by Takashi Nagaoka, IFIAR chair
As corporate activities increasingly become global, it is important to ensure trust in capital markets and enhance market governance not only at national levels but also globally.
Globally consistent and high-quality audit is a key to ensuring such trust. The International Forum of Independent Audit Regulators (IFIAR), as an international organisation of 56 independent audit regulators from around the globe, serves the public interest – including investors – by enhancing audit oversight globally.
To achieve this mission, IFIAR undertakes a number of initiatives. IFIAR strengthens its members’ regulatory capabilities by acting as a forum for the exchange of knowledge and experiences, including via practical workshops and webinars in core oversight functions including inspection and enforcement.
IFIAR also engages in ongoing dialogues with key external stakeholders in the financial reporting ecosystem. In particular, IFIAR’s regular dialogues with the six largest global audit networks cover a broad range of themes, including quality control systems, root cause analysis, and attractiveness of the profession among many others, seeking to constantly propel the networks to achieve continuous improvement in audit quality globally.
Importantly, IFIAR publishes the results of its annual inspection findings survey, providing a source of data on the rates and trend of inspection findings over years, which serves as a useful data point for substantial discussion on audit quality.
In addition to these fundamental activities, IFIAR focuses on emerging developments that may impact audit quality across jurisdictions. Some of those key areas are:
Sustainability reporting and assurance
As the development of regulatory frameworks for sustainability reporting progresses around the world, sustainability assurance has become one of the key topical issues for audit regulators.
Since the pace and approach differ by jurisdiction, IFIAR has launched a Sustainability Assurance Task Force to help IFIAR members learn from each other and deepen member understanding on key elements of sustainability-related regulatory frameworks including the scope and depth of reporting and assurance, the possible providers of sustainability assurance, as well as oversight approaches.
As IFIAR’s public statement indicates, IFIAR is committed to supporting its Members in developing their assurance oversight capabilities, and engaging with international organisations such as IOSCO to ensure the provision of transparent and high-quality information to investors and other stakeholders.
Use of technology, including AI, in audits
In recent years, the use of technology including AI is advancing exponentially in many industries including audit.
It is important for audit regulators to have a solid understanding of how technology is used by audit firms, as well as risks inherent to the use of technology and how such risks are being managed. To achieve this, regulators themselves need to keep pace with technological developments.
Through the work of its Technology Task Force, IFIAR has been monitoring the progress of adoption of new technology by the global audit networks both in terms of benefits – such as the potential to improve efficiency and quality of audits by enabling auditors to focus more on areas of professional judgement – and risks – such as potential over-reliance on tools leading to less use of professional skepticism – with an increasing focus on AI, and generative AI in particular.
IFIAR will continue to focus on the importance of good governance around the development and implementation of new technology in audit.
Private equity investment in audit firms
There are a growing number of cases in various jurisdictions where audit firms have accepted private equity investments. IFIAR is monitoring this trend with a focus on its potential impact on audit quality and audit firms’ independence.
There are arguments that access to additional capital through private equity investment has some benefits for audit firms, such as enabling them to invest more in technology and other areas that may positively impact audit quality.
On the other hand, concerns have been expressed that an increased focus on short-term returns on investment may lead to a greater focus on profitability rather than audit quality, and raise new threats to audit firm independence and new conflicts of interest.
IFIAR will continue to promote information exchange among its members on this topic and continue emphasising the significance of ensuring audit quality to the global audit networks. IFIAR will continue to identify new emerging issues relevant to audit quality and consider how audit regulators should respond to ensure a consistently high level of audit quality.
IFIAR’s membership has grown by 10 jurisdictions over the past decade and will continue to grow in the future; through the collective wisdom of this growing membership, and by strengthening engagements with other international organisations, IFIAR will continue to drive improvements in audit quality in the global capital markets.
