An Overview of the Work of IOSCO´s Technical CommitteeI
Consultation report issued by the Technical Committee of the International Organization of Securities Commissions
Comments from ACCA
June 2007
Introduction
ACCA welcomes the issue of the Consultation Report An Overview of the Work of the IOSCO Technical Committee (the Consultation). IOSCO sees itself as ‘the most important standard setter in the field of securities regulations' and, as such, it is important that appropriate consultation takes place with stakeholders and ultimately all those affected by the orderly conduct of securities markets. We believe that this consultation, based on a stand-alone document, is preferable to discussing future work in subject matter related papers, such as Strengthening Capital Markets Against Financial Fraud (February 2002).
We are please to offer comments towards the following matters identified in the Technical Committee's (TC) Consultation:
- Opportunities to promote just, efficient and sound markets
- Market risks which might warrant regulatory intervention
- Regulatory failures
- IOSCO's overall programme of activities
- Specific on-going initiatives of IOSCO
In doing so, as the largest and fastest-growing global professional accountancy body, we have confined our comments to those relevant to certain aspects of the market participation viewpoints of issuers, and accountants and auditors (parts 2A and 2B of the Consultation).
Issuers
Monitoring developments and the enforcement of accounting Standards
We note and support IOSCO's vigorous engagement with the international accounting standard setting process. We agree wholeheartedly with the stances taken on the cross-border use of IFRS, reducing the complexity of standards, supporting principles, and achieving an appropriate balance between costs and benefits.
We suggest that, in the interests of transparency and to promoting consistent application of IFRS, the TC may wish to carry out a project to assess the benefits and feasibility of providing public access to certain information from the IOSCO IFRS Regulatory Interpretation and Enforcement Database.
Financial and non-financial disclosure standards
With respect to periodic disclosure, we note that IOSCO is developing principles for the disclosure that listed issuers provide in their periodic reports. These principles are intended to facilitate agreement among regulators on minimum standards for disclosure in periodic reports, particularly annual reports.
ACCA has been actively involved with the unfolding debate on corporate social and environmental responsibility since 1990. We promote transparency and best practice in reporting and disclosure and assurance. The ACCA Awards for Sustainability Reporting now take place in 20 countries in Europe, Africa , North America/Canada and the Asia Pacific region. We use our expertise and experience to collaboration with organisations such as the Global Reporting Initiative to drive forward the sustainability agenda.
We are particularly concerned to promote constructive dialogue on the development of metrics for corporate transparency, therefore, between those whose focus is on what might be termed ‘corporate governance related non-financial disclosures' and those whose area of interest extends to the wider aspects of sustainability reporting.
We note that the G8 Heiligendamm Summit Declaration Growth and Responsibility in the World Economy ( 7 June 2007 ) includes an invitation to ‘the companies listed on our Stock Markets to assess, in their annual reports, the way they comply with CSR standards and principles.' We suggest that the TC could do much more, therefore, to contribute to the wider acceptance and improvement of such reporting, which can have an important role in tackling challenges, such as climate change.
Corporate Governance
We welcome the work done by the Task Force on Corporate Governance (summarised in the Consultation) and believe that the remaining scheduled output will be a useful report. The protection of minority shareholders is an aspect of market operation that has recently achieved greater attention because of the growing impact of private equity deals in certain markets. We would encourage the TC to consider a project to examine the wider effects of private equity on stock market health and perhaps more narrowly on the impact of perceptions that private equity offers a less rigorous regime of corporate governance that may act as a driver for delisting.
Accountants and Auditors
Monitoring developments with respect to auditing standards
The Consultation does not report fully the extent of IOSCO's engagement with the international auditing standard setting process, for example, through involvement in the International Auditing and Assurance Standards Board's Consultative Advisory Group. Nor does it set out the views of the TC on international standards as is done in the Consultation in relation to IFRS.
The TC has issued statements on the principles of auditor oversight and auditor independence (October 2002) and we would encourage the TC to examine whether those statements remain wholly valid or are now in need of revision. In addition, we suggest that TC should consider the need for a statement on the development and use of International Standards on Auditing (ISAs). This would be timely as the adoption of ISAs is under consideration in the EU and is generally of growing international significance.
We suggest that such a statement should not only reflect IOSCO's contributions to the current project to clarify and improve ISAs but also establish endorsement criteria and a vision for the longer-term future of robust, principles-based standards.
Non audit services
We note the work done in relation to auditor independence and, in particular, the recent publication of a survey on the regulation of non audit service provided by auditors.
Although the Consultation notes that there is close monitoring of the development of independence standards and that c omments are regularly made to IFAC's International Ethics Standards Board for Accountants, we feel that the TC could do more to publicise its work and views on independence (last announced in October 2002). The IOSCO responses to past exposure drafts of the IFAC Ethics Committee are published, but these are not written to provide general readers with a point of reference, nor has there been any published response to the recent Proposed Revised Section 290 of the Code of Ethics for Professional Accountants, Independence - Audit and Review Engagements , and Proposed Section 291, Independence - Other Assurance Engagements .
In the process of development of auditor independence standards, and indeed other auditor ethical standards, the conflict between principles and rules and the balance between costs and benefits (particularly as smaller entities are affected) are of great significance. In the current debate over Section 290, benchmarking, such as is present in the survey referred to in the Consultation, is playing a large part. We feel that these matters should be covered in an appropriate statement of IOSCO's views which could, as suggested above in relation to ISAs, provide a vision for the longer-term future of a robust, principles-based standard for independence.
Audit Quality
ACCA was pleased to be represented at the IOSCO Roundtable Quality of Public Company Audits from a Regulatory Perspective ( 1 June 2007 ). We welcome the decision to publish transcripts and videos of the event as this promotes global consideration of the issues and the views discussed at the event.
As noted in the Consultation, there are many parties examining and addressing issues affecting audit quality. We believe that it is vital that auditor oversight bodies, governments, securities regulators, relevant standard setters and the auditing profession develop a consistent view on the nature of audit quality and the balance between its costs and benefits. We encourage IOSCO to continue, therefore, its constructive dialogues.
Audit Contingency Planning
Concentration of the audit market for listed companies and the possibility of the demise or suspension of a major audit firm has received considerable attention in recent years, most recently through the work of the United Kingdom Financial Reporting Council on market-based responses. We agree that it is important that regulators put in place contingency plans for circumstances where, nevertheless, a crisis occurs. This should not be seen as a substitute for companies to make their own contingency plans, but it is a necessary underpinning of the orderly conduct of markets.
ACCA believes that any solutions proposed are unlikely to be successful unless they make sense in a global context. Accordingly we fully support IOSCO's work in this area which will serve to promote common solutions.