European Audit Committee Leadership Network, March 2021
The International Auditing and Assurance Standards Board (IAASB) develops auditing standards that can be adopted by audit regulators around the globe. It is a key player in determining how audit firms do their work, and it is continually trying to improve their performance by issuing new proposed standards or adjusting existing ones. These improvements are undertaken in response to shifting demands and evolving practices and technologies, using a process that maximizes stakeholder input.
On 5 February 2021, members of the European Audit Committee Leadership Network (EACLN) met virtually with Tom Seidenstein, the current chair of the IAASB, and Beverley Bahlmann, a deputy director at the IAASB whose work covers, among other issues, standards related to fraud identification and detection.
Much of the dialogue with the two guests was devoted to the issue of fraud—a current priority at the IAASB—and the role that audit firms and audit committees can play in preventing and detecting fraud. The discussion also touched on the IAASB itself and on several projects underway there.
Background on the IAASB
Though the IAASB is not a regulator, it promulgates global standards on how independent audits are performed. Approximately 130 jurisdictions, including nearly all of the European Union member states, are using, adopting, or incorporating IAASB standards or are drawing on them in preparing national auditing standards. The IAASB has a rigorous process for selecting its board members, striving for a mix of perspectives and experience. As it develops its standards, the IAASB conducts extensive outreach, spending considerable time interacting with a variety of stakeholders.
The consultation on fraud detection and prevention
The IAASB is assessing whether its standard on fraud detection should be enhanced. The general view among stakeholders, including EACLN members, appears to be that fundamentals of the existing standard are largely fit for purpose. However, some refinements of auditing practices might help, such as improved engagement between auditors and audit committees, better integration of fraud detection with the overall audit, and improved used of technology. EACLN members emphasized that auditors are only part of the solution, and they recommended that audit committees deepen their understanding of companies’ defenses against fraud, including the ways in which the company culture either encourages or discourages fraud.
Projects on technology, nonfinancial reporting, and group audits
Members and guests touched briefly on three other IAASB projects. The IAASB is trying to promote the use of new capabilities like machine learning without impeding innovation or inhibiting long-term evolution in the market for audit services. Continued development of specific auditing standards for nonfinancial reporting is difficult because of the absence of a universal framework, so the IAASB’s approach for now will rely on new guidance combined with existing standards on assurance engagements. For group audits, the IAASB is emphasizing the responsibility for the group audit of the primary team and the importance of two-directional communication between the primary team and component auditors. In all these areas, the guests explained, a principles-based approach to standards is key.