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Abstract
This paper is a historical account of the founding, organisation and early operation of the International Auditing Practices Committee (IAPC), which was one of the committees of the International Federation of Accountants (IFAC), from 1978 onwards. It examines the debates and disagreements attending the most controversial of the IAPC’s 29 International Auditing Guidelines (IAGs), dealing with the auditor’s report on financial statements, issued in 1983. It also reviews IFAC’s 1987 survey of compliance with the IAGs by its member countries around the world and the IAPC’s decision in 1991 to change Guidelines to Standards.
Acknowledgements
The author expresses his deep gratitude to Dorothy Ofori, of the IAASB, and to the AICPA Library, at the University of Mississippi, for supplying minutes of the IAPC meetings, exposure drafts, and final Guidelines. The letters of comment on exposure drafts have not been preserved. He is also grateful to Gijs Bak for his bountiful advice on this research project and to Mary Gu, the information services librarian at CPA Canada, to Ben Brewster at the library of the Institute of Chartered Accountants in England and Wales, and to Peggy Shaw, the librarian of Rice University’s Business Information Center for their assistance in finding documentary materials. He is also indebted to Christophe Van Linden. He is grateful also to the following former IAPC members, technical advisers, and secretaries for their comments on earlier drafts: Gijs Bak, Roy Chandler, Wilfred Copeland, Philippe Danjou, Dan Guy, Greg Pound, Robert Roussey, Thomas Schiro, David Selley, Dan Simunic, Kevin Stevenson, Alan Talbot, Sir David Tweedie, and Henk Volten, as well as to joint editor Mark Clatworthy and the two anonymous reviewers for their comments and suggestions. The author is solely responsible for what remains.
Disclosure statement
No potential conflict of interest was reported by the author(s).
Notes
1 ‘International Auditing and Assurance Standards Board: A Brief History of its Development and Progress’, published online in July 2007 by the IAASB (4 pages).
2 See ‘New Worldwide Federation Formed’, World Accounting Report, November 1977, pp. 3–4.
3 They were the American Institute of Certified Public Accountants, Canadian Institute of Chartered Accountants, and three in the British Isles: Institute of Chartered Accountants in England and Wales, Institute of Chartered Accountants of Scotland, and Institute of Chartered Accountants in Ireland.
4 The four auditing statements were entitled as follows: ‘Object and Scope of the Audit of Annual Financial Statements’, ‘The Use of Another Auditor’s Work’, ‘The Auditor’s Working Papers’, and ‘Audit Considerations Regarding the Going Concern Basis’. The author thanks Kees Camfferman for supplying these auditing statements.
5 The IFAC 1978 Annual Report, in the notes to its financial statements on page 10, revealed that the AICPA ‘has agreed to provide IFAC with office space, office furniture and equipment, and certain other services at no cost to IFAC’. In addition, the AICPA, together with the Canadian Institute of Chartered Accountants, Institute of Chartered Accountants in England and Wales, Institut der Wirtschaftsprüfer in Deutschland, e.V., Ordre des Experts Comptables et des Comptables Agréés, and Nederlands Instituut van Registeraccountants, all members of ICCAP, collectively paid US$12,000 for pre-incorporation expenses of IFAC.
6 The Preface to International Auditing Guidelines was approved by IFAC Council.
7 This paragraph was taken almost verbatim from the Preface to International Auditing Guidelines (Citation1979).
8 This topic was selected in response to a request from the IASC chairman and the Governors of the Central Banks (IAASB Citation2007, p. 1). It was eventually issued as a statement, which was not intended to have the authority of an IAG.
9 The IAG was retitled as ‘Using the Work of an Other Auditor’.
10 This country information was culled from the annual volumes of the Accountants’ Index.
11 In March 1991, when John W. Gruner succeeded Robert Sempier as IFAC executive director, his title was changed to director general. See ‘IFAC: 30 Years of Progress, Encouraging Quality and Building Trust’, IFAC site, December 2007, p. 2.
12 The Canadian member was usually assisted by two technical advisers, one from the Canadian Institute of Chartered Accountants and the other from the Certified General Accountants Association of Canada, as each of the two IFAC member bodies wanted to be represented on the IAPC by a technical adviser.
13 For background material, one should consult Stamp and Moonitz (Citation1978).
14 The author is grateful to Gijs Bak and Kees Camfferman for advice on these points.
15 For lists and the texts of the statements in the two series, see https://en.wikipedia.org/wiki/Statements_on_Auditing_Procedure and https://en.wikipedia.org/wiki/Statements_on_Auditing_Standards_(United_States).
16 Communication to the author from Kevin Stevenson, dated 20 June 2020.
17 See the ICAEW’s ‘Knowledge Guide to UK Auditing Standards’ at https://www.icaew.com/library/subject-gateways/auditing/knowledge-guide-to-uk-auditing-standards.
18 The author is grateful to Bhabatosh Banerjee for advice on these facts, in an e-mail dated 25 July 2019.
19 Most of the background for this section came from ‘A Memory Note’ which Gijs Bak, an IAPC member from 1978 and its chairman from 1983 to 1985, wrote in May 2007 in anticipation of the occasion of the 100th meeting in July 2007 of the Committee and its successor body, the International Auditing and Assurance Standards Board (IAASB). Bak sent the author a copy of his note on 28 July 2019. The note was circulated somewhat more widely as an addendum to an undated letter written by James M. Sylph (IAASB’s executive director, professional standards) to the 18 IAASB members shortly before their July 2007 meeting. The author has furnished a copy of this communication to the AICPA Library, at the University of Mississippi.
