It has taken them five years, but the Monitoring Group has issued their final recommendations to advance the public interest in international audit-related standard-setting and improve audit quality. Their 27-page report “Strengthening the International Audit and Ethics Standard-Setting System” was released in July. The members of the Monitoring Group (MG) are the: Basel Committee on Banking Supervision, European Commission, Financial Stability Board, International Association of Insurance Supervisors, International Forum of Independent Audit Regulators, International Organization of Securities Commissions, and World Bank Group. Their recommendations modify existing bodies, decrease the number of audit practitioners on the standard-setting boards and lessen dependence on the accounting profession for financial support.

The MG recommends the appointment of one board of 16 remunerated members to be responsible for setting audit, review, assurance and quality control standards. A second board of the same size would be responsible for international ethics standards setting for professional accountants, including auditor independence requirements. Each of these boards would be limited to five audit practitioners. Also, each of these boards would have their own expanded and enhanced technical staff, which would “remove the reliance on technical advisors that exists today.” Overseeing the standard-setting process to ensure that international audit-related standards are responsive to the public interest would be the Public Interest Oversight Board (PIOB) of “ten objective and gender diverse members.” Then periodically the Monitoring Group will review the effectiveness of the system as a whole, no later than five years after the implementation of its recommendations.

“Funding commitments should foster the independence and continuity of the standard-setting activities,” the MG maintains. They are seeking a “diversification of contributions” to come from regulators, investors and other users of financial statements as well as the accounting profession. During the transition process an estimate of the funds required for implementing the recommendations will be developed. The goal for funding the PIOB is to have at least half of the budget for its activities coming from contributions of those outside the accounting profession and to achieve that goal by July 2022.

Included in the report is the “Public Interest Framework for the Development of International Audit-Related Standards,” which sets out considerations the standard-setting boards need to bear in mind when developing standards. The Framework “focuses primarily on the interests of users [of financial statements], and more specifically the longer-term interests of creditors and investors and the protection of those interests.”
A transition plan is to be developed by April 2021 and its complete implementation is to be within three years after that. The existing international standards for audits and assurance-based engagements will be the starting points for the boards, but the MG maintains “a new model that is better resourced to bring revised standards to market more quickly, and better respond to the increasingly complex needs of audits will deliver a further benefit.”

With the MG’s recommendations’ release, the leaders of the International Federation of Accountants (IFAC) sent out a statement: “IAASB and IESBA will continue to exist as separate, independent boards with their current mandates, and they will remain in New York City. The boards will be housed in a legal entity independent from IFAC, but we will continue to provide, as we do now, operational and administrative support. This support will be provided through a Service Level Agreement.” As for the funding model for the new standard-setting boards, “…there has been no progress thus far in securing new sources of funding from outside the profession,” the IFAC leaders report. They point out: “We have repeatedly made our position clear that no amount of PIOB funding should come from the profession, and that there needs to be a more diverse model for funding the boards’ activities.”

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