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Audit & Assurance
IFAC Engagement with IAASB and IESBA—Representing the Interests of PAIBs & SMPs
by Christopher Arnold, Head of SME/SMP and Research, IFAC | December 11, 2015 |
The International Federation of Accountant (IFAC)’s Position Paper Position 2, A Single Set of Auditing Standards: Audits of Small- and Medium-Sized Entities (SMEs) reaffirms IFAC’s view that a single set of auditing standards that can be applied to all audits is in the public interest. IFAC considers that ISA™ are scalable and can be applied to SMEs, recognizing the standards must facilitate audits of small entities that are conducted in a manner appropriate to their size and characteristics. Nevertheless, keeping up with new regulations and standards has been consistently ranked as one of the top challenges facing small- and medium-sized accounting practices (SMPs). Standards should meet the test of being proportional in so far as they are capable of being cost effectively applied by SMPs. It is, therefore, important to ensure that any modifications to standards are monitored and input is provided from an SMP and SME perspective on a timely basis.
Furthermore, the results of IFAC’s Strategy Survey for 2016–2018 found that over 95% of IFAC’s members, firms, and other key stakeholders consider providing input to the independent standard-setting boards on behalf of both the SMP and professional accountant in business (PAIB) constituencies to be important or very important. As a result, this remains a focal area in the IFAC 2016-2018 Strategic Plan Charting the Future of the Global Profession.
Contributing to the development, and facilitating the adoption, of international standards has been a core element of the IFAC SMP Committee’s activities since its formation in 2005. The SMP Committee is dedicated to providing regular and timely input to the International Auditing and Assurance Standards Board (IAASB) and the International Ethics Standards Board for Accountants (IESBA) (the boards) in order to ensure the stability, relevance, and proportionality of standards to SMPs and SMEs. Input is provided at all key stages of the development process—from information gathering and project proposals, to consultation papers and exposure drafts, as well as post-exposure if it’s considered necessary.
Similarly, the IFAC PAIB Committee monitors the development of standards that impact the work of accountants working in business and the public sector. The PAIB constituency shares similar concerns as the SMP including that of standards overload and fragmentation, improving audit quality, access to relevant and affordable professional services, and guidance on ethical conduct. Recently, the PAIB Committee’s main focus has been on engaging and providing input to the IESBA and IAASB.
The input from the committees takes many different forms, and covers the major projects of both the IAASB and the IESBA, as outlined in their respective work plans: IAASB Work Plan for 2015-2016, and IESBA Strategy and Work Plan 2014-2018.
[Expand/Collapse each section to learn more about how IFAC engages with the boards.]
The SMP Committee has two task forces dedicated to following the activities of the IAASB and IESBA and coordinating the committee’s input—the IAASB Rapid Response Task Force, chaired by Katharine Bagshaw, and the Ethics Task Force, chaired by Raymond Cheng.
The committee invests significant resources through staff, member body, and volunteer time preparing comment letters ahead of the quarterly IAASB and IESBA meetings on behalf of the SMP and SME constituencies. In 2015, this included:
- Six comment letters submitted ahead of the IAASB March, June, and September meetings covering projects on:
- Eleven comment letters submitted ahead of the IESBA January, April, June, and September meetings covering projects on:
IFAC staff observe the boards’ meetings and discussions and, in particular, monitor how the SMP Committee comments are considered. The SMP Committee comment letters may also be discussed during individual board task force meetings. In addition, there is regular interaction and communication between the respective board and IFAC staff.
In 2015, formal comment letters were submitted on behalf of SMP and PAIB constituencies in response to the following IAASB and IESBA Consultation Papers and Exposure Drafts:
- SMP Committee Response: Exposure Draft: Proposed International Standard on Auditing (ISA) 810 (Revised)—Engagements to Report on Summary Financial Statements
- SMP Committee Response: Exposure Draft: Proposed Amendments to the IAASB’s International Standards—Responding to Non-Compliance or Suspected Non-Compliance with Laws and Regulations
- SMP Committee Response: Exposure Draft: Proposed International Standards on Auditing—ISA 800 (Revised) and ISA 805 (Revised)
- SMP Committee Response: Exposure Draft: Responding to Non-Compliance with Laws and Regulations
- PAIB Committee Response: Exposure Draft: Responding to Non-Compliance with Laws and Regulations
- SMP Committee Response: Consultation Paper: Improving Structure of the Code of Ethics for Professional Accountants
- PAIB Committee Response: IESBA Exposure Draft on Proposed Changes to Part C of the Code of Ethics
It is well acknowledged that due to their often limited resources, SMPs and PAIBs, especially those working in SMEs, are not always aware of the activities of the standard-setting boards, and even if they are aware, they are often not able to easily respond and engage with the standard-setting process. The time required to serve as a member of the boards also limits the direct involvement of SMPs and PAIBs. In addition to collecting, developing, and publishing input via staff engagement and comment letters, the SMP and PAIB Committees have raised awareness of the boards’ activities through discussions on the Global Knowledge Gateway, for example, How Valuable Is Client Confidentiality to You? and Responding to the IESBA: New Ethical Guidance for Professional Accountants in Business Timely and Relevant. The committees also promote their input via member bodies, recognized regional organizations, and through IFAC social media channels, such as the IFAC SMP Community on LinkedIn and the IFAC SMP Committee twitter handle.
The committees often include representatives from the IAASB and the IESBA on their meeting agendas. For example, the Chair of the IAASB Auditor Reporting Implementation Group attended the September 2015 PAIB Committee meeting and representatives from the IAASB and IESBA attended the June 2015 SMP Committee meeting; see SMP Committee Meeting Highlights.
Both the IAASB and IESBA have individuals who are responsible for liaison with the SMP Committee—Brendan Murtagh and Brian Caswell, respectively. The SMP Committee interacts with both individuals— raising key concerns and providing copies of each comment letter submitted.
Board Task Forces
The SMP and PAIB Committees provide input to the Board Task Forces at specific stages of different projects, including arranging conference calls to discuss significant concerns. Recent conference calls have covered the IAASB Disclosures project and the IESBA project on Safeguards. In addition, recent input, for example, was provided to the IAASB on common types of Agreed-Upon Procedures (AUP) engagements, issues regarding the use of extant ISRS 4400, Engagements to Perform Agreed-Upon Procedures Regarding Financial Information, and on hybrid engagements (i.e., engagements using a combination of procedures derived from review, compilation, and AUP engagements).
Representatives from both committees are or have been members of IAASB and IESBA Task Forces. This is a highly effective method for providing input from a particular perspective as the projects develop and changes to the standards are considered. Ian Rushby represented the PAIB Committee on the IESBA Part C Task Force while the SMP Committee is represented by Dawn McGeachy on the IAASB Quality Control Task Force and Katharine Bagshaw on the IAASB Agreed-Upon Procedures Task Force.
Consultative Advisory Group
Usefulness and Effectiveness of Input
There are a number of inherent difficulties in assessing the effectiveness of SMP and PAIB input provided to standard-setting boards. This includes the recognition that the boards have to balance the views of a number of different stakeholder groups. However, feedback indicates that both boards value the input and find it useful.
It is considered important to ensure that key concerns are raised in a timely and efficient manner through the mechanisms outlined above. Indeed, there could be a greater risk of the SMP and PAIB views being unrepresented, if no such input and contributions were made.
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