The Convergence of International Auditing Standards
The explosive growth of investing and raising capital in the global markets has put new emphasis on the development of international accounting, auditing, and ethical standards. The worldwide accountancy profession, together with preparers, users, regulators, and other bodies, have been exerting great effort in the development of high-quality standards that can be implemented in the global as well as the domestic capital markets. The harmonization of these standards is receiving greater and greater attention by the participants in these markets.
International standards on auditing are promulgated by the International Auditing Practices Committee (IAPC) of the International Federation of Accountants. A codified core set of international standards on auditing were completed and released in 1994. The release of the core set has led to a growing acceptance of the standards by national standards setters and auditors involved in global reporting and cross-border financing transactions. In addition, the growth of assurance services has led to the development of a new framework and a new direction for the work of the IAPC.
The benefits for the use of common global accounting standards by preparers of financial statements and common auditing standards by auditors of those statements have been debated for a number of years. Although the debate continues, there is strong support for the creation of a common set of standards for use in capital markets around the world, particularly for cross-border financing transactions.
Two important sets of standards have emerged as candidates for widespread adoption: the accounting standards being developed by the International Accounting Standards Committee (IASC) and the auditing standards being developed by the International Auditing Practices Committee (IAPC) of the International Federation of Accountants (IFAC).
Many global 1000 companies headquartered outside the United States are preparing their financial statements in accordance with international accounting standards and are having them audited in accordance with the international standards on auditing. These financial statements are being sent around the world to be used by investors and other interested parties, and for capital formation.
With various developments under way in the move toward greater harmonization of these standards for global reporting, cross-border financing, and national use, there is no doubt that the number of companies using them will grow from hundreds to thousands.
International standards should be of interest to accounting professionals for a number of reasons, including the following: Americans invest in foreign companies that use these standards. At present, this ownership is more than $500 billion and growing.
Subsidiaries of foreign companies in the United States are using these standards. Foreign companies who start to report on a global basis will ask local management and auditors in the United States, as well as in other countries, to prepare and audit the financial statements using international accounting and auditing standards.
International Standards on Auditing
The International Standards on Auditing (ISA) have come a long way since the start of their development in the late 1970s. They started as guidelines under the harmonization process of IFAC and its member bodies. The AICPA is one of the founding member bodies of IFAC and has participated in its activities since inception. IFAC's main focus is the enhancement and further development of the worldwide accountancy profession through its activities in ethics, education, the public sector, management accountancy, technology, and auditing. The IAPC has been charged with the responsibility to enhance and expand the worldwide use of auditing standards. Its objective is to improve the quality and uniformity of international practice by
issuing international standards on auditing;
issuing guidance on the application of such standards;
promoting the adoption of the committee's pronouncements as the primary source of national standards and as guidance in cross-border offerings;
promoting the endorsement of the standards by legislators and securities exchanges; and
promoting debate with practitioners, users, and regulators throughout the world to identify user needs for new standards and guidance. …