Voluntary Auditing Standards in the Public Interest William Kinney Auditing Section

Voluntary Auditing Standards
in the Public Interest
William Kinney
Auditing Section
Doctoral Consortium
Savannah, Georgia
January 12, 2012
Auditing Research Components
Accounting
null?
Auditing
S-K
KPS
L-K
K-S
Professional
Structure
Laws, regs, governance
Contracts/ incentives
Professional standards
Firm organization, mores
External enforcement
Culture, markets, traditions
Financial reporting laws, regulations, and
standards across borders
EU law/ EC directives/ Sec. reg.??
US law/ Sec. reg.
UK law/ Sec. reg.?
FR law/ Sec. reg.?
•UK national
•FR national
•US national
FRF&AudStds
FRF&AudStds
Global
Financial ReportingFRF&AudStds
Framework and Auditing
Standards
•LSE rules
•Borse rules
•NYSE rules
•UK private lit.
•FR private lit.
•US private lit.
US culture/
contracts/
governance
A, Inc. B, Inc.
C Corp.
UK culture/
contracts/
governance
D, Inc. E, Inc.
F Corp.
Who will interpret and enforce these
FRFs and AudStds? Will they differ?
FR culture/
contracts/
governance
G, Inc. H, Inc.
I Corp.
U.S. Financial Reporting Regulators
post-2002
SEC
FASB
GAAP
PCAOB
Internal
Control
(COSO)
Measurement criteria
Aud.
Stds.
Ind.
Stds.
Q.C.
Stds.
Inspect/
Enforce
Application of criteria
E.U. Financial Reporting Regulators
(with member differences*)
EU (none)
National?
IASB
IFRS
x
Turnbull,
Venoit,…
IAASB
ISAs
ISAEs
Measurement criteria
Indep.
QCS
Stds.
x
Inspect/
enforce
Application of criteria
* Red Italics means national regulations only (i.e., jurisdictional version)
How best to set Global Standards:
• National government mandate (with
convergence across nations)?
• Political group representation in global org.?
• Independent experts, due process, in
sunshine, independent oversight, and
voluntary adoption by nations?
• Any of the above “plus” national government
approved additions?
• Something else?
International Federation of
Accountants (IFAC)
• Mission: to serve the public interest, IFAC will
continue to strengthen the worldwide accountancy
profession and contribute to the development of
strong international economies by establishing and
promoting adherence to high-quality professional
standards, furthering the international
convergence of such standards and speaking out
on public interest issues where the profession’s
expertise is most relevant.
• Standards: IAASB (auditing), IESBA (ethics), IAESB
(education), IPSASB (public sector accounting)
Enforcement: local, private groups,
international cooperation?
•
•
•
•
Web of national securities regulators (IOSCO)?
National government-approved Inspectors (PCAOB)?
Stock exchange rules (NYSE, Borse, LSE) ?
Voluntary web of public interest orgs (IASB, IAASB,
PIOB, IFIAR, World Bank, IMF) ?
• Government agency cooperation (IOSCO, SEC, AMF,
FSA, INTOSAI) ?
• G-20 self-monitoring, international treaties, agreement
to cede decision authority?
• Global model private litigation statue?
Current issues/topics?
• Global politics of Auditing regulator/standards
setter competition (EC, PCAOB, IAASB)?
• Auditing accounting estimates (e.g., Fair values):
– ISA 540, CIFiR recommendation, PCOAB response
• Group audits:
– ISA 600
– Global cooperative inspections by PCAOB, FRC, etc.
– Group-level ICFR (huge threat, huge potential, almost
zero theory, field studies, archival studies)
• PCAOB inspections practices and expectations:
– Large firms/ small firms, no recognition of firm QC
– global cooperation/access and “Lehman Brothers?”
Conclusion
• There are problems with and questions about
standardized global financial reporting
• No single “silver bullet” solution, but
• Apparent demand for
– market-driven mechanisms (broadly defined)
– expertise of independent public interest groups
– appropriate oversight at all levels with appropriate
national government enforcement
• What mechanism design do you like best
. . . and why?
Top Ten differences in design and
operation of IAASB and PCOAB
IAASB
PCAOB
• Global by design
• Some global influence via
inspections of foreign filers
• Market-driven services (e.g.,
no ICFR audits)
• Public interest objective
(investors, directors,
workers, community)
• Comprehensive (all
assurance services, all
entities, all auditors)
• Voluntary adoption (quality
of standards is raison d'être)
• Statute-driven (domestic
crisis politics as force)
• Investor protection objective
• Limited to financial and ICFR
audits* of U.S. public
companies
• Use mandated by U.S. law,
no cost effectiveness test
Top Ten differences in design of IAASB
and PCOAB (cont’d)
IAASB
• Developed in sunshine
• Diversity (9 practice members, 9
not), 18 Tech Advisors, 8 IFAC
staff, Task Forces, other experts,
PCAOB
• Unknown - but not sunshine
• Three non-CPAs, two CPAs
(no practice members) 14
standards staff, SAG?
CAG, SME, SMP, NSS
• Audit expertise on Board
• Independent in selection,
oversight, oath (only Ch. Is paid)
• No expertise necessary
• Staff is hired/paid by Board
• Independent oversight by PIOB
• Oversight by SEC personnel
(but to date, no public
reports)
(appointed by Basel Group, World
Bank, IOSCO, Int. Assoc. of
Insurance Supervisors, observed by
Financial Stability Forum and Int.
Fed. of Independent Audit
Regulators)