Audit Policy: A Global View

1. Audit Policy: A Global View Russell Guthrie, Executive Director Dakar, Senegal May 5, 2011

2. IFAC Response to EC Green Paper General Remarks • A global perspective • The financial crisis presents a historic opportunity to improve the global financial system • The accountancy profession contributes to economic growth and stability across a wide range of activities: • Contributing to the efficient operations of capital markets and the public sector • Supporting the growth of small and medium enterprises • Protecting the interests of shareholders and the investing public • Enhancing financial stability

3. IFAC Response to EC Green Paper General Remarks (cont’d) • IFAC believes that strengthening audit as a high-quality professional service should be a key priority and objective • IFAC believes that significant additional legislation, or modifications to the 2006 Audit Directive, may not allow markets and governments the time to gauge the outcomes of the 2006 changes • IFAC encourages employment of scientific approaches to policymaking, recognizing that the clearest insights can only be gained from diligent, balanced and empirical assessment of the auditing profession in the past and present.

4. IFAC Response to EC Green Paper General Remarks (cont’d) • One of several considerations is that responses were prepared in the context of : • The SME sector being at the core of national economies • It being a public interest priority to ensure the health of the SME sector • The need to consider the relevance and impact of legislation, regulation, standards in terms of the impact on SMEs

5. IFAC Response to EC Green Paper Policy Matters • The introduction of ISAs in the EU is a critical step in achieving a truly globalized economy • IAASB governance arrangements promote a shared public sector/private sector relationship enhancing the legitimacy of ISAs • Clarity ISAs have been developed with due consideration of and emphasis on the needs of SMEs and SMPs • ISAs are designed to be applicable to audits of entities of all sizes; the conduct of an audit is based on the auditor exercising professional judgment • IFAC SMPC has provided substantive implementation support

6. IFAC Response to Green Paper Policy Matters • Mandatory audit firm rotation should not be required and could impact on audit quality • The incremental benefit to auditor independence is unlikely to outweigh the risks to audit quality • If research can demonstrate that mandatory periodic tendering will open up the market in the context of more appointment of SMPs, a “comply or explain” mechanism for audit committees could be considered • Absolute prohibition on the provision of non-audit services is not appropriate • The IESBA Code of Ethics for Professional Accountants includes detailed conditions related to the provision of non-audit services

7. IFAC Response to EC Green Paper Policy Matters • An adequate baseline is provided by requirements for audit firms to increase transparency by issuing a transparency report • Efforts to ensure that governance arrangements of audit firms enhance the independence of auditors are supported • Need for further research to inform policy decisions in a range of areas, including: • Professional skepticism – behavioral elements and the extent to which skepticism is lacking • Joint audits and audit consortia • Effectiveness of audit reports in the public sector

8. Other Inquiries and Consultations into Audit • The EC Green Paper is only one of several major reviews of auditing taking place, for example: • US Senate Committee - The Role of the Accounting Profession in Preventing Another Financial Crisis • UK House of Lords – Auditors: Market concentration and their role • IFAC supports global regulatory convergence, and hence a global response to concerns relating to auditing. • Unilateral major reform by jurisdictons or regions creates uncertainty and negatively impacts the goal of convergence

9. International Federationof Accountants www.ifac.org