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State Board Report

January 2014

The International Federation of Accountants reports that jurisdictions appear to be moving apart rather than converging in their regulatory arrangements for auditing and auditor independence requirements. While proposed legislation would mandate the use of clarified International Standards on Auditing (ISAs) for statutory audits within the European Union, “some jurisdictions unnecessarily modify standards, choose not to adopt the full set of standards, or introduce revisions to national standards before the International Auditing and Assurance Standards Board has finalized revisions to the relevant ISAs,” IFAC states in a January 7 press release. They report 90 jurisdictions either use or are in the process of adopting or incorporating clarified ISAs.

“IFAC is concerned by the growing divergence and regulatory fragmentation that is occurring and the uncertainty that it creates,” stated IFAC CEO Fayezul Choudhury. “We call on international coordinating organizations and forums – the G-20, IFIAR, IOSCO, FSB – to fully commit to promoting and enacting global regulatory consistency and evidence-based regulatory reform.”

IFAC reports that major jurisdictions are clearly divided in their views on auditor independence. This is evidenced in differing prohibitions on non-audit services as well as requirements for audit firm rotation. IFAC notes for mandatory firm rotation: “Certain jurisdictions with major capital markets activity (e.g., the U.S. and Canada) have considered it, and have clearly rejected it. In contrast, last month the European Parliament announced a series of legislative reforms to auditing, including mandatory audit firm rotation – with the possibility that the rotation period will differ among member states – creating even more divergence. Still other countries have adopted, or are proposing to adopt, some form of mandatory audit firm rotation for a particular segment of the economy – i.e., banks and financial institutions.”

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