Audit Firm Bigs Cite Lust for Global Standards

The CEOs of the Big Four plus two say that melding global financial-reporting standards is the top accounting priority among a range of stakeholders.
Marie LeoneJanuary 15, 2008

The push for a single set of global accounting standards has reached fever pitch. At least that’s what the heads of major accounting firms are claiming. After two years of convening roundtables in such financial centers as Cape Town, Tokyo, New York, Santiago, and Paris, a group of jet-setting chief executives from the world’s six largest accounting firms concluded that CFOs, investors, and regulators show “near-universal” support for moving toward a single set of global accounting standards.

The findings were released at the Global Public Policy Symposium, held in New York this week, and echoed the same call for a single set of standards that the accounting firm CEOs laid out in their own position paper on principles-based accounting, also released at the conclave.

While convergence was foremost on the mind of stakeholders, they also show support for common auditing standards and consistent regulatory oversight, according to the report. Prevention and detection of fraud and the future of business reporting came in third and fourth, respectively, on the list of accounting concerns.

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The report, “A Global Dialogue with Capital Markets Stakeholders,” was authored by Samuel Di Piazza of PricewaterhouseCoopers; Timothy Flynn, KPMG International; David McDonnell, Grant Thornton International; James Quigley, Deloitte Touche Tohmatsu; Frans Samyn, BDO International; and James Turley, Ernst and Young.

While “virtually all stakeholders” backed the idea of one set of principles-based standards, they worry about countries that rely on “overly prescriptive rules-based” standards — including the United States, according to the report. Specifically, the stakeholders felt that current legal and regulatory environments contribute to unnecessarily rigid rules. What’s more, they identified a lack of education and training in applying and interpreting International Financial Reporting Standards, the current global accounting rules.

The stakeholders also expressed concern about the ability of smaller businesses to shift to IFRS. In fact, some stakeholders wondered whether IFRS was the right set standards for small and medium businesses, according the audit chieftains’ report.

As expected, the stakeholders were keen on audit quality, emphasizing that auditors should be accountable to shareholders rather than management to assure that quality isn’t compromised. They also touted the Sarbanes-Oxley Act as being the force behind changing the relationship between auditors and management, requiring that outside auditors are hired by and report to audit committees rather than management.

The stakeholders wanted to see a single set of auditing standards as well as a universal set of “auditor independence” rules to wipe out complications associated with multiple definitions of the term.

The constituents generally agreed that regulatory oversight has steadily improved and cited steps taken by the European Union to bring more consistency to its decisions as a big factor in the improvement. They also cited efforts by the International Forum of Independent Audit Regulators to improve cross-border communication as another successful step toward a common audit approach.

They also believe that an ounce of prevention is worth a pound of cure when it comes to fraud, and want to attack financial misdeeds through prevention as well as detection. Nevertheless, the stakeholders admitted that everyone — auditors, investors, management, and regulators — must do their parts to thwart fraud.

The report also looked to the future of business reporting. One regulator said, according to the report, that while financial reporting may meet requirements set out in the rules, it sometimes doesn’t provide the actual information needed to understand what’s happening within a company. The suggested cure: customizing data for different end-users, an endorsement for adopting the data-tagging computer language called XBRL (extendable business reporting language) for filing financial results.

Stakeholders also broadly agreed that non-financial information is increasingly important in assessing company performance. But they could not agree on what disclosures would strike the right balance between transparency and releasing sensitive information.

Timeliness in reporting was championed, but “real time” reporting was nixed. The reason: It would lead to market inefficiencies because analysts would spend too much time updating models and ultimately lose sight of long-term analysis.