IFAC Names Helen Partridge as Chief Financial Officer

jakefegan@ifac.org — Wednesday, March 29, 2023

The International Federation of Accountants (IFAC), the voice of the global accountancy profession, announces that Helen Partridge has been named Chief Financial Officer, effective April 1, 2023.

Ms. Partridge, who joined IFAC in 2020, assumes leadership for IFAC’s finance team and financial activities, including accounting, financial strategy, planning and analysis, and tax. Previously, Ms. Partridge oversaw IFAC’s Accountancy Education platform, enhancing the multi-stakeholder model, significantly expanding the EdExchange Summit, and driving knowledge-sharing programming for Education Directors.

On her appointment Ms. Partridge said, “I am delighted with the opportunity to further elevate the strategic role of finance within IFAC, and to help shape IFAC’s strategy in support of the global profession. I have never been more convinced of the growing importance of --and need for-- professional accountants, whose expertise is integral to the creation and management of sustainable companies, economies and societies.”

Ms. Partridge continued, “I also look forward to continued involvement in Accountancy Education, which remains a personal and professional passion. Bruce Vivian, our new head of Accountancy Education, brings a wealth of experience to the role. I have no doubt that he, in ongoing partnership with the International Panel on Accountancy Education, will only further accelerate our strong momentum.”

Kevin Dancey, Chief Executive Officer, said, “Helen is a high-impact executive with a proven track record of success in advancing IFAC’s Accountancy Education platform. As she moves into the CFO role, I have every confidence she will be an excellent partner to me and the IFAC management team in delivering on our strategy.”

Prior to joining IFAC, Ms. Partridge was an accountant in practice, having spent 16 years with PwC in audit, advisory and audit systems design in the US and Asia Pacific. She has also served in the controllership function at a large multinational transportation company working with GAAP conversions, financial statement preparations and complex and significant transactions such as business combinations and tax planning. Ms. Partridge is a CPA licensed in multiple states in the United States.

In addition to Ms. Partridge, other women leaders at IFAC include Jennifer DiClerico, Head of Communications; Linda Lach, Head of Governance; and Elaine Young, Head of Human Capital. Partridge succeeds Russell Guthrie, who will be leaving IFAC in June after a successful 22-year career in various leadership capacities including finance, strategy, capacity building and member and external relations.

IESBA and IAASB Highlight Commitment to Deliver on Recommendations in New IOSCO Report on a Global Assurance Framework for Sustainability-related Corporate Reporting

DavidJohnson@ifac.org — Tuesday, March 28, 2023

The International Ethics Standards Board for Accountants (IESBA) and International Auditing and Assurance Standards Board (IAASB) welcome the report released today by the International Organization of Securities Commissions (IOSCO) on developing a global assurance framework for sustainability-related corporate reporting. The IOSCO report reflects extensive research and feedback from key stakeholders. The report calls for timely development of ethics and assurance standards for sustainability reporting by the IESBA and the IAASB, respectively.

The IESBA and the IAASB have responded to growing demand for high-quality assurance over sustainability-related information to enhance the reliability of corporate reporting by prioritizing their projects to develop relevant and complementary standards. Both the IESBA and IAASB will issue public consultations later this year on standards for sustainability ethics and assurance, respectively. Both boards plan to finalize their respective standards in 2024. IOSCO called for widespread outreach to ensure the standards meet the needs of users and benefit from diverse stakeholder input, among other recommendations. Both boards emphasize their commitment to address key considerations and recommendations presented in the IOSCO report.

Commenting on the IOSCO report, Gabriela Figueiredo Dias, IESBA chair, stated, “We appreciate IOSCO's leadership in coordinating global consistency in sustainability assurance. The ethics standards that the IESBA is developing aim at supporting a robust ethical and independent approach to sustainability reporting and assurance in the public interest. We are involving all stakeholders at an early stage through global and inclusive consultation. We will continue to work collaboratively with IOSCO and other stakeholders to support a globally coordinated approach to ethics and assurance for sustainability reporting.”

Tom Seidenstein, IAASB chair, added, “We share the sense of urgency highlighted in IOSCO’s report, are on track to delivering a high-quality standard on time, and embrace the report’s call for an inclusive process. Our efforts will include outreach to a wide range of stakeholders to ensure our standards are of high quality, meet the needs of users, and are profession-agnostic. The IAASB will intensify external outreach in the second half of 2023 in conjunction with the publication of a draft sustainability assurance standard.”

About the IESBA
The International Ethics Standards Board for Accountants serves the public interest by setting ethics standards, including independence requirements, to underpin ethical behavior in the production, reporting and assurance of financial and non-financial information. Along with the International Auditing and Assurance Standards Board, the IESBA is part of the International Foundation for Ethics and Audit. The Public Interest Oversight Board (PIOB) oversees IESBA and IAASB activities and the public interest responsiveness of the standards. For copyright, trademark, and permissions information, please visit Permissions.

