Who is the Monitoring Group?
The Monitoring Group (MG) is a group of international financial institutions and regulatory bodies committed to advancing the public interest in areas related to international audit standard setting and audit quality. The MG is responsible for the overall governance of the international audit and ethics standard-setting system, including conducting periodic effectiveness reviews.
In July 2020, the MG issued its recommendations, Strengthening the International Audit and Ethics Standard Setting System (Recommendations, MG Recommendations, or MG Reforms).
What sparked the MG’s most recent review of the international standard-setting system?
Approximately every five years since 2003, the MG has conducted an effectiveness review and made recommendations to improve the independent ethics and audit standard-setting system. Most reviews and recommendations were incremental changes and enhancements that were agreed to and enacted.
Starting in May 2015, the MG signaled its upcoming recommendations would be much more significant, including proposing a model that would include establishing a separate body to house the International Auditing and Assurance Standards Board (IAASB) and International Ethics Standards Board for Accountants (IESBA). After a few years of discussions with the MG, the accountancy profession, and other stakeholders and revisions to the initial proposals, a set of Recommendations was agreed to and transition and implementation began in 2021.
What are the objectives of the MG’s Recommendations?
The objectives of the Recommendations are implementing an independent and inclusive multi-stakeholder standard-setting structure that is responsive to the public interest in developing timely, high-quality ethics, independence, audit, and assurance standards. The objectives also specifically included:
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- Reinforcing the consideration of the public interest within the standard-setting process and throughout the full cycle of standards’ development, including through appropriate independent oversight; and
- Fostering the development of timely, high-quality standards that respond to an accelerating pace of change.
The MG, Public Interest Oversight Board (PIOB), IAASB and IESBA and the International Federation of Accountants (IFAC) have worked collaboratively to faithfully implement the MG Recommendations.
To limit the disruption to the IAASB and IESBA as they execute their strategic priorities and work plans, including developing assurance, ethics, and independence standards in relation to sustainability reporting, appropriately sequencing implementation steps has been of utmost importance.
What is the International Foundation for Ethics and Audit and why was it established?
The International Foundation for Ethics and Audit (IFEA or the Foundation) is a nonprofit organization that supports high-quality, international standard setting in ethics, audit, and assurance in the public interest. It was created at the end of 2022 to ensure the full implementation of a key MG Recommendation: housing the IAASB and the IESBA and reinforcing their independence based on a new governance structure.
Why was a new legal entity needed to house the IAASB and IESBA? Weren’t these Boards already independent standard setters?
While the IAASB and IESBA have conducted an independent standard-setting process since 2003, the new reforms and governance structure are intended to reinforce their independence through a legal structure, and a nominating process under the PIOB, that is independent and separate from the accountancy profession.
What are the membership and governance arrangements for the Foundation?
The Foundation is a US-based nonprofit organization with three members: the MG, PIOB, and IFAC. The members appoint a Board of Trustees to govern the Foundation. Four Trustees are nominated by the PIOB and two by IFAC, and one of the PIOB-nominated Trustees serves as the Chair. The MG also appoints an observer. The Chairs of the IAASB and the IESBA serve as the co-CEOs of the Foundation.
Where will IAASB and IESBA be based, and what administrative arrangements exist?
The Boards will continue to be based in New York at the IFAC offices. IFAC continues to provide administrative support for the Foundation and the Boards under a service level agreement between IFAC and the Foundation’s Board of Trustees.
Who funds the Foundation, and IAASB and IESBA?
Currently, the Foundation’s funding comes primarily from the accountancy profession and is overseen by the independent Foundation Board of Trustees. IFAC has made a three-year rolling financial commitment to using a portion of its member organization dues revenue and Forum of Firms contributions. The Foundation also receives targeted funding from the Global Public Policy Committee, the six largest global accounting networks, to support the initial costs of expanding IAASB’s and IESBA’s technical staff and to support launching the new legal entity. This funding commitment is important to the success of the continued implementation efforts as it promotes stability and minimizes disruption to the Boards’ work plans.
