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09/09/2016

ETHICS AND STANDARDS

MARKET INTEGRITY AND ADVOCACY

The Future of Audit

By Matt Waldron

CFA Institute works closely with the International Auditing and Assurance Standards Board (IAASB) to influence
the direction of new and revised audit and assurance standards for the benefit of investors.
I had the opportunity to talk with IAASB Chairman Arnold
Schilder recently about his views on the future of audit and
its impact for investors. In this exclusive interview, he shares
why audit quality is vital to enhancing financial stability by
increasing public confidence in financial reporting.

What are the IAASBs responsibilities?

The IAASB is responsible for global audit and assurance
standard setting. Thats what we do, and we are passionate about it. Robust audit and assurance standards are fundamental to the way modern societies work. They enhance
credibility and trust in a societys external reporting. This
is undertaken in the interests of the public at large. It runs
from the core financial statements right through to elements
of sustainability, ethics, and integrity. High-quality external reporting, in turn, contributes to the stability of companies and economies. That, in the end, is what we are working for. We call this the public interest.

How does the IAASBs work serve investors?

auditing standards or the process [used] to set them inhibit

innovation or stifle the potential best practices of the future.

The IAASBs comment period for the paper Enhancing

Audit Quality in the Public Interest: A Focus on Quality
Control, Group Audits and Professional Skepticism
closed recently, with over 80 response letters received.
What sort of feedback have you seen, particularly from
the investor community?
We were pleased to hear from CFA Institute and other
organizations representing investors, both through written responses and in our extensive outreach. We are still in
the process of analyzing the responses, but so far the key
investor messages are [five themes]. First, we need to keep
abreast of emerging issues (e.g., technology, increasing business complexity, and risk), ensuring the ISAs remain relevant and allowing the audit to evolve alongside changes to
financial and non-financial reporting. Second, issues around
audit firms remuneration and independence (e.g., in relation to non-audit services) need to be addressed. Third, audit
teams need to have the time, seniority, and skills to probe
for issues and an audit fee that allows this. Fourth, more
transparency would be welcome, such as further exploring
transparency reporting by firms, continuing to think about
ways to enhance auditor reporting (including such topics
as materiality, other auditors, changes in audit scope in the
auditors report, and tenure), and the International Forum
of Independent Audit Regulators and its members making
more details of inspection findings available. Fifth, the
role of the auditor with environmental, social, and corporate governance reporting should continue to be explored.

Financial information must be relevant, timely, and reliable

to meet the needs of users. Users of audited financial statements must have confidence that the auditor has worked to
a suitable standard and that a quality audit has been performed. But users cannot often directly evaluate audit quality.
So they look to [three other indicators]: the auditors opinion
and other elements of the auditors report (such as the key
audit matters, a section that will be an important element
in future audit reports); external oversight bodies and their What lies ahead for the IAASB and its coordination
reports on inspection findings, both at a global level and on with various stakeholders?
individual audit firms; and other important elements of the We are about to embark on standard setting that involves
financial reporting supply chain, like the involvement of the addressing fundamental elements of the audit. This covers
audit committee and transparency reports.
the topics explored in the invitation to comment but also
To enhance credibility and trust, we are committed to auditing accounting estimates (including fair-value measureadvancing audit quality worldwide. This commitment results ments) and the auditors risk assessment. We are continuin us developing standards that both protect the interests ally focused on engaging our stakeholders, especially invesof those who rely on audits, assurance, and other services tors in dialogue about public interest matters. Their expecand are practicable for those who must implement them. tation is that we use our voice and our robust due process
Therefore, our most important strategic objective is to to develop globally relevant solutions in coordination with
ensure that our standards, the International Standards on others, such as national regulators like the Public Company
Auditing (ISAs), continue to form the
Accounting Oversight Board (PCAOB).
basis for high-quality, relevant audits
There are many topics of mutual interKEEP GOING
conducted worldwide. We do this by
est for the benefit of investors.
responding on a timely basis to issues
Comment letter to the IAASB from
Matt Waldron is a director of financial reportCFA Institute: http://bit.ly/25W75G9
noted in practice and emerging developing policy at CFA Institute.
ments. At the same time, we cannot let
September 2016 CFA Institute Magazine 55