Shared Standard Setting in the Public Interest: A Strong Model

Fayez Choudhury | June 24, 2014 |

The last two decades have been a definitive era in the evolution of the accountancy profession. In the wake of major corporate scandals at the turn of the century, an international public debate arose on the need for more effective and well-considered regulation; this debate then reignited during the global financial and sovereign debt crises.

To some, particularly those within the regulatory community, there was a conflict of interest in the profession setting standards, particularly those for accounting, auditing, and ethics. As a result, there was a gradual shift of some functions—such as auditor registration and audit quality inspection—to the regulatory community. In addition, regulators, other public authorities, and IFAC implemented standard setting reforms, focused on audit and assurance, ethics, and education, that responded to the needs of those using the standards as well as regulators.

Instead of new, funded entities, a “shared private-public sector” model for standard-setting was developed. The model maintains an important role for the accountancy profession—those who use and adopt the standards, and who are instrumental in implementing the regulatory and legislative requirements imposed on the corporate sector. It also has safeguards to protect the independence of the standard-setting process from the accountancy profession and other vested interests, including governments and regulators.

Key features of the "shared private public sector" model include:

  • Monitoring Group—regulators and other public bodies provide overall oversight.
  • Public Interest Oversight Board (PIOB)—nine Monitoring Group nominees plus one IFAC nominee oversee that due process is established and followed.
  • IFAC—provides technical, administrative, IT, and communications support to the standard-setting boards; administers the nominations process with close PIOB oversight of the composition of the boards and the nominations process.
  • Standard-setting boards’ comprised of practitioners, non-practitioners, and public members, with nominations to boards open to the public. Full-time independent chairs of two standard-setting boards.
  • A stringent due process that includes:
    • broad consultation on all exposure drafts, discussion papers, and invitations to comment throughout standards development, including regular meetings of Consultative Advisory Groups;
    • meetings of standard-setting boards that are open to the public;
    • publication of all agenda papers, exposure drafts, bases for conclusions, and other relevant documents;
    • published audio recordings and minutes of all meetings;
    • confirmation by the PIOB that due process has been followed.

Over the past ten years, this model has resulted in high-quality standards that have broad global acceptance and recognition. In addition, it has been subject to two reviews; in both, the Monitoring Group has concluded that the process is effective, and recommendations for improvement have been implemented.

The model provides important benefits, including:

  • A high-quality, robust governance system, with consistent processes and procedures for each board and ultimate accountability to a single public oversight body—the PIOB;
  • Access to a large global pool of volunteers with diverse professional experience, geographies, etc., that can be drawn from for nominations to boards, committees, and task forces;
  • An international forum for discussion and dialogue with global institutions, governments, and regulatory bodies, and a global voice for speaking out on behalf of global convergence and other issues requiring a uniquely international perspective; and
  • The integral involvement of a global organization (IFAC) with relationships with national and regional professional accountancy organizations and major accountancy firms that promotes and encourages adoption and implementation and facilitates centralized support for standard-setting boards.

An enormous amount has been achieved. What we have now is a good model, and there is no alternative being offered.

Yet some still express doubts about the veracity of international standard-setting; they only recognize half of the story and still see standard-setting as being largely undertaken by the accountancy profession, without acknowledging the checks and balances provided by the due process and governance arrangements.

Unless and until we have a better model—which all stakeholders agree to, and are willing to take the practical steps to implement, including a commitment to a long term funding model—we should not undermine a model that works.

It is incumbent upon all key stakeholders—including IFAC, members of the regulatory community, and other public authorities—to continue to work to improve understanding of these robust standard-setting arrangements and the safeguards that protect the independence of the standard-setting process.

 

Fayez Choudhury

Chief Executive Officer, IFAC

Fayez Choudhury became chief executive officer of the International Federation of Accountants (IFAC) in February 2013. Mr. Choudhury was previously with the World Bank, where his last two assignments were as vice president, Corporate Finance and Risk Management; and controller and vice president, Strategic Planning and Resource Management. See more by Fayez Choudhury

 

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