About the IAASB
The International Auditing and Assurance Standards Board develops auditing, assurance, related services, and quality management standards and guidance in the public interest that support consistent performance of quality engagements. Along with the International Ethics Standards Board for Accountants, the IAASB is part of the International Foundation for Ethics and Audit. The Public Interest Oversight Board oversees IAASB and IESBA activities and the public interest responsiveness of the standards. For copyright, trademark, and permissions information, please visit Permissions.

IESBA and IAASB Highlight Commitment to Deliver on Recommendations in New IOSCO Report on a Global Assurance Framework for Sustainability-related Corporate Reporting

DavidJohnson@ifac.org — Tuesday, March 28, 2023

New International Foundation for Ethics and Audit Strengthens Independence of the Standard-Setting System

webmaster@ifac.org — Monday, March 27, 2023

The Board of Trustees of the International Foundation for Ethics and Audit (IFEA, or the Foundation) celebrates the launch of the Foundation, which implements a key recommendation contemplated in the Monitoring Group’s July 2020 Recommendations, Strengthening the International Audit and Ethics Standard-Setting System.

The objective in establishing the Foundation is to move the International Ethics Standards Board for Accountants (IESBA) and the International Auditing and Assurance Standards Board (IAASB) to a new entity that is independent of the International Federation of Accountants (IFAC).

Under the new structure, IESBA Chair Ms. Gabriela Figueiredo Dias and IAASB Chair Mr. Tom Seidenstein serve as Co-CEOs of the Foundation. The Public Interest Oversight Board (PIOB) continues its role as an independent oversight board, supporting the public interest responsiveness of the international standards and the effective delivery of the boards’ strategies.

“Establishing the Foundation as an independent legal entity to house the IESBA and IAASB, which were previously within the IFAC structure, is an important step in strengthening the independence of the international standard-setting system for ethics, audit and assurance,” said Robert Buchanan, Chair Trustee of the Foundation.

“We are confident that the revised structure—with IFEA as the home of the standard-setting boards governed by a board of trustees that includes both PIOB and IFAC appointed trustees—is an important mechanism created by the Monitoring Group to reform with the profession and simultaneously enhance the independence of the standard-setting boards,” said Linda de Beer, Chair of the PIOB. “This, in conjunction with an independent nominations process housed within the PIOB through the PIOB Standard Setting Boards Nominations Committee, will continue to enhance the trust and confidence in the standard-setting process.”

Paul Munter, Co-Chair of the Monitoring Group, added, “The objectives of the Monitoring Group’s recommendations included achieving an independent and inclusive, multi-stakeholder standard-setting system, and fostering the development of timely, high-quality standards that are responsive to the rapidly changing environment while still being responsive to the public interest. We are confident that the new structure advances both objectives. We are pleased the recommended reforms are on track for full implementation through diligent, collective efforts, and the focus is now on the implementation of the resource and costing plans.”

Commenting on the new structure, Ms. Figueiredo Dias and Mr. Seidenstein stated, “We are delighted with the modernization of the standard-setting system and the progress already achieved under the new Foundation, including transferring board personnel from IFAC to IFEA, the approval of our 2023 budget, and the process to strengthen our technical staff, which is well underway. We welcome the myriad opportunities created by the Foundation’s establishment. As always, we are committed to the delivery of high-quality standards in service of the public interest, and to the faithful implementation of the reforms. We would like to thank IFAC for all its support to date, and for its continued involvement as the Foundation’s service provider.”

Accompanying today’s announcement is the launch of the Foundation’s website at www.ethicsandaudit.org. Stakeholders are encouraged to visit the website to learn more about the Foundation.

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About the Foundation
The International Foundation for Ethics and Audit is a nonprofit organization that supports high-quality, international ethics, audit, and assurance in the public interest. It does so through its two standard-setting boards, the International Auditing and Assurance Standards Board and the International Ethics Standards Board for Accountants. These boards develop and issue their standards independently and in accordance with an approved due process and the Public Interest Framework, overseen by the Public Interest Oversight Board.

About the Public Interest Oversight Board
The PIOB is the global independent oversight body that seeks to improve the quality and public interest focus of the international audit, assurance, and ethics standards formulated by the international standard-setting boards: the IAASB and the IESBA. The PIOB’s ultimate goal is to ensure relevant audit, assurance and ethical standards that are responsive to the Public Interest, in order to enhance confidence in capital markets. For more information, please visit the PIOB website.

About the Monitoring Group
The Monitoring Group (MG) is a group of international financial institutions and regulatory bodies committed to advancing the public interest in areas related to international audit related standard-setting and audit quality. Further information can be obtained from the IOSCO website.

