State Board Report

August 2011

Vancouver proved a lovely site for NASBA’s Fourth Forum of International Accounting Regulators. The July 25 – 26 meeting was co-sponsored by the Canadian Institute of Chartered Accountants and the British Columbia Institute of Chartered Accountants. It drew participants from the U.S., Canada, United Kingdom, Netherlands, Poland, Mexico, and the Philippines. NASBA President David Costello told the Forum: “We have got to be showing a desire to harmonize and to become more uniform in all our issues. That is what this conference is all about. We must not emphasize and exaggerate our  differences.”

“The challenge in achieving international consistency is that most standards are set at the local level, which is not helpful when so much business is international,” observed Robert Hodgkinson, Institute of Chartered Accountants in England and Wales’ Executive Director – Technical. International Financial Reporting Standards are not the entire answer as there are fundamental differences in national economies, he noted. “The first step in addressing these issues is to get together and talk. We can’t handle problems of international consistency by e-mail.” Last year the ICAEW’s Audit Quality Forum issued a paper on “International Consistency – Global Challenges Initiative: Providing Direction,”
and this year they will be issuing a similar provocative paper on “reliability,” he said.

Questions about audit quality are being raised around the world, Gaylen Hansen, NASBA Director- at- Large noted. “What does audit quality mean? It means different things to different people. The PCAOB has a paper out on the audit report that could lead to a change. For too long we have been focused on what the preparer wanted to do. We need to know who the user is, the customer. Investors want to know that when a company says these are its assets, the investors can believe it. The Green Paper issued in the EU is raising the same type of questions.”

Daniel Goelzer, a Public Company Accounting Oversight Board Member, said: “The financial crisis has re-raised questions about the relevancy of the auditor’s work. While auditors did not cause the financial crisis, it has raised thinking about what investors are expecting from auditors. It also focused on need to cooperate among audit regulators around the world.”

For 30 years there have been calls for consistently high audit standards, Richard H. Murray, CEO of Liability Dynamics Consulting, pointed out, as he urged regulators to support the professionalism of auditors by leaving room for their exercising thoughtful judgment. There is no one right model of prescriptive vs. judgmental regulation, but he warned that those who do not trust auditors are likely to become more prescriptive. “Auditors should operate like every other enterprise – in which there is a right of being wrong: People should not be held vicariously liable for the work of their network affi liates.” He observed, “The audit report as we know it today offers as little value for as much money as any product that any industry offers in the world. It is the product of this delicate balance of how much can the auditor say without risking more liability. If we are going to demand more of the audit profession, then we need to find a way to foster that without killing the goose.”

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