Supporting Credibility and Trust in Emerging Forms of External Reporting

The Integrated Reporting Working Group of the International Auditing and Assurance Standards Board (IAASB) has released a Discussion Paper, Supporting Credibility and Trust in Emerging Forms of External Reporting: Ten Key Challenges for Assurance Engagements. It is intended to facilitate an open discussion about the IAASB’s potential role regarding emerging forms of external reporting, which are referred to as “EER”, and where others can or need to play a role in a holistic and interactive process to support credibility and trust in these reports. A Frequently Asked Questions page and a document called At a Glance have been created as additional resources. Comments on the Discussion Paper are requested by December 15, 2016.

It is noteworthy that Challenge 8 of this Discussion Paper deals with Exercising Professional Skepticism and Professional Judgment. It notes that, “There may be more areas that require judgment in applying EER frameworks than in applying financial reporting frameworks and more areas where the judgments in preparing the subject matter information are susceptible to subjectivity and management bias. There are therefore generally more areas where there is a need to apply professional judgment and professional skepticism in EER assurance engagements. At the same time, given the broader and more diverse subject matters addressed, it may be more challenging for the practitioner to obtain the competence needed to support the application of professional judgment and professional skepticism in relation to such engagements.”

Furthermore, “Professional judgment and professional skepticism are interrelated and play a fundamental role in assurance engagements. The IAASB, in conjunction with the International Ethics Standards Board for Accountants (IESBA) and the International Accounting Education Standards Board (IAESB), is currently exploring how best to emphasize the importance of exercising professional skepticism within a financial statement audit, including whether changes are needed to the ISAs or whether other action may be necessary.”

Defining the “Public Interest” - Financial Reporting and Assurance Standards Canada

The accounting profession serves the “public interest” but what exactly does the term mean? Canada’s Auditing and Assurance Standards Oversight Council (AASOC) has clarified how it defines the “public interest” in a newly-released paper. The paper, “AASOC’s Consideration of the Public Interest,” outlines who is the public, what are the interests of the public and how the AASOC evaluates whether an action, decision or policy is in the public interest.

To provide a structure for the consideration of the “public,” a stakeholder approach was adopted.  Fostering trust, economic growth and long-term financial stability are of immense importance to the public at large. This makes the public at large, even those who do not invest in capital markets, a stakeholder in our work. The broader public, including those who do not invest in stocks and bonds of individual companies, are also often stakeholders through investment funds, pension plans and as taxpayers.

Present and potential investors, financial institutions and other creditors of private entities and public institutions, including government related bodies and not-for-profit organizations, have a prominence as stakeholders in our considerations. In short, those economic participants who entrust or consider entrusting their money to an entity.

Additional stakeholder groups that are integral to the functioning of audit and assurance services in Canada, each with roles in serving and protecting the public interest, include:

•    audit committees and similar bodies or persons charged with governance, including parliamentary committees;

•    management and financial information preparers;

•    providers of audit and assurance services; and

•    various financial regulators and inspectors.

The paper notes that, "Ultimately, the consideration of whether a particular activity is in the public interest requires the exercise of professional judgment." The exercise of professional judgment includes that we stand back from the full suite of criteria (for example, transparency, public accountability, competence, independence, due process and balancing of potential outcomes) to consider whether the final result is in the public interest." Read the AASOC paper to learn more about the interests of the public and how the AASOC evaluates whether an action, decision or policy is in the public interest.