Notes to the Editor

The Foundation’s Board of Trustees are appointed by the Members of the Foundation, comprised of the Monitoring Group, PIOB and IFAC. The Board of Trustees comprises six individuals, four of whom are nominated by the PIOB and two nominated by IFAC.
IAASB and IESBA work closely together to ensure their standards are interoperable and complement each other. These standards strengthen public confidence in financial markets.
IAASB and IESBA receive operational support from IFAC in accordance with a service level agreement between IFAC and the Foundation.
The Monitoring Group and PIOB continue to work to secure sustainable, long-term, multi-stakeholder funding to provide financial support for the Foundation and all Monitoring Group Reforms.

Questions & Answers on the International Foundation for Ethics and Audit

meganhartman@ifac.org — Monday, March 27, 2023

Who is the Monitoring Group?

The Monitoring Group (MG) is a group of international financial institutions and regulatory bodies committed to advancing the public interest in areas related to international audit standard setting and audit quality. The MG is responsible for the overall governance of the international audit and ethics standard-setting system, including conducting periodic effectiveness reviews.

In July 2020, the MG issued its recommendations, Strengthening the International Audit and Ethics Standard Setting System (Recommendations, MG Recommendations, or MG Reforms).

What sparked the MG’s most recent review of the international standard-setting system?

Approximately every five years since 2003, the MG has conducted an effectiveness review and made recommendations to improve the independent ethics and audit standard-setting system. Most reviews and recommendations were incremental changes and enhancements that were agreed to and enacted.

Starting in May 2015, the MG signaled its upcoming recommendations would be much more significant, including proposing a model that would include establishing a separate body to house the International Auditing and Assurance Standards Board (IAASB) and International Ethics Standards Board for Accountants (IESBA). After a few years of discussions with the MG, the accountancy profession, and other stakeholders and revisions to the initial proposals, a set of Recommendations was agreed to and transition and implementation began in 2021.

What are the objectives of the MG’s Recommendations?

The objectives of the Recommendations are implementing an independent and inclusive multi-stakeholder standard-setting structure that is responsive to the public interest in developing timely, high-quality ethics, independence, audit, and assurance standards. The objectives also specifically included:

Reinforcing the consideration of the public interest within the standard-setting process and throughout the full cycle of standards’ development, including through appropriate independent oversight; and
Fostering the development of timely, high-quality standards that respond to an accelerating pace of change.

The MG, Public Interest Oversight Board (PIOB), IAASB and IESBA and the International Federation of Accountants (IFAC) have worked collaboratively to faithfully implement the MG Recommendations.

To limit the disruption to the IAASB and IESBA as they execute their strategic priorities and work plans, including developing assurance, ethics, and independence standards in relation to sustainability reporting, appropriately sequencing implementation steps has been of utmost importance.

What is the International Foundation for Ethics and Audit and why was it established?

The International Foundation for Ethics and Audit (IFEA or the Foundation) is a nonprofit organization that supports high-quality, international standard setting in ethics, audit, and assurance in the public interest. It was created at the end of 2022 to ensure the full implementation of a key MG Recommendation: housing the IAASB and the IESBA and reinforcing their independence based on a new governance structure.

Why was a new legal entity needed to house the IAASB and IESBA? Weren’t these Boards already independent standard setters?

While the IAASB and IESBA have conducted an independent standard-setting process since 2003, the new reforms and governance structure are intended to reinforce their independence through a legal structure, and a nominating process under the PIOB, that is independent and separate from the accountancy profession.

What are the membership and governance arrangements for the Foundation?

The Foundation is a US-based nonprofit organization with three members: the MG, PIOB, and IFAC. The members appoint a Board of Trustees to govern the Foundation. Four Trustees are nominated by the PIOB and two by IFAC, and one of the PIOB-nominated Trustees serves as the Chair. The MG also appoints an observer. The Chairs of the IAASB and the IESBA serve as the co-CEOs of the Foundation.

Where will IAASB and IESBA be based, and what administrative arrangements exist?

The Boards will continue to be based in New York at the IFAC offices. IFAC continues to provide administrative support for the Foundation and the Boards under a service level agreement between IFAC and the Foundation’s Board of Trustees.

Who funds the Foundation, and IAASB and IESBA?

Currently, the Foundation’s funding comes primarily from the accountancy profession and is overseen by the independent Foundation Board of Trustees. IFAC has made a three-year rolling financial commitment to using a portion of its member organization dues revenue and Forum of Firms contributions. The Foundation also receives targeted funding from the Global Public Policy Committee, the six largest global accounting networks, to support the initial costs of expanding IAASB’s and IESBA’s technical staff and to support launching the new legal entity. This funding commitment is important to the success of the continued implementation efforts as it promotes stability and minimizes disruption to the Boards’ work plans.

