Welcome to our conference for Academics. Many of you will have previously heard me speak about my role as Chair of the International Forum of Independent Audit Regulators, or IFIAR. I began in 2011 as Vice-Chair, and have now been Chair since 2013. My term will expire this month at our plenary meeting in Taipei. As I reach the end of my tenure, I wanted to take the opportunity to talk a little bit about what IFIAR has accomplished and the role that I think it has and will play in improving audit quality.
Before I begin, let me say that the views I express are my own and do not necessarily reflect those of the Board or the PCAOB.
Our economy in the United States is increasingly globalized, and our audit firms are auditing the financial statements of many multinational corporations where components of those audits are performed in foreign countries by a foreign firm that is, most often, part of a larger network of affiliated but independent firms. The PCAOB has jurisdiction over those foreign firms to the extent that they either file audit reports in the United States or play a substantial role in the audit of a United States public issuer. But each national regulator can benefit in its oversight efforts by having a global view of how the firms operate. IFIAR is an excellent forum for its 50 members to gain perspective and collaborate on international oversight.
IFIAR Working Groups
IFIAR conducts its primary work through six working groups: the Enforcement Working Group, the Investors and Other Stakeholders Working Group, the Global Public Policy Committee Working Group, the International Coordination Working Group, and the Standards Working Group. I'd like to focus on the work of a few of these groups.
First, the Standards group has made great strides in the past two years. We as regulators feel strongly that it is important for the standard setters, both the IAASB and the IASB, to heed the views of the community of national regulators when considering what standards should look like. Through our inspection regimes and other forms of outreach, regulators have extensive experience with problems in existing standards and with instances where standards are working well. Therefore, during my term as Chair, IFIAR put in place a new process for the IFIAR members to approve communications from the Standards group to the standard-setting bodies. Since IFIAR developed this new process, five comment letters have been submitted and those letters have the approval of the full IFIAR membership. I am pleased to see that going forward, international standard setters will have to consider the views of the regulators who see how these standards are put into practice.
The Global Public Policy Committee working group is one of IFIAR's most active groups. It has nine members from Singapore, Germany, France, Japan, the US, Australia, the Netherlands, the UK and Canada. The group meets twice a year with the heads of the audit practices of the largest six global networks. At one of those meetings, we discuss with the firms' their efforts and progress in performing root cause analysis. The GPPC working group pushes the firms to dig deeper in identifying and remedying the underlying causes of the recurrent audit deficiencies that are identified by regulators and by the firms themselves, and to try to take a global view so that issues are identified and remedies are implemented throughout the firm's network. We are learning in the course of these conversations that current structure of the audit firms' global networks limits significantly the leverage that the global leaders at these firms can bring to bear to implement firm-wide change. It is my hope that the insights gained by the working group, and the growing awareness of the IFIAR members to this problem, will both provide positive pressure and help the leaders of the global networks to make the structural and institutional changes that over time, will raise the bar of audit quality in all of their member firms.
In the second annual meeting of the Global Public Policy Committee, we have a conversation with the same global firm leaders about a topic of particular interest to the working group members. Last year, we dedicated time to topics including the impact of audit rotation on their European affiliates and aspects of their business model. We plan to continue this discussion in IFIAR's plenary meeting in Taipei as the regulators around the table at the GPPC meeting consider it beneficial for all of the regulators to understand the business model of the firms they regulate. The discussion about the economic model of the firm in Taipei centers around a paper that IFIAR will publish on trends in the audit profession, and summaries of the discussion will also be made public. I am pleased that IFIAR will be able to contribute to such an important topic in a more public way.
Group Audit Inspection
The GPPC working group undertook another significant project in the past year. A sub-group of four regulators conducted a coordinated inspection of the component audits of a single global issuer by a single global audit firm in four jurisdictions. The inspection included reviews of the work of the principal auditor and three component auditors. Those participating then exchanged views and findings with each other and a summary will be provided to IFIAR members. While the effort is in its first stages, I think we stand to learn a lot about the way group audits are conducted by the largest firms, and to grow in our national inspections through enhanced collaboration and cross-fertilization.
Multilateral Memorandum of Understanding
IFIAR's International Coordination Working Group has led a project for the past two years to develop a Multilateral Memorandum of Understanding, or MMOU, which will facilitate an exchange of information among signatory members. I hope this document will be approved by the members in April, and that soon thereafter members will sign on and begin sharing information in the course of inspections and enforcement matters across borders to a greater extent than is currently possible in the absence of bi-lateral agreements. This MMOU will be most useful to smaller regulators which lack the resources to develop and negotiate their own protocols for exchange on a bilateral basis with every IFIAR member. We in the United States find there is often occasion to collaborate with our fellow regulators on inspections and enforcement matters, and our Office of International Affairs has been working for years to put in place a network of similar bi-lateral agreements. It is my belief that audit quality will be greatly enhanced if regulators can work together to facilitate one another's efforts given our common goals.
Annual Survey of Inspection Findings
In March, IFIAR released a report summarizing the findings from its third annual survey on member's inspection findings. This report has confirmed that audit regulators around the world are facing similar issues, and gives a clear indication of areas where improvement is needed. Because of the variations in timing and selection of issuers across jurisdictions, the survey is not a good measure of year-over-year audit quality improvement or decline. Nonetheless, it has been a useful tool to survey the reactions of regulators to the audits they are seeing and to identify the most common areas where we are finding audit failures. Going forward, we hope to continue to improve the information collected and the conclusions we can draw from it.
Enforcement Survey and Outreach
The newly formed Enforcement Working Group conducted a survey of its members' enforcement regimes and has now organized a workshop to facilitate the sharing of practices and ideas. IFIAR has also placed a great deal of focus on outreach. The goal is to grow IFIAR's membership, and thereby its influence. IFIAR wants to encourage more jurisdictions to establish regulators independent from the profession. IFIAR has partnered with the World Bank to offer technical assistance and to drive improvements in regulation in jurisdictions where established regulators are not yet operating.
In conclusion, I'm pleased with what IFIAR has accomplished over the past two years. I hope some of these projects are of interest to the academic community and I encourage you to follow the developments of IFIAR as it matures.