United States Congress, and thus an agency in the Legislative Branch of the United States Government. (GAO) also establishes rules through the "Yellow Book."
Seeking international standards convergence is an important challenge given the large number of U.S. companies listed on European stock exchanges This is a list of European stock exchanges.
There are two major pan-European stock exchanges:
To be sure, there are currently some differences between U.S. auditing and independence standards and IFAC international standards. Within auditing standards, for example, some differences are the time horizon for going concern considerations (one year in the United States vs. a longer time horizon in ISAs); the scope of responsibilities for detection of illegal acts (limited to those with a direct and material effect on the financial statements in the United States vs. a wider approach in ISAs); and a standard that allows divided responsibility among multiple auditors in the United States vs. a proposed new IAASB IAASB International Auditing and Assurance Standards Board standard that may eliminate that option. Dealing with important differences of this kind--which reflect fundamental variations in legal environments--is certainly necessary. However, moving to eliminate other historical differences to the greatest extent possible on a timely basis also seems prudent to achieve global convergence.
Both the PCAOB PCAOB Public Company Accounting Oversight Board and the AICPA are keenly interested in IFAC's international standards. The PCAOB agreed to play a key role on the Consultative Advisory Group of the IAASB and provides direct input at IAASB meetings as a nonvoting observer. The chairs of the IAASB and ASB ASB Asbestos
ASB Arbeiter Samariter Bund (German medical help organisation)
ASB Anti-Social Behaviour
ASB Accounting Standards Board (UK FRC)
ASB Aarhus School of Business are also official observers at meetings of the PCAOB's Standing Advisory Group. Finally, leaders of the AICPA audit and independence standard-setting bodies are actively participating on the IAASB and IFAC Ethics Committee, and the ASB is committed to a process of convergence to IAASB standards.
It appears these mechanisms are paying dividends already. For example, the IAASB is proposing to publish a standard on documentation similar to one issued by the PCAOB. The PCAOB also has been studying new IAASB standards on audit risk and quality control. This evidence of early cooperation is commendable, and continuation is essential to avoid significant differences and to move toward timely convergence.
A UNIQUE OPPORTUNITY
While these early signs of cooperation are encouraging, there is much heavy lifting ahead. The challenges are significant, particularly given the PCAOB's statutory mandate to focus on protecting investors of SEC-registered companies, and the commitment of the ASB and the AICPA Professional Ethics Executive Committee to be responsive to the public and the many unique issues in the United States (including requirements of the GAO and the Department of Labor, and concerns that may differ for private businesses). Regardless of these challenges, I believe the U.S. profession should seize the unique and important opportunity to show leadership by pushing for an accelerated roadmap to convergence. The rest of the world is watching closely to see the U.S. profession's commitment to this effort. We can set an example that may greatly influence the pace of convergence activities and timetables in many other countries and at the same time ensure the global standard-setting process fully considers our views.
Charles A. Horstmann, CPA (Computer Press Association, Landing, NJ) An earlier membership organization founded in 1983 that promoted excellence in computer journalism. Its annual awards honored outstanding examples in print, broadcast and electronic media. The CPA disbanded in 2000. , is managing partner, global independence, for Deloitte Touche Tohmatsu Deloitte & Touche (also referred to as Deloitte Touche Tohmatsu, and branded as Deloitte.) is the second largest professional services firm in the world, and one of the Big Four auditors, along with PricewaterhouseCoopers, Ernst & Young and KPMG. and a member of the IFAC board nominated by the AICPA.