12 November 2004

Mr Jorge del Busto
Secretary
Financial Reporting Council
C/o The Commonwealth Treasury
Langton Crescent
PARKES ACT 2600

Dear Jorge

Strategic Direction of Auditing & Assurance Standards Board

The Group of 100 (G100) is pleased to respond to the FRC’s Invitation to Comment on the “Strategic Direction of the Auditing & Assurance Standards Board”.

1. Should the objective of having a highest quality auditing standards take precedence over an objective of having minimal divergence from the International Standards on Auditing (ISA), particularly given the role of auditing standards in the broader governance framework and the need to ensure standards have regard to the public interest?
   
   The G100 supports the process of international convergence of auditing standards and believes that for the integrity of markets, the International Standards on Auditing (ISA), should be of the highest quality. In this regard it is imperative that the International Audit and Assurance Standards Board (IAASB) incorporates, on a timely basis, high quality enhancements to standards developed by national standard-setters such as the US PCAOB. This will ensure that the objectives of minimal divergence from IASs and having high/highest quality standards can be achieved.
    
2. Should the AuASB follow the approach of its predecessor and continue to use ISA as a basis for developing and making Australian auditing standards?
   
   The G100 considers that the AuASB should continue to use ISAs as the basis for developing Australian auditing standards. However, this does not preclude:
    
   • enhancement of those standards to reflect national legislative and regulatory requirements and the inclusion of auditing standards as law;
   • adaptations to take account of audits of different classes of entities; and
   • enhancements to reflect changes in the audit environment and technical knowledge which have occurred since the development of an ISA.
      
3. Does the ‘clarity of standards’ project undertaken by the International Auditing and Assurance Standards Board (IAASB) impose any time constraints on the ability of Australia using current ISA as a basis for developing and making auditing standards?
   
   It is important that the AuASB establish a robust process for amending Australian auditing standards to include amendments to ISAs on a timely basis.
    
4. Should the AuASB have regard to, or even adopt, auditing standards made by standard setters other than the IAASB – such as the US PCAOB – when developing and making best practice auditing standards for Australia?
   
   As indicated in our responses to Questions 1 and 2, the G100 believes that it is incumbent upon the IAASB to ensure that ISAs are of the highest quality and continue to satisfy this requirement. Where other standard-setters have moved more quickly than the IAASB, the AuASB should be cognisant of those changes when developing Australian auditing standards. As with accounting standards the G100 believes that there should be a single set of international standards and that including national adaptations, as a normal practice, will erode the benefits of entities operating to a common set of rules.
   
   In considering auditing standards made by other standard-setters it is important to distinguish the principles on which high quality standards are based from a catalogue of detailed rules, requirements and regulations as more details and specificity does not necessarily mean higher quality has been achieved.
    
5. Are there any problems posed by adopting rules-based standards within a predominant principles-based standards regime and how should these be best addressed?
   
   The G100 does not believe that the existing IASs and Australian auditing standards are rules-based. It is our understanding that there is presently a strong equivalence between the two sets of standards, both in terms of requirements and the basis of approach. In addition, the Australian standards are supported by implementation guidance. However, the process of converting auditing standards to legal requirements will provide a number of challenges but need not lead to the drafting of rules-based requirements.

Other Comments

The G100 considers that the basic principles should apply to all classes of audits. However, in the development of guidance on the application/implementation of the principles, the AuASB should be cognisant of the practicality and cost-benefit of the same processes and procedures being applied to audits of large entities and to audits of small and medium sized entities.

Yours sincerely

John V Stanhope
National President

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