AICPA International Auditing
Standards Subcommittee

Member, International Auditing Standards Committee
William F. Messier, Jr., D.B.A., CPA
Deloitte & Touche Professor
Georgia State University

In December 1997, the Auditing Standards Board (ASB) issued a document titled Horizons for the Auditing Standards Board: Strategic Initiatives Toward the Twenty-First Century. One of the four initiatives included was to “significantly strengthen the ASB’s leadership role in developing international auditing standards and quality control processes that meet the needs of a global marketplace.” The motivation for this initiative can be traced to the International Organization of Securities Commissioners (IOSCO), including the Securities and Exchange Commission (SEC), consideration to accept financial reports prepared in accordance with accounting standards established by the International Accounting Standards Committee, and the International Auditing Practices Committee (IAPC) seeking IOSCO approval of its international auditing standards for use in cross-border filings. The ASB believes that it is important to have a proactive and leadership role in setting international auditing standards.

The ASB established the International Auditing Standards Subcommittee (IAS Subcommittee) to: support the AICPA’s International Strategy Committee; help the ASB and other AICPA committees to develop and implement AICPA international strategies; participate in international standards-setting projects; identify international issues affecting auditing and attestation standards and practices. The IAS Subcommittee held its initial meeting in April 1998, and subsequent committee meetings in May 1998 and October 1998. One of the IAS Subcommittee’s major roles is responding to IAPC’s discussion documents or exposure drafts for International Standards on Auditing (ISAs) and International Auditing Practice Statements (IAPSs). IAPC has a number of projects-in-process that are being addressed by the IAS Subcommittee.

Assurance Services ¹
In August 1997, IAPC issued an exposure draft of a proposed framework and international standard on reporting on the credibility of information. The framework and principles were to provide guidance to auditors on assurance-related services. Based on the comments, and discussion at IAPC’s October 1998 meeting, the original document has been combined into one International Standard on Assurance Services. This standard will be exposed again for further comments.

Communications to Those Charged With Governance
This proposed ISA was issued in August 1998 with a response due date of November 30, 1998. The proposed standard establishes standards and provides guidance on communications arising from the audit of financial statements to those charged with governance of an entity. The IAS Subcommittee has commented on this exposure draft.

Going Concern
An exposure draft of a proposed ISA is currently outstanding. Two issues in the exposure draft appear to be at odds with U.S. standards (SAS No. 59) and are a matter of contention for some IAPC members: the length of the going-concern assessment period and the auditor’s responsibility for a period beyond the assessment period. The exposure draft states that the auditor has a responsibility to consider the same period assessed by management, which is at least, but not limited to, one year from the date of balance sheet. Some parties believe that the assessment period should be one year from the date of the auditor’s report. The exposure draft also states that the auditor has a responsibility to “remain alert” (not well defined) for conditions or events that may occur beyond the assessment period. The IAS Subcommittee has presented comments raising concerns about these two issues.

External Confirmations
In November 1998, an exposure draft on “External Confirmations” was issued with a response due date of March 31, 1999. This exposure draft is reasonably consistent with SAS No. 67 with one significant exception: it eliminates the presumption that trade accounts receivable will be confirmed. An earlier version of this document also failed to include such a presumption and the Subcommittee commented to IAPC on that issue. The Subcommittee will comment on the revised exposure draft.

Fraud
IAPC added a project titled “Consideration of Fraud in a Financial Statement Audit” to its agenda and prepared a discussion document. The discussion document cites four reasons for revising IAPC’s extant standard (ISA 240—Fraud and Error): (1) fraud continues to be a problem for businesses, (2) there is a concern that the expectations gap is widening, (3) the auditor’s responsibility to detect and communicate fraud is frequently questioned in legal cases, and (4) other countries have issued detailed standards in this area. The discussion document specifically addresses the expectations gap, the auditor’s responsibility for fraud, and auditor performance. It also contains a high-level comparison of ISA 240 with SAS No. 82 and the U.K.’s APB No. 110. The IAS Subcommittee has discussed the document and provided its input to the IAPC via the U.S. representative (Robert Roussey, University of Southern California) and technical advisors (Thomas Ray, AICPA; and John Archambault, Grant Thornton).

SASs vs. ISAs
The IAS Subcommittee has undertaken a project to compare U.S. auditing standards to International Standards on Auditing. At this point, the comparison has been a high-level analysis of situations where IAPC guidance parallels the guidance in an SAS, and where there exists no IAPC guidance comparable to U.S. standards. At its October 1998 meeting, the Subcommittee decided that it would limit the comparison to an update to the appendix in the Codification. Professor Kay Tatum (University of Miami) has volunteered to complete the update.

Summary
With the globalization of business and the increase in cross-border financing, there is a need to have harmonization of accounting and auditing standards. The ASB and IAS Subcommittee are taking an active role in providing input for the establishment of international auditing standards. Anyone requesting additional information on the Subcommittee’s activities can contact the author at accwfm@langate.gsu.edu.

¹ The IFAC’s homepage (www.ifac.org) contains downloadable copies of the recent exposure drafts.

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