In developing the IAASB strategy and work program for 2012-2014, PwC reflected on a number of factors that the Firm believes need to be considered beyond the relative priorities of possible projects alone. A number of developments and events will have a direct bearing on the expectations of stakeholders of the IAASB's activities and the respective priorities of both ongoing and future projects. PwC believes the IAASB will need to be suitably flexible as the outcome of some of these factors is not yet determined and, once known, may impact decisions on which, and how many, projects should be undertaken.
For the attention of Mr James Gunn
International Auditing and Assurance Standards Board
545 Fifth Avenue, 14th Floor
New York, New York, 10017
31 March 2011
IAASB Consultation Paper – Proposed IAASB Strategy and Work Program for 2012-2014
We appreciate the opportunity to comment on the IAASB’s proposed strategy and work program for 2012-2014.
Following extensive consultation with members of the PwC network of firms, this response summarises the views of member firms who commented on this Consultation Paper. “PwC” refers to the network of member firms of PricewaterhouseCoopers International Limited, each of which is a separate and independent legal entity.
In developing the IAASB strategy and work program for 2012-2014, we reflected on a number of factors that we believe need to be considered beyond the relative priorities of possible projects alone. A number of developments and events will have a direct bearing on the expectations of stakeholders of the IAASB’s activities and the respective priorities of both ongoing and future projects. The IAASB will need to be suitably flexible as the outcome of some of these factors is not yet determined and, once known, may impact decisions on which, and how many, projects should be undertaken. In our view, the most significant of these factors are those which we describe below.
Breadth of the IAASB’s mandate
One of the challenges in determining the strategy and work program for 2012-2014 is that it needs to be responsive to, and reflect, needs across the breadth of the role that the IAASB and its pronouncements play:
The nature and extent of the projects currently in progress and being contemplated by the IAASB in the proposed strategic work program reflect the growing expectations for developments in most of these areas. Difficult choices will need to be made in allocating resources to competing priorities.
Responding to recommendations arising from the financial crisis
The IAASB’s priorities will also, inevitably, be influenced by the intense debate currently taking place in many jurisdictions as a result of the financial crisis. Inquiries in a number of jurisdictions may well call for changes in the scope of the audit and/or in the communications arising from the outcome of an audit. This heightened scrutiny, and the likely potential calls for change, brings into sharp focus the challenges the IAASB will face in assigning priorities.
ISA Implementation Monitoring
With many jurisdictions having recently implemented the Clarity ISAs, and other jurisdictions in the process of adoption, the IAASB may face demands over the next few years to provide support in various ways:
If the IAASB is unable to respond sufficiently quickly to meet these sorts of needs, there is a risk that national standard setters and regulators will feel compelled to develop their own solutions, which may then be difficult to later reconcile to retain global consistency.
Implications of the above factors
In our view, the three areas of strategic focus remain appropriate. However, to retain relevance and the ability to influence international broad direction, the IAASB will need to be prepared to react, quickly and positively, to these various trends and demands. We believe this has the following implications for the IAASB’s strategic plan and project priorities for 2012-2104:
A further overall consideration is the IAASB’s capacity. The draft strategy and work program has been developed on the presumption that the constitution, operating model and resources of the IAASB will remain the same. That may not be a realistic assumption. If, as a result of this consultation, the IAASB determines that the current and expected demands on the IAASB are not achievable under the status quo, it may be necessary to challenge that presumption and consider ways to expand capacity to meet those demands. We are also aware that the IAASB has received recommendations from the Monitoring Group on changes that could have a significant impact on the IAASB’s operating and staff model, including disruption that would inevitably be encountered during transition if significant changes are made. For both of these reasons, we recommend additional analysis, consideration of additional capacity, and an element of contingency planning be considered, but would not expect this to be reflected in the final published strategy and work program.
Furthermore, recognising that the scope of activities being undertaken by the Board is expanding, particularly into new areas of non-audit assurance, it is particularly important that sufficient subject matter expertise is brought to bear on the IAASB’s project development process and on relevant task forces.