20 For brief summaries of the first 24 IAGs and a discussion of their apparent conflicts with US auditing standards, see Internationalization of the Securities Markets (Citation1987, pp. IV-A-33 to IV-A-47). For brief summaries of all 29 IAGs plus the IAPC’s other pronouncements, see Sempier et al. (Citation1991, pp. 14.18 to 14.23).
21 These four sentences are based on a communication to the author from Gijs Bak, dated 7 June 2020.
22 In 1978, the European Economic Community approved its Fourth Company Law Directive on annual accounts, which made ‘give a true and fair view’ an overriding requirement for financial reporting (Nobes, Citation1993).
23 The US Auditing Standards Board’s Statement on Auditing Standards 5 (Citation1975) stated, ‘The independent auditor’s judgment concerning the “fairness” of the overall presentation of financial statements should be applied within the framework of generally accepted accounting principles’ (para. 3). Yet Rule 203 of the AICPA’s Code of Professional Conduct obliges the auditor, when giving an unqualified opinion, to allow the company to depart from GAAP if, because of unusual circumstances, adherence to GAAP would render the financial statements misleading. Also, in 1969 a federal court ruled, in U.S. v. Simon (the Continental Vending case), that the auditor’s judgment of what is required by GAAP does not necessarily assure that the financial statements ‘present fairly’. For more about ‘present fairly’ in the US context, see Zeff (Citation2007). For two dozen articles on ‘true and fair view’, see Parker et al. (Citation1996).
24 International Federation of Accountants, International Auditing Practices Committee, minutes of meeting, 5–7 October 1982, Sonoma, CA, pp. 4–6.
25 The eight words in brackets were part of the revised paragraph.
26 So fervent was Tweedie in this belief that, in 1994, when he was knighted, he chose ‘true and fair’ as the motto for his individual coat of arms. Communication to the author from Sir David Tweedie, dated 21 June 2020.
27 Communication to the author from Kevin Stevenson, dated 19 June 2020.
28 For a discussion of the controversy surrounding ‘true and fair view’ in Australia, see Parker (Citation1994) and Deegan et al. (Citation1994).
29 See the CICA’s Filing Instruction No. 32 (August 1980) for the Citation CICA Handbook as well as sections 5510.49 and 5510.50 in the Handbook. In the United States, the Cohen Commission’s report (Commission on Auditors’ Responsibilities Citation1978, pp. 25–8) earlier recommended the elimination of the ‘subject to’ opinion, arguing that an unqualified opinion should be given if there was full disclosure of the significant uncertainties in the financial statements. The AICPA’s Auditing Standards Board, acting on the recommendation, decided instead to retain use of the ‘subject to’ opinion by auditors (‘Accountant Group Shelves Eliminating Warning Signal on Firms’ Uncertainties’ Citation1978).
30 CICA’s Filing Instruction No. 32 (August 1980).
31 In the wake of the US Auditing Standards Board’s Statement on Auditing Standards 59, issued in April Citation1988, which removed all references to the ‘subject to’ opinion, the IAPC issued a revision of IAG 13 in October 1989 likewise to remove the ‘subject to’ opinion altogether.
32 Communication to the author from Gijs Bak, dated 9 June 2020.
33 International Federation of Accountants, International Auditing Practices Committee, minutes of meeting, 28 June–1 July 1983, New York, point 5.
34 This paragraph is based on a communication to the author from Philippe Danjou, dated 20 July 2020. Danjou was the French technical adviser in 1984–1985.
35 International Federation of Accountants, International Auditing Practices Committee, minutes of meeting, 28–31 October 1985, Rome, point 4.
36 Communications to the author from Alan Talbot, dated 14 June and 3 July 2020.
37 ‘International Auditing and Assurance Standards Board: A Brief History of its Development and Progress’, p. 2, published online in July 2007 by the IAASB.
38 Communications to the author from Philippe Danjou, both dated 20 July 2020.
39 ‘Survey on Compliance with IFAC Pronouncements’, in IFAC’s Annual Report 1988, p. 15.
40 International Federation of Accountants, International Auditing Practices Committee, minutes of meeting, 9–11 July 1991, Budapest, point 7.
41 International Federation of Accountants, 1987 Annual Report, 7. For a progress report, see IOSCO Technical Committee Working Party No. Citation2 (Citation1990, pp. 6–7).
42 International Federation of Accountants, International Auditing Practices Committee, minutes of meeting, 27–29 October 1986, Lausanne, point 6.
43 International Federation of Accountants, International Auditing Practices Committee, minutes of meeting, 15–17 March 1988, Washington, DC, point 9.
44 Communication to the author from Greg Pound, dated 14 June 2020. It was stated on page 5 in IFAC’s Annual Report 1991 that the change from Guidelines to Standards ‘more appropriately describes IFAC’s authority as an international standard-setting body and should also improve the perception of users as to the status of the documents and encourage their wider use’.
45 In 1987, the IAPC began issuing an unnumbered series of International Statements on Auditing. The fifth such statement, issued in October 1989, ‘Particular Considerations in the Audit of Small Businesses’, carried the following advice: ‘This Statement is published to provide practical assistance to auditors in the audits of small businesses. This Statement is not intended to have the authority of an International Auditing Guideline’. Also, beginning in 1988 the IAPC issued four Related Services Guidelines.