Origins of the PIOB
The PIOB was created in 2005 after a series of high-profile corporate scandals undermined the public´s confidence in the credibility of independent audit opinions. The quality and integrity of financial information was proven key to market confidence and financial stability, and the crisis underscored the need for high quality and broadly applicable international accounting and audit standards that would work towards strengthening and bringing consistency to financial reporting around the world.
The corporate scandals at the turn of the 21th century, including the Enron and WorldCom episodes in the US, and the collapse of Parlamat in Europe, were widely perceived as audit failures. These audit failures brought about a lack of trust in the information underpinning the workings of stock exchanges around the world and contributed to the financial instability of the early 2000s. International regulators and other entities, including the International Organization of Securities Commissions, the World Bank, the Basel Committee on Banking Supervision, and the International Association of Insurance Supervisors, responded to the crisis by calling for measures that would effectively address concerns about the audit process and the conduct and competence of audit practitioners. The European Commission and the International Forum of Independent Audit Regulators joined the MG as permanent members at a later stage.
The accuracy, integrity, comparability and public interest focus of financial accounts were seen as key to reestablishing a stable and international financial system.
The IFAC Reform
In response to the crisis, the international regulators and the International Federation of Accountants agreed in 2003 on a blueprint for reform of the IFAC’s standard-setting and compliance activities that was designed to manage the inherent conflict of interest caused by the profession setting its own rules. The aim of the reform was to enhance the quality of the standards governing the audit profession, improve the process by which they were formulated and reinforce the IFAC’s commitment to serving the public interest, with a view to restoring the confidence of investors. The architects of the IFAC reform believed these objectives could best be met by instilling greater rigor, transparency and accountability into the standard-setting process, while making the standard setting Boards operating with the support of the IFAC accountable to an independent body that ensured they served the public interest. Thus the two basic pillars upon which the reform was implemented were:
• The IFAC would continue to assume responsibility for promulgating standards for auditing and assurance engagements and for the education and ethical conduct of accounting professionals. This role would be conditional on the reform of the governance, composition and operation of the IFAC standard-setting boards for these three activities.
• A new body, independent of the audit profession, would be created (the PIOB), to oversee the governance and activities of each standard-setting body.
The standards that emerged from this process would enhance the quality of the independent audit and improve the competence of audit practitioners. High-quality international standards developed on a collaborative basis and with a clear focus on the public interest were seen as having a greater likelihood of being accepted and implemented around the world.
Under the reform program, the standard-setting boards operating with the support of the IFAC underwent sweeping changes in composition and due process, the Consultative Advisory Groups were strengthened and the IFAC enhanced its public interest agenda. The body of international standards of audit (ISAs) also underwent renovation; in February 2009, the IAASB completed the Clarity project for audit standards aimed at clarifying their intent, improving their comprehensibility, and facilitating their translation. The Code of Ethics for Professional Accountants, which includes independence requirements for auditors, also was redrafted and partially revised in June 2009.
Audit and the Current Financial Crisis
The current economic and financial crisis has highlighted the need for greater financial transparency, improved regulation of excessive risk-taking and closer supervision of the increasingly interdependent and global markets. The IFAC’s newly revised standards under the Clarity project were completed just in time to play a role in this new governance of financial markets.
Completed in February 2009 under the oversight of the PIOB, the Clarity project succeeded at clarifying the intent, updating and increasing the comprehensibility of the International Standards on Auditing (ISAs), paving the way for their adoption by national jurisdictions around the world.
Since then the IAASB has continued to develop projects and standards, chiefly amongst which is the project on the new Auditor´s Report, which has involved changes to several ISAs and was approved in Decemeber 2014. The IESBA has continued to revise important sections of the Code of Ethics for Professional Accountants, its project on the auditor´s responsibility in dealing with non-compliance with laws and regulations (NOCLAR) deserving a special mention. And the IAESB has finalized in 2014 its review of the complete suite of education standards. Convergence among countries to an agreed set of credible international standards will contribute to the development of consistent and comparable audited financial statements and thus support the stability of the international financial system.