Traffic jam imminent: Speed to market becoming an issue for IAASB

The International Auditing and Assurance Standards Board (IAASB) sets International Standards on Auditing (ISAs) that provide the foundation for high-quality Canadian audits.

The International Auditing and Assurance Standards Board (IAASB) sets International Standards on Auditing (ISAs) that provide the foundation for high-quality Canadian audits. But does the IAASB have the capacity to respond appropriately to the changing environment going forward? I’ve got three suggestions to ease the impending gridlock.

The IAASB recently issued a consultation paper on its future strategic direction where it recognized that “[t]he most significant strategic issue facing the IAASB is how to ensure the continued credibility and confidence in its work as a global standard setter.” The consultation paper presents an excellent overview of the many and varied calls on the IAASB under its mandate to set international standards for audits, reviews, other assurance engagements and related services such as compilation engagements. But the proposed work program in the consultation paper identifies that some important projects may not be addressed for several years. Is this good enough to maintain the high-quality of international standards?

Take group audits for example. Regulators and audit inspectors, including those from Canada, recognize that group audits, particularly involving foreign jurisdictions, pose significant challenges for auditors. A number of areas of concern with the group audit standard were identified during a post-implementation review the IAASB completed in 2013. However, the IAASB is not planning to commence a project to revise this standard until 2017, which likely means that changes will not be made till 2019 or later.

So why is this, and what are the implications? Firstly, the IAASB is proposing to change its approach to deliberation of topics from one where it addresses a wide range of topics concurrently to one where it addresses a smaller set of active projects, completing these on a timely basis before moving on to the next priorities. It refers to this approach as the “accelerated basis.” Unfortunately, group audits (and some other key projects in my view) did not make the cut for the first round of accelerated projects.

Secondly, the IAASB’s approach to standard setting is for the detailed work on projects to be undertaken by task forces that draw from the membership of the IAASB and may include representatives from other relevant organizations. IAASB’s project resources are obviously limited since other than the chair, IAASB members are volunteers. This affects when the IAASB can commence a project. Although the IAASB has identified this constraint, it is not proposing changes to this approach.

I suspect that stakeholders will be concerned about the proposed timeframe for some key standards projects. If this concern cannot be addressed by the IAASB, there could be adverse consequences that would result in inconsistent application of the standards and global diversity in their use, for example if:

  • there is a proliferation of non-authoritative guidance in different jurisdictions
  • audit inspectors or other regulators in a jurisdiction prescribe their own requirements
  • larger firms collaborate to develop their own interpretations of standards, at the expense of smaller firms that are left to fend for themselves

So what are some things the IAASB might do to address the gridlock issue and sustain audit quality? Here are some of my thoughts:

  1. Develop a rapid response mechanism so that fixes to a standard might be made on an urgent basis without a full revision of the standard, for example through “annual improvements” projects. (The IAASB appears to have already considered but rejected this approach although it has been successfully used by other standard setters.)
  2. Reduce the number of IAASB members on task forces, for example by leveraging from the experienced resources of national standard setters. (A similar approach was used during the IAASB’s Clarity project with apparent success. Why not try it again?)
  3. Conduct a continuous improvement initiative focusing on ways to reduce the amount of agenda time allotted for the discussion of any topic. (Can more board activities, such as editing of documents, be carried out offline?)

I hope the final IAASB strategic plan addresses this issue head on. Doing so will, I believe, help ensure the continued credibility and confidence in the IAASB’s work as a global standard setter.

Keep the conversation going….read the IAASB consultation paper and let me have your views on the IAASB’s strategy and work program? What are your views about the timing of the IAASB’s projects?

Post a comment below; or email me directly.

Eric

Conversations about Audit Quality is designed to create an exchange of ideas on global audit quality developments and issues and their impact in Canada.

About the Author

Eric Turner, CPA, CA

Director, Auditing and Assurance Standards, CPA Canada

Highlights

Update your knowledge and strengthen your network at this must-attend conference covering the most important issues and trends affecting audit committee members.

It’s probable that someone you know is deep in debt. If you are observant, you might see one of these seven signs.