In November, the Monitoring Group issued a consultation paper that set out different options and proposals to enhance the governance, accountability and oversight of the international auditing and assurance standard-setting process. The outcome of this consultation could have significant implications for how standards are set in the future.\nBackground to the consultation\nIn the early-to-mid-2000s, the International Organization of Securities Commissions, the Basel Committee on Banking Supervision, the European Commission, the Financial Stability Board, the International Association of Insurance Supervisors and the World Bank Group worked with the International Federation of Accountants (IFAC) to create a governance framework for the development of international standards for audit, assurance, ethics and education. The Monitoring Group they formed is responsible for the overall governance of the standard-setting process and the review of its implementation, effectiveness and responsiveness to the public interest. \n\nAccording to the Monitoring Group, this consultation is part of an “ongoing global effort to promote high-quality international auditing and ethical standards.” The consultation “includes options which consider changes to the number of standard setting boards, their composition, their strategic focus, geographical balance and remit; the process to nominate their members; and their current oversight arrangements, among other elements.”\nWhat changes are being considered by the Monitoring Group?\nThe consultation paper sets out three main concerns, identified through consultations with stakeholders:\n\n the adverse effect on stakeholder confidence in the existing standards because of a perception of undue influence exerted by the profession \n partly because of the perception of such undue influence, the risk that standards are not developed fully in the public interest \n the relevance and timeliness of setting standards \n\nTo address these concerns, the consultation paper proposals include:\n\n combining under a single board, standards currently set by the International Auditing and Assurance Standards Board (IAASB) and the International Ethics Standards Board for Accountants (IESBA) that comprise auditing and assurance standards and ethical standards for all types of audit engagement, and IFAC continuing to set ethical standards for professional accountants in business, and ethical standards\n reducing the IAASB and IESBA from two 18-member boards, mostly made up of volunteers, to one board made up of no fewer than 12 remunerated members, with a remit to be more strategic and less operational in focus\n changing the standard-setting staffing model from an in-house technical staff, supplemented by in-kind contributions from the audit firms and professional accountancy bodies, into a fully self-supporting body, independent of the IFAC and/or its members\n developing a new funding model so that funding is not provided solely by the accountancy and audit professions, although they, along with investors, are the main beneficiaries of high- quality, globally accepted standards\n\nWhy this consultation is important to Canada\nIn 2006, the Auditing and Assurance Standards Board (AASB) adopted a new standard-setting approach that involves the adoption of International Standards on Auditing (ISAs) in Canada. Key reasons for this approach included: \n\n ISAs reflect the needs of a broad range of stakeholders, including practitioners from smaller firms and the public sector\n the AASB believed that it would be able to significantly influence the IAASB in the development of a global set of auditing and assurance standards \n\nSince 2006, the IAASB’s standard-setting process, while not perfect, has worked well, resulting in high- quality global standards. The ISAs are principles-based, and Canada is often represented on the IAASB and has many opportunities to contribute to the IAASB’s standard-setting process. In recent consultations, Canadian stakeholders have strongly supported the AASB in continuing to adopt the IAASB’s standards.\n\nThe AASB supports improvements to the standard-setting process as these are important to the public interest. It will be reviewing the consultation paper in detail over the coming weeks.\nAs the Monitoring Group consultation process evolves, here are some key questions I hope will be answered:\n\n Given that the organizations driving the changes to standard setting are global regulatory bodies, will standard setting focus primarily on the requirements for large public interest entities, possibly ignoring the needs of small and medium sized practitioners and auditors of not-for-profit and public sector entities?\n Will standard-setting under the new model result in more prescriptive, less flexible, requirements that are not scalable to a broad range of audits?\n Will Canada’s ability to play a significant role in standard setting be impaired under the new model?\n How will Canadian standard setting processes need to change in light of these developments?\n The bottom line—will future standards continue to be of high quality so that Canada can adopt them with minimal amendments?\n\nKeep the conversation going\nPlease read the consultation paper. What do you see as the most controversial proposals? Post a comment below; or email me directly.\nConversations about Audit Quality is designed to create an exchange of ideas on global audit quality developments and issues and their impact in Canada.