Citing concerns that regulatory arrangements in different jurisdictions allowed multi-national organizations to engage in regulatory arbitrage during the financial crisis, the International Federation of Accountants (IFAC) is calling on global policymakers to promote and enact global regulatory consistency and evidence-based regulatory reform.\nAs a specific example of where divergent regulatory approaches are emerging, IFAC pointed to regulatory arrangements for auditing and auditor independence requirements as a prime example. “Another aspect of auditor independence where there are considerable and growing jurisdictional differences is mandatory audit firm rotation. Certain jurisdictions with major capital markets (e.g., the U.S. and Canada) have considered it, and have clearly rejected it. In contrast, last month the European Parliament announced a series of legislative reforms to auditing, including mandatory audit firm rotation – with the possibility that the rotation period will differ among member states – creating even more divergence.”\nTo promote global regulatory reform that enhances financial reporting and audit quality, IFAC believes that a critical aspect is to advance the global regulatory convergence agenda. “Otherwise, we will have learned few lessons from the crisis and will be consigned to discussing and addressing these same issues again in the not too distant future.”\nIt is interesting to note that Canadian accounting, auditing (and ethical) standards are aimed at global consistency while considering the implications of international standards on the Canadian environment. Consider, for example, the processes for adopting international accounting and auditing standards.\nThe Accounting Standards Board (AcSB) and the Auditing and Assurance Standards Board (AASB) seek input on proposals for comment issued by their respective international standard setters. Such input helps to ensure that changes made internationally remain in the Canadian public interest. Any changes to International Financial Reporting Standards (IFRSs) must be approved by the AcSB before they become part of Canadian accounting standards. Similarly, the AASB follows amendment criteria that allow the AASB to make amendments in specific circumstances. The criteria limit the additions and deletions that the AASB can make to an International Standard on Auditing.\nThe adoption of international accounting and auditing standards as Canadian standards is still a relatively young concept – less than five years old – and the initial adoption process seemed to go well. The question is how the standards boards will deal with bumps in the road, when Canadians raise significant concerns about a proposed standard, as they did, for example, about the recent auditor reporting proposals of the International Auditing and Assurance Standards Board (IAASB). Modifying an international standard would be a significant decision for either board given their support for global consistency. They may feel more pressure to modify a standard if stakeholders believe that other jurisdictions are not as committed to consistency as is Canada.\nHopefully, as international accounting and auditing standards change in response to concerns coming out of the financial crisis they continue to provide sufficient flexibility to allow individual jurisdictions to apply them in a way that reflect domestic circumstances while maintaining global convergence – a delicate balance between flexibility and consistency for sure.\nKeep the conversation going…. how do you feel about some of the concerns raised by IFAC? What does this mean for Canadian standard setting in your view?\nPost a comment below; or email me directly.\nEric\nConversations about Audit Quality is designed to create an exchange of ideas on global audit quality developments and issues and their impact in Canada.