Should you care about the IAASB Clarity Project?

• Author: Morris, David
• Position: Financial reporting - International Auditing and Assurance Standards Board

Readers may ask why one should give attention to fact that the International Auditing and Assurance Standards Board (IAASB) has embarked on an accounting standards Clarity Project. In the U.S., the Public Company Accounting Oversight Board (PCAOB) sets auditing standards for auditors of public companies and the American Institute of Certified Public Accountants (AICPA) has been setting auditing standards for auditors of private companies for 100 years. IAASB sets international auditing standards. I believe they should care, as the standards will eventually impact them--whether they are CFOs of public or private companies.

Now, with convergence of international accounting standards on the horizon, the AICPA Auditing Standards Board (ASB) has recently added a clarity project to its agenda--similar to the IAASB's--to help promote international convergence and to facilitate closer ties with the IAASB and PCAOB.

Although convergence of U.S. private-sector auditing standards with international auditing standards may not be quite as earth-shattering as the convergence of accounting standards, it will nevertheless have a major impact on CFOs. Just consider how the creation of PCAOB is impacting all of us.

Clarity Project Details

To understand the IAASB's Clarity Project, a brief review of the evolution of international auditing standards is helpful. The existing set of international auditing standards has been written over the last three decades, utilizing various drafting regimes; some use the convention of setting forth broad auditing principles in a short, standard section with very detailed guidance in the background and appendix sections. Others are very long and detailed standards with little supplemental guidance in the background or appendices.

A third convention emphasizes or bolds paragraphs, providing auditors with a list of required procedures that must be performed in every audit, utilizing a variety of words: the auditor "must" perform; "should" perform; "shall" perform; "should consider" performing; and several other variations. The auditor then needs to determine which of the preceding English wording conventions are requirements versus procedures that should be considered, but are not required, when conducting an audit.

As difficult as this might be in English, it is even more difficult in other languages. Most languages that the auditing standards are translated into do not have words that convey the subtleties of the English...