Magazine article Strategic Finance

Corporate Scandals Bring More Rules Changes

Magazine article Strategic Finance

Corporate Scandals Bring More Rules Changes

Article excerpt

The continuing corporate accounting and auditing scandals have encouraged standards setters and other rules-making bodies to reevaluate some of their current requirements and propose some new ones. The International Auditing and Assurance Standards Board (IAASB) and the Securities & Exchange Commission (SEC) are two of the latest to make some changes.

IAASB Recommends Enhanced Auditor Requirements

The IAASB of the International Federation of Accountants (IFAC) has released an exposure draft that revises its current auditing standard regarding related parties. The proposed International Standard on Auditing (ISA) 550 (Revised), "Related Parties," would require an auditor "to obtain sufficient appropriate audit evidence about the accounting for, and disclosure of, related party relationships and transactions in the financial statements."

In addition to performing current specified procedures, the auditor would have to gain enough of an understanding of the nature and business rationale of an entity's related party relationships and transactions to be able to "identify, assess, and respond to the risks of material misstatements resulting from them." The IAASB also says the auditor would have to attempt to identify related party transactions and relationships that aren't identified or disclosed by management.

These new rules have come about because of the involvement of related parties such as directors, owners, and management in the continuing major corporate scandals and because the original ISA concentrates mainly on procedures and doesn't discuss the risks of material misstatements, the Board says.

You can view the exposure draft at www.ifac.org/EDs and then submit comments to EDComments@ifac.org by April 30, 2006. You may also fax comments to the IAASB Technical Director at (212) 286-9570.

SEC Wants to Amend Certain Disclosure Requirements

The SEC voted to publish for comment new rules regarding how public companies compensate their highest-paid executives and directors and additional matters. …

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