GLOBAL AUDIT PROFESSION

Global audit profession

Global audit profession

The contemporary development of international audit regulation is connected to the growing significance of international investors who demand financial reports that are prepared and audited in accordance with globally accepted international standards. International Standards on Auditing (ISAs) are set by the International Auditing and Assurance Standards Board (IAASB), an independent standard-setting board working within the International Federation of Accountants (IFAC) and subject to public oversight by international regulators. ISAs have been adopted in more than 100 countries, but their practical impact depends centrally on how they are implemented and enforced. In recent years, there has been a greater emphasis on such issues.

Introduction

The development of international audit regulation is closely linked to the development of international accounting regulation. Both have been significantly associated with the globalization of capital markets and growth in importance of international investors. Such investors expect the financial reports of the companies they are investing in to be fair and reliable, with auditors playing a critical role—famously categorized by Paul Volcker in 2002—as the “guardians of truth in markets”.

Audit regulation is centrally concerned with the issue of ensuring that auditors are competent and independent. These attributes ensure that auditors are capable of both detecting significant errors and omissions in financial status (competent), and faithfully reporting these to investors/stakeholders in the enterprise (independent).

Broadly defined, audit regulation has the same four basic elements of any regulatory system—namely a concern and involvement with the setting, adoption, and implementation of standards and, through monitoring and enforcement processes, ensuring that such standards are applied in practice.

Following this introductory section, the chapter reviews the setting of international auditing standards (ISAs). This includes the role of international regulatory bodies in supporting this process, and the demands they have made of the standard-setting body and the international accounting profession more generally. In the third section, issues of compliance and oversight are discussed, including recent developments in international coordination through the International Forum for Independent Audit Regulators (IFIAR). The fourth section examines the role of the big audit firms in international audit regulation, and the final section presents conclusions and some thoughts for the future.

Setting Global Standards

International Standards for Auditing (ISAs) are set by the International Auditing and Assurance Standards Board (IAASB), which is situated within the International Federation of Accountants (IFAC) —a private organization whose member bodies are the national associations of professional accountants in each country. At April 2009, there were 157 member bodies of IFAC, representing 122 countries and around 2.5 million professional accountants worldwide, with a current operating budget of US$18 million. IFAC recently celebrated its 30th anniversary, having been formed in 1977, four years after the International Accounting Standards Committee (IASC), which was the predecessor of the International Accounting Standards Board (IASB).

The members of the IAASB are a mixture of practicing professional accountants (especially members of the large audit firms) and persons from outside the profession. A number of important global organizations have supported the development and application of ISAs, which are now used in more than ...