The Monitoring Group says its consultation paper, Strengthening the Governance and Oversight of the International Audit-related Standard-setting Boards in the Public Interest, has attracted 179 public comments representing views across a wide range of geographies and stakeholder groups. These have turned to more diverse than anticipated.

Due to the volume and diversity of responses, the International Federation of Accountants (IFAC) commissioned law firm Gibson Dunn to conduct an independent, qualitative and quantitative analysis of the responses, which identified ‘significant criticism’ of the broader governance changes proposed.

These include setting up a single independent board to develop and adopt auditing and assurance standards and ethical standards for auditors to replace the current set-up. Any such board would have a reduced number of board members, down from 18 to 12, who would receive remuneration, unlike the present system where only the chair is paid.

The majority of respondents to the consultation were sceptical about some of the core premises of the consultation paper, and disagreed with the assertion that significant changes are required by roughly a two-to-one margin. 

According to the large majority of commenters, the current standard‐setting model has produced high quality standards that have gained widespread acceptance.

Respondents also took issue with the claimed perception of undue influence by the accounting profession over the standard-setting process, and claimed that there is no evidence that current standards are not developed in the public interest. 

A majority also expressed disagreement with the consultation paper’s public‐interest framework. The most common concern centred on the fact that the consultation paper did not define its concept of the ‘public interest’,making it difficult to assess the foundation for the Monitoring Group’s proposed changes to the current structure. 

In addition, there was widespread disagreement with the proposal to create a single board responsible for setting both audit standards and ethics standards for auditors. The analysis of respondents found that ‘well over’ a majority of comments addressing that topic area opposed the proposal withoutreservation.

The majority of comments also opposed the proposed switch to a simple‐majority voting rule, the proposed expansion of the Public Interest Oversight Board’s (PIOB’s) role, and proposed changes regarding the standard‐setting boards’ sources of funding.

Specific recommendations

However, a number of the specific, operational recommendations in the consultation paper were viewed favourably by a sizeable majority.

For example, a vast majority of the comments agreed with the Monitoring Group’s suggestions to remunerate the members of standard‐setting boards. Respondents argued this would help attract high quality candidates, and also support diverse board membership.Respondents also broadly supported the proposal to help ensure that the standard‐setting boards have a more strategic focus, saying this would allow standard‐setting boards to facilitate effective development work, as well as deal with key issues, decision‐making, and planning.

Several commenters expressed support for a multi‐stakeholder solution with respect to the composition of the standard‐setting boards and the PIOB, although multiple commenters expressed a view that the influence of audit professionals in both the PIOB and the technical staff hired to support the standard‐setting boards should be limited.

Commenters did emphasize, however, the PIOB members should have at least basic knowledge about auditing, even if they were not former audit professionals.  There also was widespread support for continuing PIOB oversight of standard‐setting boards covering all accountants, rather than limiting its focus to only assurance standards and ethical standards for auditors.  Many commenters focused on the importance of hiring technical professional staff to support the standard‐setting boards but questioned the available funding for additional staff positions.  Other topic areas received mixed responses from commenters.For example, although a substantial number of commenters supported the suggestion to have a more open nominations process for selecting members of standard‐setting boards, a majority did not agree with the proposal to have this process controlled by the PIOB.  

Looking ahead to what should happen next, the vast majority of commenters supported further rounds of comment and engagement with the stakeholders before undertaking significant or major reforms, even if they were generally supportive of the Monitoring Group’s proposed reforms.

Two areas which were highlighted for more consideration were that the Monitoring Group should provide more details and clarification on its proposed funding scheme; and that the continuing process should focus in particular on developing a clear public‐interest framework for evaluating changes to the current standard‐setting process.

Gibson Dunn concluded: ‘In summary, the overwhelming consensus among the commenters was that the Monitoring Group should carefully consider the implications—including the risks, costs, and benefits—of its proposals,move slowly, and engage with all stakeholders to develop a clear public‐interest framework and to use that framework to carefully consider any further changes to the standard‐setting process.’

Writing in his blog Michael Izza, ICAEW chief executive, said: ‘Respondents, including ourselves, questioned not just how best to serve the public interest, but whether the Monitoring Group has got it right in its definitions, or whether it is even looking at the right things to change.

‘It was vital that this analysis be done; we will get nowhere without directly engaging the stakeholders we wish to serve. The next set of proposals need to reflect this thinking, and they will be all the better for it.’

Gibson Dunn’s summary of responses to the Monitoring Group proposals

Report by Pat Sweet