Auditing & Assurance Standards Board (AuASB) - Consultation

10 February 2000

Mr Stuart Alford
Chairman
Auditing & Assurance Standards Board
PO Box 132
Caulfield Vic 3162

Dear Stuart

Auditing & Assurance Standards Board (AuASB) - Consultation

The Group of 100 appreciates the opportunity to provide input to the Business Plan and policy direction of the AuASB.

The Group of 100 believes that the restructure of standard setting arrangements and the role of AARF provides the AuASB with the opportunity to undertake a fundamental review of its purpose and operations. It is our view that the audit function in respect of financial reports serves a public interest function by enhancing the credibility of financial reports, the process of reporting and the representations therein. However, while the Group of 100 appreciates that the Board sets standards and provides guidance on behalf of its members it should also be cognisant that there is a significant public interest perspective to its activities. There are a number of constituencies with an interest in the credibility of financial reporting in addition to those performing audit functions.

Concerns about the responses to perceptions in respect of the independence of auditors and other matters giving rise to the "expectations gap" would, in part, be addressed if the AuASB was comprised of a broader membership representative of these diverse interests and expectations. It is our understanding that the Board is comprised solely of nominees of the Society and the Institute who are either audit professionals or academics.

We have been advised previously that the Institute and the Society insist on this composition. This contrasts with the position in the United Kingdom where we understand the Board has a majority of non practitioners as members.

We note that the name of the Board and the scope of its activities to include assurance services was changed in 1998. However, it is not clear what additional assurance services the Board is dealing with, particularly as the composition of its membership has not changed. Our experience is that assurance services are also provided by organisations and professionals who are not part of the accounting/auditing profession.

The present restructure provides the opportunity to redress this imbalance and demonstrate that the AuASB is not a narrowly focussed professional body but one which adopts a broader public interest perspective in its activities. Similar views were expressed over several years, both in Australia and internationally, in respect of the profession's perceived control of the accounting standard setting process that led to a change in the focus and control of the process. We believe that the AuASB is also subject to these pressures and that if its role is to be relevant to participants in capital markets a change in perspective is necessary.

The Group of 100 notes the following in respect of the AuASB’s work program:

We strongly support harmonisation activities and continued involvement and engagement in international bodies. However, our comments about the need for a public interest perspective also apply in respect of international bodies; and
We agree that projects dealing with audit independence, special purpose reports, management representations and financial instruments should be given a high priority. Public interest considerations and the experience of other professionals in risk management services would be invaluable in dealing with, say, financial instruments. This need may be amplified as a result of the separation of the auditing and accounting functions of AARF under the new arrangements.

If you have any questions regarding these comments please contact Geoff Coghill (03 92684827) who was the Group of 100 representative on the Consultative Group.

Yours sincerely

Bryce JH Denison
National President