International Federation of Accountants International Standard Setting Meeting the Challenges of the Modern World Alta Prinsloo, IAASB Deputy Director September 12, 2007

A Time to Celebrate 30 years since the establishment of IFAC30 years since the establishment of IFAC 20 years since the establishment of the first audit firm in Russia20 years since the establishment of the first audit firm in Russia 5 years since the establishment of the Audit Council in Russia5 years since the establishment of the Audit Council in Russia

International Federation of Accountants (IFAC)International Federation of Accountants (IFAC) –Reformed to meet the challenges of the modern world –Important contributor to international standard setting International convergenceInternational convergence High standards of ethicsHigh standards of ethics High-quality auditing standardsHigh-quality auditing standards Agenda

Expanding organization of 155 members and associates in 118 countriesExpanding organization of 155 members and associates in 118 countries Represents 2.5 million accountants in public practice, education, government service, industry and commerceRepresents 2.5 million accountants in public practice, education, government service, industry and commerce Promotes high-quality performance by professional accountants through Member Body Compliance ProgramPromotes high-quality performance by professional accountants through Member Body Compliance Program Provides for public interest input and has public oversightProvides for public interest input and has public oversight IFAC Today About IFAC About IFAC

IFAC’s Mission To serve the public interest, IFAC will continue to strengthen the worldwide accountancy profession and contribute to the development of strong international economies by …To serve the public interest, IFAC will continue to strengthen the worldwide accountancy profession and contribute to the development of strong international economies by … About IFAC About IFAC

IFAC’s Mission (Continued) Establishing and promoting adherence to high- quality professional standardsEstablishing and promoting adherence to high- quality professional standards Furthering the international convergence of such standardsFurthering the international convergence of such standards Speaking out on public interest issues where the profession’s voice is most relevantSpeaking out on public interest issues where the profession’s voice is most relevant About IFAC About IFAC

IFAC Standard-Setting Boards International Accounting Education Standards Board (IAESB)International Accounting Education Standards Board (IAESB) International Auditing and Assurance Standards Board (IAASB)International Auditing and Assurance Standards Board (IAASB) International Ethics Standards Board for Accountants (IESBA)International Ethics Standards Board for Accountants (IESBA) International Public Sector Accounting Standards Board (IPSASB)International Public Sector Accounting Standards Board (IPSASB) About IFAC

IFAC Committees Professional Accountants in Business CommitteeProfessional Accountants in Business Committee Small and Medium Practices CommitteeSmall and Medium Practices Committee Developing Nations CommitteeDeveloping Nations Committee Transnational Auditors CommitteeTransnational Auditors Committee About IFAC

Features of IFAC Standard-Setting Independent boards with balanced membershipIndependent boards with balanced membership TransparencyTransparency –Meetings are open to the public –Website ( Agenda material and recordings of IAASB meetingsAgenda material and recordings of IAASB meetings Exposure drafts and final pronouncementsExposure drafts and final pronouncements Consultative advisory groupsConsultative advisory groups Rigorous due process that provides for extensive consultationRigorous due process that provides for extensive consultation Public interest oversightPublic interest oversight About IFAC

Public Interest Oversight Public Interest Oversight Board (PIOB) established in February 2005Public Interest Oversight Board (PIOB) established in February 2005 As part of IFAC reforms toAs part of IFAC reforms to –Strengthen standard-setting processes of standard- setting boards –Enhance transparency of those processes –Provide for public interest oversight –Continue collaboration between profession and regulators Responsible to the public, not IFACResponsible to the public, not IFAC About IFAC

KEY ACCOUNTABILITY OVERSIGHT CONSULTATION/ADVICE Oversight & Consultation IFAC Oversight & Consultation

Why is Convergence Important? International convergenceInternational convergence –Enhances credibility of national standards –Increases comparability of auditors’ reports –Leads to more efficient capital markets –Reduces costs for those who need and use financial statement information –Minimizes complexity when reporting in multiple jurisdictions Convergence

Why IFAC Standards for Convergence? Robust structure and rigorous due process renders high-quality standardsRobust structure and rigorous due process renders high-quality standards –Global benchmark –Wide acceptance Convergence

Support for ISAs Financial Stability ForumFinancial Stability Forum –12 Key Standards for Sound Financial Systems World Federation of ExchangesWorld Federation of Exchanges –Issued statement of support EuropeEurope –European Commission (EC) 8 th Directive envisages use of ISAs for statutory audits in the European Union (EU) –Directive to be implemented by 2008; timing of ISA adoption yet to be determined Convergence

