Proposed Strategy for 2009–2011
Consultation Paper issued for comment by the International Auditing and Assurance Standards Board of the International Federation of Accountants
Comments from ACCA
November 2007
Executive Summary
ACCA welcomes the opportunity to comment on the Consultation Paper Proposed Strategy for 2009 – 2011 issued by the International Auditing and Assurance Standards Board (IAASB) of the International Federation of Accountants.
We are pleased to have participated earlier in the IAASB strategy consultation process and welcome this Consultation Paper which we feel represents a balanced response to a wide range of inputs.
We are generally in agreement with the proposed strategy and possible actions for the period 2009 – 2011 which follows the completion of the Clarity project.
We make some suggestions, however, that we hope will further assist the IAASB to refine its proposed strategy and possible actions.
The most important of these relate to the need for the IAASB to become appropriately involved in the development of global standards for assurance on sustainability reports, and in particular carbon emissions, which are a contributor to climate change.
We also suggest that resources need to be allocated sooner rather than later to develop a conceptual framework for assurance. We stress the importance of this project as it is necessary to address the perception that an audit is not cost effective for smaller entities. This perception hampers both the global acceptance of International Standard on Auditing and, more importantly, deters a vital sector of the economy from realising the economic benefits of an audit.
Strategic Focus
Introduction
ACCA is pleased to continue to provide input to the IAASB to assist in determining its strategy. We have already provided written input to the initial strategy review earlier in 2007 and participated in related stakeholder meetings.
We note that the period to which the current consultation relates is now one year later than under consideration earlier in 2007. We support this change as it allows a better focus on the period directly after the Clarity project is expected to be completed.
We are pleased to note that the strategy consultation process has already elicited a wide range of inputs. While the current paper represents a balanced response, we nevertheless make suggestions below that we hope will further assist the IAASB to improve its proposed strategy and possible actions.
Broad strategic initiatives
We agree with the consistent approach implicit in the continuing recognition of the IAASB strategic initiatives and hence its focus on: contributing to the effective operation of the world's capital markets; assisting with the implementation of standards; and addressing the needs of small and medium-sized entities (SMEs).
We believe that these three aspects deserve equal priority. We recognise, however, that the timing of this strategy review in relation to the Clarity project makes it necessary to allocate fewer resources to specific SME-related projects.
Capital Markets
We agree with the intention to continue to develop assurance standards relevant to capital markets and agree that there is a continuing need to promote the acceptance of ISAs by market regulators. ACCA has been a consistently active proponent of global auditing standards, offering a route to qualification through their study, and promoting adoption as public policy; for example, recently renewing our call on the European Commission to move towards an appropriately early adoption of the Clarified ISAs and encouraging all jurisdictions not currently using ISAs to follow a convergence strategy.
Implementation of Standards
We agree that many organisations have a role to play in the effective implementation of standards. ACCA places great emphasis on education and learning and is committed to helping our students and members assimilate new standards and meet the challenge of their effective implementation.
We agree with the recently-announced delay to the implementation date of the Clarified ISAs and believe that this and the proposed creation of a period during which no new auditing standards will become effective will contribute substantially to the ease with which the changes are assimilated.
We are potentially concerned, however, that the IAASB envisages ‘developing a process for assessing the effectiveness of the implementation of new standards' , as this may not be best suited to the capabilities and resources of the IAASB.
We agree that other actions intended to facilitate the implementation of standards should focus on the audit of SMEs.
Needs of SMEs
We note the development of exemptions from audit that have taken place in some jurisdictions. The Consultation Paper discusses the needs of SMEs in the context of audit exemption but does not challenge the causes of this development.
Instead of looking to develop alternative to an audit, we believe that the IAASB should address the reasons why ISAs are judged not to be suited to this vital SME economic sector. We discuss this matter further in the section of this response dealing with the possible actions.
Possible Actions
CONTINUING ACTIONS
Possible actions may be divided into those of a monitoring, considering or communicating nature and those more clearly related to the development of a pronouncement.
We support the continuation of those actions falling into the first of these categories set out in the Consultation Paper1. In our view, these represent a balanced approach to continuing the IAASB broad strategic initiatives over the period 2009 – 2011.
