IFAC P o l IC y P osI t Io n 3
InternatIonal Standard SettIng In the PublIc IntereSt
This paper outlines the rationale for the regulatory arrangements put in place for setting international standards for auditing and assurance, ethics and accounting education; arrangements in which responsibility is shared between the public sector and the private sector. While the previous IFAC policy position paper on regulation of the accounting profession1 addressed regulatory issues at the national level, the focus of this paper is on standard setting arrangements at the international level. The paper describes the manner in which the current arrangements, a combination of public and private sector roles ,2 provide a standard setting structure and process that operate and are seen to operate in the public interest, in a context in which there are needs for legitimacy, independence, transparency, performance (encompassing technical competence, responsiveness and efficiency) and accountability. It seeks to recognize and address the need for balance in these areas, given that there may be trade-offs that need to be made. It also recognizes the need for the standard setting structures and processes, and the resultant standards, to create the right incentives for effective implementation of the spirit as well as the letter of the standards.
level from regulatory systems in which private sector professional accounting institutions played a dominant role to one in which public sector regulatory organizations played a greater role in both standard setting and oversight. At a national level, the shift from essentially self-regulatory arrangements to arrangements with a significant public sector role was a matter of degree in that, in most jurisdictions, the public sector had played some role prior to the Sarbanes-Oxley Act. Professional institutes in many countries regulated their members under powers conferred by statute and monitored by government departments or agencies. This was the case, for example, in many European countries, in Latin America and Australasia. So even where there was (and in some countries – such as Brazil, India and New Zealand – still is) substantial self-regulation, this was normally subject to statute and to public sector monitoring. While there are differences between the nature of the regulatory systems that operate at a national level and those at an international level, the design of the current standard setting arrangements at the international level was shaped by the nature of the changes at a national level, as described above. Further, in the post-Sarbanes-Oxley Act environment, the enhancement of the role of public sector regulatory bodies was largely, though not exclusively, directed at audit in the context of listed companies and other public interest entities, leaving professional accounting bodies with important self-regulatory authority in other areas. Using the United States as an example, the American Institute of Certified Public Accountants (AICPA) still has authority to set auditing standards for entities other than listed companies and federal agencies. Prior to the Sarbanes-Oxley Act, there were some noteworthy changes to IFAC audit standard setting arrangements during the period 2000-2002. These involved significant enhancements to the transparency of the due process as well as the change of title from the International Auditing Practices Committee (IAPC) to the International Auditing and Assurance Standards Board (IAASB). Similar enhancements were later put in place for the International Ethics Standards Board for Accountants (IESBA) and the International Accounting Education Standards Board (IAESB).
The arrangements for international standard setting described in this paper were designed and implemented in the postSarbanes-Oxley Act3 environment and have been subject to subsequent enhancements. This environment was one in which there was a...