IFAC responds to Accountancy Europe's consultation on Interconnected Standard Setting for Corporate Reporting. The consultation examines how to harmonize non-financial information reporting and its interconnectedness with financial reporting.  

While the SMP Committee is supportive of the Ethics Board’s exploration of concepts other than professional skepticism to capture the behavior expected of all professional accountants (PAs), it is not convinced it is necessary to add the currently proposed standalone requirement outside the fundamental principles. The SMP Committee is also concerned about the proposed changes on upholding ethical values, which appears to go beyond the Code.

The SMPC strongly welcomes the Discussion Paper to explore possible options to address the challenges in applying the ISAs in audits of less complex entities. It believes this is an extremely important initiative that should be a high priority for the IAASB.

IFAC is submitting this comment letter to further highlight the importance of the issues covered in the IAASB’s Discussion Paper, as well as share other relevant activities on the part of IFAC. 

The SMPC noted that the responsibilities of the engagement partner now exceed those of extant ISA 220. Under extant ISA 220, the engagement team can rely on the firm’s quality control unless there are indications to the contrary. In the Committee’s view, this remains a pragmatic approach.

Based on how the standard is currently being drafted, the proposed International Standard on Quality Management 2 (ISQM 2) is unique as it combines firm wide requirements for policies and procedures and engagement level requirements relating to EQR with the objective of the firm being framed, in part, as the responsibility of the EQ reviewer. Although the IAASB is confident that such an approach is not an issue (since the standard is intended to be outcome-oriented), the SMPC has some concerns over the approach.

The SMPC generally supports the new quality management approach using a risk management lens. However, the Committee also believes that the IAASB needs to consider the cost/benefit of the proposed changes in terms of anticipated quality increase from International Standard on Quality Management 1 (ISQM 1). The SMPC believes that making the standard less complex to apply would go a long way in addressing the practical issues many SMPs would otherwise face and, simultaneously, resolve many of the scalability issues. Specifically by:

The SMPC is concerned that the QM standards' complexity may eventually drive a compliance mindset, especially amongst smaller firms who become subject to proportionately greater documentation burdens to “explain/prove” their compliance. Therefore, it is important for the IAASB to ensure that the final suite of QM standards address this issue to foster an effective focus on the quality of the engagement each individual firm delivers, as opposed to compliance with complex standards.

Overall, the SMPC generally supports the IAASB’s Proposed Strategy for 2020-2023 and Work Plan for 2020-2021, including the proposed framework of activities and new approach to how the Board will revise and develop standards. The SMPC emphasized how important the work planned by the IAASB on audits of less complex entities is and that this should be a high-priority for the Board.

At a time of economic and political uncertainty, IFAC’s recommendations focus on actions that will strengthen the economy, ensure progress toward the Sustainable Development Goals, and create a fair and empowered digital economy. G20 countries play a crucial role in fostering institutions and governance models that can anticipate, respond to, and optimize rapid technological change. IFAC issues these recommendations in advance of the 2019 G20 Summit in Osaka, Japan on June 28-29.