Support for ISAs (Continued) US listed companiesUS listed companies –Public Company Accounting Oversight Board (PCAOB) –Except for reporting on internal control, priorities similar to past and current IAASB topics US unlisted companiesUS unlisted companies –Auditing Standards Board (ASB) –De facto move to ISAs 100+ countries use, rely or compare to ISAs100+ countries use, rely or compare to ISAs Convergence

Challenges Cultural differencesCultural differences Philosophical differencesPhilosophical differences Applicability of standards to all types and sizes of entity by all sizes of audit firmApplicability of standards to all types and sizes of entity by all sizes of audit firm TranslationTranslation Training and educationTraining and education ImplementationImplementation Frequency and complexity of changesFrequency and complexity of changes Monitoring and enforcementMonitoring and enforcement Convergence

Assisting with Convergence Multilingual communication in five United Nations languages, including RussianMultilingual communication in five United Nations languages, including Russian Publications and other up-to-date information available free of charge on IFAC website ( and other up-to-date information available free of charge on IFAC website ( Permission to reproduce / translate and reproduce publications free of chargePermission to reproduce / translate and reproduce publications free of charge –Permissions policy Convergence

Assisting with Convergence (Continued) Facilitation of convergenceFacilitation of convergence –Guidance for national standard setters that adopt the IAASB’s pronouncements with limited modifications –Basis for conclusions issued with new pronouncements Facilitation of translationsFacilitation of translations –Translations policy –Information about translations to be published on website during fall 2007 Convergence

Assisting with Convergence (Continued) ToolkitsToolkits –Establishing and developing a professional accountancy body –Ethics education Visits, presentations, forums, surveys, etc.Visits, presentations, forums, surveys, etc. –IFAC President visited Russia in July 2007 –IFAC to host: SMP Forum in Malta on October 30, 2007SMP Forum in Malta on October 30, 2007 Seminar on “The Financial Reporting Environment of the 21 st Century” in Mexico City on November 14, 2007Seminar on “The Financial Reporting Environment of the 21 st Century” in Mexico City on November 14, 2007 Forum on “Government, the Accountancy Profession, and the Public Trust” in New York City on December 4, 2007Forum on “Government, the Accountancy Profession, and the Public Trust” in New York City on December 4, 2007 –IFAC Global Leadership Survey planned for October/November Convergence

High Ethical Standards Accountancy profession is built on public’s trustAccountancy profession is built on public’s trust Requires commitment to high ethical standards and integrityRequires commitment to high ethical standards and integrity Requires effective codes of conduct for all participants in financial reporting processRequires effective codes of conduct for all participants in financial reporting process Ethics

IFAC Code of Ethics Revised Code effective June 30, 2006Revised Code effective June 30, 2006 Five fundamental principles of professional ethicsFive fundamental principles of professional ethics –Integrity, objectivity, professional competence and due care, confidentiality, and professional behavior Establishes conceptual framework  professional accountants toEstablishes conceptual framework  professional accountants to –Identify threats to fundamental principles –Evaluate significance of threats –If threats other than clearly insignificant, apply safeguards to eliminate threats or reduce them to an acceptable level Ethics

IAASB – Objective Serves the public interest byServes the public interest by –Setting high-quality standards for Quality controlQuality control AuditingAuditing Other assurance engagementsOther assurance engagements Related services engagementsRelated services engagements –Facilitating convergence –Enhancing the quality and uniformity of practice throughout the world –Strengthening public confidence in the global auditing and assurance profession Auditing

Recent Standard-Setting Activities Past few years focused on fundamentalsPast few years focused on fundamentals –Quality control at firm and engagement level –Risk assessment and responses, including fraud –Audit documentation, and auditor reporting Efforts now focused on addressingEfforts now focused on addressing –Audit areas of higher risk (e.g., accounting estimates and fair values, related party transactions) –Specific topics (e.g., audit of group financial statements) Major initiative to improve clarity of ISAsMajor initiative to improve clarity of ISAs Auditing

IAASB Future Strategy Strategy review during 2007Strategy review during 2007 Consultation paper on strategy to be issued in October 2007Consultation paper on strategy to be issued in October 2007 Proposed strategic focusProposed strategic focus –Contributing to the effective operation of the world’s capital markets –Assisting with the implementation of standards –Addressing the needs of SMEs and their auditors Auditing

International Federation of Accountants September 12, 2007