.jpg)
The Board of the International Organization of Securities Commissions (IOSCO) today published the final report Transparency of Firms that Audit Public Companies.
The report addresses “audit firm transparency reporting”, which considers the practices employed by audit firms to be transparent in their own reporting to investors and other stakeholders about the firm itself, notably, with respect to firm governance and elements of their system of quality control for their financial statement audits.
Transparency reporting can foster internal introspection and discipline within audit firms and may encourage audit firms to sharpen their focus on audit quality, which would be of benefit to investors and other stakeholders. In comparing audit firms competing for an audit engagement, audit firm transparency reporting can aid those responsible for selecting a public company’s auditor in their decision making process by providing information on a firm’s audit quality.
The report includes an IOSCO Statement on, as well as a Guide for, audit firm transparency reporting. The Guide is intended to serve as a frame of reference for promoting good practice and contributing to high quality audit firm transparency reports.
To inform the report, IOSCO studied this area by:
- sponsoring a Roundtable on the Quality of Public Company Audits from a Regulatory Perspective;
- issuing a public Consultation Paper and analyzed the 21 comment letters received;
- obtaining input from several oversight bodies and others involved in audit work;
- conducting research on current audit firm reporting practices and related regulatory reporting requirements within certain IOSCO member jurisdictions.
In light of what IOSCO has learned, and consistent with the IOSCO objectives of securities regulation, IOSCO believes that an audit firm transparency report could be considered of high quality if the information in the report includes, among other matters,[1] reporting on the following elements: the audit firm´s legal and governance structure, its measures to foster audit quality, its internal indicators of audit quality and indicators of audit quality as generated by the work of external bodies.
In presenting these matters, IOSCO believes that an audit firm transparency report should provide information that is:
- clear, useful and presented in sufficient detail to be meaningful to the different groups of likely users of the report;
- fact-based and not potentially misleading;
- unbiased and not oriented toward marketing or selling services;
- concise, specific to the firm and avoids the use of boilerplate language;
- timely, accurate and complete;
- balanced in communicating the audit firm’s output measures of audit quality in addition to any input measures; and
- sufficient in terms of explaining the limitations of the indicators of audit quality, including that the indicators may not be comparable across audit firms.