The MG and the PIOB continue to work to secure sustainable, long-term, multi-stakeholder funding to provide sustainable financial support for the MG Reforms, especially as the Boards progress their important work on assurance over sustainability reporting. The MG has renewed its call to all stakeholders in the financial reporting ecosystem who benefit from a single set of independent, high-quality, international ethics, independence, audit, and assurance standards to support the stability of the standard-setting system through financial contributions.
What do the changes mean for the IAASB and the IESBA and their current projects?
There are no changes to either Board’s strategy, work plan or current projects resulting from the Boards being housed under the Foundation.
Each Board will have an updated Terms of Reference to reflect the new structure. In 2024, a new, combined Stakeholder Advisory Council will replace the current IAASB and IESBA Consultative Advisory Groups.
What do the changes mean for the role of the PIOB?
The PIOB’s independent public interest oversight role for IAASB’s and IESBA’s work has not changed. However, consistent with the MG’s Recommendations. the oversight model has evolved to be more interactive and transparent. This includes regular interactions with the Boards at both the chair and staff level as standards are developed. PIOB observers continue to attend IAASB and IESBA meetings but their observation reports will now be publicly available. The PIOB’s quarterly meetings, including its interactions with the IAASB and IESBA chairs, will also now be in public.
How will the IAASB and IESBA membership process and membership change?
Following the MG Reforms, nominations are now conducted by the PIOB Standard-Setting Board Nominations Committee, Members are now nominated through an open call and appointed by the PIOB according to a skills matrix. The skills matrix prioritizes public leadership responsibilities, expertise, and diversity of thought and geography. The multi-stakeholder Boards, which will transition from 18-member boards to 16-member boards, will include balanced and diverse members from a variety of backgrounds. For example, this will include investors and other users of financial statements, accountants, regulatory members, audit committee members, accounting or auditing academics, and audit practitioners.
To balance the risk of undue influence by the audit profession with the need for relevant technical expertise in standard setting, no more than five audit practitioners, including those with experience in audits of small- and medium-sized enterprises and public sector organizations, may be appointed to each Board.
Why are IAASB and IESBA recruiting additional staff?
Enhancing the technical expertise of staff to support the envisaged multi-stakeholder, strategic board composition and approach is an important step, one that is now underway. Increasing the size and technical abilities of staff ensures that the technical expertise is available to the IAASB and IESBA, which will allow Board members to take on a more strategic role in line with the MG Recommendations.
Board members are heavily involved in drafting standards, through task forces and other means, and there is a reliance on technical advisors in supporting the technical drafting work. Going forward, once the full staff complement is in place, technical project leadership and detailed drafting will be handled by an expanded staff, both full time staff members and secondments.
Ongoing support from the accounting profession and national standard setters, including through in-kind support, is an important part of ensuring that the Boards are supported by an expanded and enhanced technical staff that has the capacity to develop relevant, timely, high-quality standards in the public interest.
What does this new organization and structure mean for IFAC and the Forum of Firms’ commitments to adopting and implementing IAASB and IESBA standards?
One of IFAC’s strategic objectives, and a primary focus, continues to be supporting adoption and implementation of international standards. Throughout the MG reform discussion and process, adoption and implementation have remained an IFAC priority, and a requirement for its member organizations around the world. Similarly, the Forum of Firms remains committed to supporting the IAASB and IESBA and using their standards.
With the Foundation’s launch, who should stakeholders now send inquiries about intellectual property or translation and reproduction requests for IAASB and IESBA standards and guidance?
Through intellectual property and service level agreements, IFAC will continue to have intellectual property rights and manage translation and reproduction requests. For permission to reproduce or translate the IAASB’s and IESBA’s international standards or for information about intellectual property matters, please visit Permissions.