NASBA International Forum Highlights Global Reach of Accounting
The barriers to global accounting continue to come down, but there are still many competing interests that need to be considered, according to speakers and attendees at NASBA’s 4th Annual International Forum.
The event, held in Vancouver, B.C. on July 25-26, brought together more than 80 attendees to hear presentations and receive updates from decision makers all around the world. Those present came away with not only a sense of what’s happening in many countries right now, but also what many next steps might look like, says Linda Biek, CPA, NASBA Director of Governmental and International Relationships.
EC Green Paper on Audit Policy
“Comments about the European Commission Green Paper on Audit Policy were woven throughout the Forum,” Biek says. “European Commissioner for Internal Market and Services, Michel Barnier, has actively promoted several proposals as part of the plan to strengthen audit quality; Richard Fleck from the UK (Auditing Practices Board) gave us an overview of those proposals, breaking out the ones he thought would and would not survive.”
Barnier is a strong proponent of the joint audit, which he says is very successful in France. Fleck is less of a supporter since there has been no empirical evidence supporting the claim of superiority. During the open session of the Forum, an attendee pointed out that a providence in Canada has tried joint audits and found that the process wasn’t as successful as the outcomes experienced by France. To date, the U.S. has not been a big advocate either, Fleck says, adding that he hopes PCAOB chair, Jim Doty, doesn’t move in that direction.
How do joint audits work?
“A joint audit is when a larger firm, such as one of the Big Four, is paired with a smaller firm to do the audit so it truly is a joint audit, not to be confused with a dual audit,” Biek says. “The idea is that the larger firm would be exposing the smaller firm to knowledge and skills they hadn’t experienced before, given the exceptionally large size of the auditee. The thought is that this would bring more competition into the market and alleviate the concern over market concentration.”
“There’s always the fear that if one of the Big Four fails, it would cause complete disruption of the capital markets,” she adds.
Other presenters included NASBA Vice-Chair Gaylen Hansen and Liability Dynamics CEO Rick Murray, who reviewed audit quality from several different angles. Of chief focus for the two was the regulatory environment and which is the better perspective: A “check the box” mentality where the person or firm performing the regulating has a set roster of action items, or a more judgmental approach that involves determining how to regulate a specific industry or area in terms of what to do, and what’s the best thing for the industry or area.
“Some people said it seemed odd that you would develop a judgmental approach to a regulatory initiative,” Biek says. “Hansen and Murray agreed that probably the best answer would be a proactive approach, combining the two, so that you could check off specific things and then dive deeper and look at the whole issue holistically. It was interesting to see how people thought approaching regulation with both tools on hand would really do a better job of helping to protect the public.”
Murray also touched on non-audit services and what’s happening with the audit firms. A big concern in the industry now is the affect of low-cost, or zero-profit, audits where firms bid on them just to get the job with no expectation of profit.
“Many people think that impairs independence and Murray agreed that could be an issue,” Biek explains. “He also said the risk involved with these large, public-company audits is rather immense, and in order to dilute the risk associated with a failed audit firms could look at it like an investment portfolio. The big audit firms want to continue this high-risk activity, but they need to distribute that risk over their entire portfolio of business. How can they do this and best manage a viable business model?”
PCAOB questions value of standard audit report
PCAOB Board Member Dan Goelzer reported on whether or not audit reports are adding value. The focus of his remarks was whether or not users of the standard audit model are getting something out of that service, Biek says.
“He discussed a few proposals being considered by the PCAOB and talked about the next few months, about international efforts and their efforts to work with international inspectors to strengthen their program,” she says. “The PCAOB doesn’t want to have to do all the inspections, but wants to rely on the inspection work of other regulators, do a joint inspection or just sign off on the part that the international inspector has done.”
In her presentation, Cindy Forelli, Executive Director of the Center for Audit Quality, said they are mainly pushing for more corporate governance to strengthen the audit committee.
Another interesting international perspective came from the ICAEW’s Robert Hodgkinson, who discussed the Audit Quality Forum’s recently released report on international consistency.
“It was a very meaty report,” Biek says. “He went through it at a high level and noted that their research turned up inconsistencies within the activities of firms within the United States, like how the Detroit office of a firm might handle a situation differently from the Los Angeles office. The point of the forum was that if inconsistencies are within the same countries and firms, how are we going to get to international consistency? We have different cultures, regulatory models, legal models. . .things that contribute to inconsistency.”
Hodgkinson said the report is really meant as a conversational starting point, “They wanted to identify the issue in such a way that the international business community could dive more deeply into the areas and explore how to solve the problems,” Biek says.
“I would like to see what NASBA and our other international colleagues could do on this front,” she adds. “I want to look into these things, and see what we can do as regulatory bodies to help move international consistency forward.”
Other highlights included a thought-provoking report on international privacy from Nair & Co.’s Stuart Buglass, as well as two updates on international education from professor Gert Karreman and Dennis Reigle, Special Projects Business Advisor of the IAESB. Bill Sheridan, MACPA, stretched the limits of the mind by sharing his expertise on avatars and other advancements in learning.
“It was an action-packed two days,” Biek says, adding that next year’s forum will likely capitalize on the increasing attendance from Mexico and nations from Central and South America.
“That may be where we need to gear our efforts,” she says. “We need to do more with those regions, because they have growing economies, but lack the regulatory structures needed to really support a lot of activity in those economies. Next year, we might target those groups and move the event to Washington so we can bring in some congressmen and also some attendees from the World Bank and other governmental entities with an international reach.”
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