The world’s top securities watchdog has asked stakeholders for feedback on proposals to overhaul the standards setting regime for corporate auditing.
In a new consultation, the International Organization of Securities Commissions (IOSCO) outlines a range of options for enhancing the governance, accountability and oversight of the global audit standard-setting process.
In its current form, the process is overseen by IOSCO’s Monitoring Group (MG) and Public Interest Oversight Board (PIOB).
Originally, it was devised by a coalition of high-profile, global finance bodies, as a response to a number of damaging corporate financial reporting failures in the early to mid-2000s.
In addition to IOSCO, agencies that set up the regime included the Financial Stability Board, World Bank Group and Basel Committee, using governance structures developed by the International Federation of Accountants (IFAC).
IOSCO has proposed the reforms in light of concerns about whether the regime can continue to make credible claims to independence. Questions have also been raised over its responsiveness to the public interest.
As the consultation paper says: “The MG notes that there is a legitimate concern among many stakeholders that the influence of the profession is… perceived to be too strong, and that addressing this issue could further strengthen public confidence.”
Grounds for the perception of undue influence from the profession, the paper explains, are twofold:
“Partly because of such undue influence,” the consultation says, “there is a risk that standards are not developed fully in the public interest.”
Apart from those concerns over influence, stakeholders have also questioned whether the standards as currently framed are agile enough to keep up with an industry in rapid flux.
“The pace of change in audit and the business environment is accelerating,” the consultation notes. “It is essential to ensure that the standards are relevant and up to date, in order to underpin audit quality and user confidence.”
Mindful of those concerns, IOSCO has proposed two alternatives for reforming the audit standard-setting regime – either:
Whatever the case, the consultation strongly recommends that a bedrock of ‘multi-stakeholder representation’ must support the new regime.
The composition of the new oversight structure, it stresses, “should take account of a representative geographic diversity, and a diversity of views to provide differing perspectives of the public interest.”
IOSCO also proposes that responsibility for the nominations process for standard-setting boards should be transferred from IFAC to the PIOB.
MG chair Gerben Everts said: “Removing the audit-related, standard-setting activities from the profession, and entering into a multi-stakeholder, geographically representative and independent governance structure would address concerns vis-á-vis the independence of standard setting.”
Addressing stakeholders directly, he added: “I hope that with your responses to this consultation, we are able to find the right balance.”
The consultation is open until 9 February 2018. Read the full paper here for details of how to provide comments.