PROJECTS
Certain projects listed in the table following paragraph 13 of the Consultation Paper will potentially lead to the development or revision of pronouncements:
A.1.1 Develop two ISAs (ISA 610 and ISA 720)
A.1.2 Consideration of changes to ISA 700
A.1.3 Develop XBRL guidance
A.2.1 Revise ISAE 3400
A.2.2 Develop prospectuses pronouncement
A.3.1 Develop tradable carbon credits pronouncement
B.2.1 Review IAPS for withdrawal or revision
B.2.2 Develop guidance for complex valuation models
C.1 Revise ISRE 2400
C.2 Revise ISRS 4410
In addition, the following three matters may result in a project:
A.3.2 Review Royal NIvRA pronouncement
B.2.3 Develop implementation guidance for additional topic
C.3 Consider need for alternative assurance standard
We accept the reasoning for including the above projects but comment further on the priority of some matters as set out below. We understand that a particular constraint is the amount of IAASB time that is necessarily taken up with a project. In several instances, we believe that an appropriate partnership with others can enable the IAASB to continue to drive a matter forwards without it demanding a disproportionate amount of time.
A.3.1 Develop tradable carbon credits pronouncement
We note that the public agenda for the IAASB meeting in December 2007 includes a project proposal relating to ‘Assurance Engagements on Carbon Emissions Information' . We fully support the proposal to consider the need for specific guidance beyond the general requirements of International Standard on Assurance Engagements 3000 Assurance Engagements Other Than Audits or Reviews of Historical Financial Information . The development of a global approach to such assurance will facilitate its provision and so enable stakeholders to use carbon emissions information with confidence. The project necessarily should involve those with appropriate subject matter expertise, which will facilitate efficient use of IAASB time.
A.3.2 Review Royal NIvRA pronouncement
Climate change and wider sustainability issues are of increasing and some would argue now fundamental importance. Major corporations are to the fore in taking action and their public reports are of considerable interest. Undoubtedly, appropriate standards for assurance on sustainability reports will be a necessary part of the future functioning of global capital markets.
We support the further expansion of the IAASB's consideration of projects in this field. The comments provided by the IAASB to the standard setter in The Netherlands, Royal NIvRA, were well considered and we understand enhanced the quality of the standard published in 2007. A review of that standard, and those of other jurisdictions would allow the IAASB to make efficient progress towards an international pronouncement.
C.3 Consider need for alternative assurance standard
In the section of this response concerning the needs of SMEs, we commented that, instead of looking to develop alternative to an audit, the IAASB should address the reasons why ISAs are often not felt not to be suited to the audit of SMEs. Accordingly we would give potential project C.3 a low priority. Instead, as set out below, we urge the IAASB to reconsider its view that the development of a full conceptual framework for assurance should not be commenced during the period 2009 – 2011. Given the potential to involve other parties in the early stages of such a project, we suggest that the necessary allocation of resources would be relatively low, while the importance of the project is high.
Development of A Conceptual Framework
While we welcome the statement in the Consultation Paper that the IAASB may develop parts of a conceptual framework, we are disappointed to note the statement that ‘It is unlikely that the IAASB will develop a conceptual framework as a whole.' We see compelling reasons to commence what would undoubtedly be a long project as early as possible after the completion of the Clarity project. The early stages of such a project should not need a large allocation of IAASB time.
The principal reason that a conceptual framework is needed is not one of intellectual rigour. It is a means of ensuring that ISAs are adopted globally for all audits, not just those of large corporations carried out by large audit firms. Moreover, the underlying rationale for such standards is that the use of ISAs should enhance the confidence of users of audited financial statements, not, as is currently the case, deter the economically important SME sector from having audits.
We agree with the IAASB view that ‘an audit is an audit', insofar as the reader of an auditor's report should be entitled to derive the same degree of assurance from it irrespective of the nature of the audited entity. Currently, ISAs prescribe a procedural approach to auditing that is appropriate to large corporations audited by large firms of auditors; this makes the application of such standards uneconomic in other circumstances. We do not believe that any change will be made to this position unless and until a conceptual framework for assurance is developed.
Once that is done, the framework will provide a justification for developing conceptually sound, principles-based standards that are capable of economic application across the whole range of entities for which an audit could be completed.
Although we do not wish to use this response to advance further and potentially lengthy arguments concerning a conceptual framework; we suggest that without a conceptual framework any work to develop directly an alternative assurance standard (project C.3 above) would have no theoretical underpinning.
1 These actions comprise certain matters in the table following paragraph 13 of the Consultation Paper together with those listed in its first Appendix.