Views on priorities
In our view, it is critical that the IAASB is able to respond quickly and effectively to the current debates impacting the auditing profession. We believe that the following topics, some of which are either current or proposed projects in the IAASB’s consultation proposals, are likely to be those most helpful in contributing to this debate:
We note that many of the projects already included in the list of ‘A’ projects are responsive to these issues and we strongly support the IAASB in completing its current agenda.
We also strongly support project B.1 (projects to respond to findings of the ISA Implementation Monitoring project) and project B.4 (identifying implementation challenges and developing materials aimed at addressing those challenges) and believe that they should be the IAASB’s top priorities in the coming work program period.
Our detailed comments in response to the specific questions raised in the exposure draft are set out below and explain further our views on how some aspects of the proposed content could be improved. We encourage the IAASB to address these comments in finalising the proposed strategy and work program.
Request for specific comments
1. Whether the IAASB’s three areas of strategic focus noted in paragraphs 7–11 remain appropriate.
As noted in our overall comments, we broadly support the continued areas of strategic focus. We believe these have the following relative priorities:
2. Whether the list of anticipated projects likely to commence in 2012–2014 (Column B) adequately address issues currently facing the accounting and auditing professions?
Please refer to our ‘overall comments’ to this letter. In addition to projects B.1 and B.4, which we believe to be the highest priority for the IAASB, we also agree that the remainder of the ‘Column B’ projects are worth pursuing and address issues relevant to the market and the profession. We suggest the following priority for these remaining projects:
3. Which of the suggestions [in column C], if any, should be considered for inclusion on the future work program, how these should be prioritised, and whether any particular project(s) would not be supported?
We feel that there is demand in the market for a standard to address assurance on sustainability (project C.4), particularly given the current exposure draft on ISAE 3410‘Greenhouse Gas Statements’.
We also support the development of a separate standard to address preliminary announcements (project C.2). There is a body of evidence that supports the view that investors place great importance on preliminary announcements and that it is these documents, perhaps more than the audited financial statements, which drive investment decisions. Clearly defining the auditors’ responsibility and work effort in relation to preliminary announcements would therefore add value for these stakeholders. We do, however, acknowledge that achieving global consistency in this area may prove difficult due to legal and/or regulatory requirements in several jurisdictions.
With regard to the relative priority of remaining ‘Column C’ projects, matters relating to corporate governance and integrated reporting are worthy of further consideration. However, recognising that practice in these areas is still developing in a number of jurisdictions, it is perhaps premature at this stage to consider promotion of specific projects in these areas. We nevertheless encourage the IAASB to monitor developments and use this to inform consideration of the most appropriate time to develop a standard, or standards, in these areas.
We find the description of project B.3 to be unclear as to whether a determination on whether to revise or withdraw ISAE 3400 is: i) purely a ‘decision’ process; or ii) would result in a project to revise the standard (assuming the decision was in favour of revision) within the proposed work program period. We assume the latter.
We believe there is merit in considering whether the proposals outlined in project B.6 on developing a publication(s) explaining the benefits of adopting the IAASB ISAs (and other standards) could effectively be consolidated into project A.10 on the meaning of an audit.
We note the proposed project (C.1. to consider revision of IAPS 1004‘The relationship between banking supervisors and banks external auditors’and IAPS 1006‘Audits of the financial statements of banks’. We acknowledge the current relevance of such a project, however question whether the IAASB is best placed to drive forward revised guidance. We believe that other external bodies are likely to take the lead in developments in this area e.g., the Basel Committee.
With the ongoing attempts by the IASB and FASB to achieve convergence between International Financial Reporting Standards (IFRS) and US GAAP, questions frequently arise about whether convergence of the PCAOB’s and the IAASB’s auditing standards is equally important. In setting the work program for 2012-2014, we suggest that this may be an appropriate opportunity to re-assess whether this should be a longer term objective for the IAASB, in conjunction with outreach activities with the PCAOB.
We would be happy to discuss our views further with you. If you have any questions regarding this letter, please contact Deian Tecwyn (+44 207 212 3695) or Jamie Shannon (+44 141 355 4225).