Are International Auditing Standards Ready to Replace U.S. GAAS?

Article excerpt

The best kept secret in North America

In Brief

Is the World Ready for GALAS?

Generally accepted international accounting principles (GAIAP) may soon be the standards of choice in financial statements used for global securities markets. But what about generally accepted international auditing standards?

Are they of high quality, and is there a system of self-regulation to protect the public?

The CPA journal and members of its Editorial Board met with IFAC's technical director to find out.

The International Federation of Accountants (IFAC) has a vision of a high-quality, transparent global f nancial reporting system supporting the free flow of capital throughout the world. Financial statements would be prepared in accordance with international accounting standards and audited in accordance with international auditing standards.

The first part of the vision, financial statements prepared in accordance with international accounting standards, may not be that far off. The International Organization of Securities Commissions (IOSCO), of which the SEC is a member, is currently evaluating the core set of international accounting standards developed by the International Accounting Standards Committee (IASC) for acceptability in cross-border filings. The SEC is making its own review and recently issued a concepts release asking about the experiences users have had with international accounting standards, whether they can be interpreted rigorously, and whether there is an appropriate financial reporting infrastructure within which credible financial statements are transmitted.

In the SEC's view, this infrastructure would include

effective, independent, and high-quality accounting and auditing standards setters;

high-quality auditing standards;

effective quality controls at audit firms worldwide;

profession-wide quality assurance; and

active regulatory oversight.

The concepts release appropriately explains at great length the current status of international accounting standards setting and the work and recent restructuring of IASC. But the second part of the IFAC vision, audits conducted in accordance with international auditing standards, may be farther away. Although the SEC concepts release identifies the need for high-quality auditing standards, it makes no mention of international auditing standards or the International Auditing Practices Committee (IAPC).

IAPC As described in an October 1999 CPA Journal article by IAPC Chair Robert S. Roussey, IAPC is the international equivalent of the Auditing Standards Board. International auditing standards, not unlike international accounting standards, have been evolving from guidelines for harmonization of national standards to true standards. Roussey also described IAPC's relationship to IFAC, which has the objective of incorporating international auditing standards into a total financial reporting system that includes ethical conduct, corporate governance, high-quality accounting standards, and effective self regulation and governmental regulation.

IAPC is appointed by the IFAC Council, the international organization of national accountancy bodies. The AICPA, Institute of Management Accountants, and Institute of Internal Auditors are members of IFAC, which was chartered to develop international auditing standards and best practices. Acceptance of the standards is on a voluntary basis by the national member bodies with the authority to do so.

The Similarities End

Although international accounting standards and international auditing standards have evolved in much the same way, their progress toward becoming the global standards of choice is proceeding at different paces. The global securities markets, led by IOSCO, are pushing international accounting standards into the limelight. But what is the moving force behind the adoption of international auditing standards over national standards? …