The MG and the PIOB continue to work to secure sustainable, long-term, multi-stakeholder funding to provide sustainable financial support for the MG Reforms, especially as the Boards progress their important work on assurance over sustainability reporting. The MG has renewed its call to all stakeholders in the financial reporting ecosystem who benefit from a single set of independent, high-quality, international ethics, independence, audit, and assurance standards to support the stability of the standard-setting system through financial contributions.

What do the changes mean for the IAASB and the IESBA and their current projects?

There are no changes to either Board’s strategy, work plan or current projects resulting from the Boards being housed under the Foundation.

Each Board will have an updated Terms of Reference to reflect the new structure. In 2024, a new, combined Stakeholder Advisory Council will replace the current IAASB and IESBA Consultative Advisory Groups.

What do the changes mean for the role of the PIOB?

The PIOB’s independent public interest oversight role for IAASB’s and IESBA’s work has not changed. However, consistent with the MG’s Recommendations. the oversight model has evolved to be more interactive and transparent. This includes regular interactions with the Boards at both the chair and staff level as standards are developed. PIOB observers continue to attend IAASB and IESBA meetings but their observation reports will now be publicly available. The PIOB’s quarterly meetings, including its interactions with the IAASB and IESBA chairs, will also now be in public.

How will the IAASB and IESBA membership process and membership change?

Following the MG Reforms, nominations are now conducted by the PIOB Standard-Setting Board Nominations Committee, Members are now nominated through an open call and appointed by the PIOB according to a skills matrix. The skills matrix prioritizes public leadership responsibilities, expertise, and diversity of thought and geography. The multi-stakeholder Boards, which will transition from 18-member boards to 16-member boards, will include balanced and diverse members from a variety of backgrounds. For example, this will include investors and other users of financial statements, accountants, regulatory members, audit committee members, accounting or auditing academics, and audit practitioners.

To balance the risk of undue influence by the audit profession with the need for relevant technical expertise in standard setting, no more than five audit practitioners, including those with experience in audits of small- and medium-sized enterprises and public sector organizations, may be appointed to each Board.

Why are IAASB and IESBA recruiting additional staff?

Enhancing the technical expertise of staff to support the envisaged multi-stakeholder, strategic board composition and approach is an important step, one that is now underway. Increasing the size and technical abilities of staff ensures that the technical expertise is available to the IAASB and IESBA, which will allow Board members to take on a more strategic role in line with the MG Recommendations.

Board members are heavily involved in drafting standards, through task forces and other means, and there is a reliance on technical advisors in supporting the technical drafting work. Going forward, once the full staff complement is in place, technical project leadership and detailed drafting will be handled by an expanded staff, both full time staff members and secondments.

Ongoing support from the accounting profession and national standard setters, including through in-kind support, is an important part of ensuring that the Boards are supported by an expanded and enhanced technical staff that has the capacity to develop relevant, timely, high-quality standards in the public interest.

What does this new organization and structure mean for IFAC and the Forum of Firms’ commitments to adopting and implementing IAASB and IESBA standards?

One of IFAC’s strategic objectives, and a primary focus, continues to be supporting adoption and implementation of international standards. Throughout the MG reform discussion and process, adoption and implementation have remained an IFAC priority, and a requirement for its member organizations around the world. Similarly, the Forum of Firms remains committed to supporting the IAASB and IESBA and using their standards.

With the Foundation’s launch, who should stakeholders now send inquiries about intellectual property or translation and reproduction requests for IAASB and IESBA standards and guidance?

Through intellectual property and service level agreements, IFAC will continue to have intellectual property rights and manage translation and reproduction requests. For permission to reproduce or translate the IAASB’s and IESBA’s international standards or for information about intellectual property matters, please visit Permissions.

IPSASB eNews: March 2023

jakefegan@ifac.org — Tuesday, March 21, 2023

The first IPSASB meeting of the year was hosted in the offices of the International Monetary Fund in Washington, D.C., USA on March 14-16, 2023.

IESBA March Meeting Kicks Off with Abu Dhabi Accountability Authority’s Announcement of Adoption of IESBA Code

DavidJohnson@ifac.org — Tuesday, March 14, 2023

The International Ethics Standards Board for Accountants (IESBA) witnessed an auspicious start to its March Board meeting with the announcement from the Abu Dhabi Accountability Authority (ADAA), host of the 5-day meeting, that it has adopted the 2022 edition of the IESBA International Code of Ethics for Professional Accountants (including International Independence Standards). The Code will be applicable to all entities subject to ADAA’s mandate for audits of financial statements for periods beginning on or after December 15, 2023.

ADAA is the ultimate authority responsible for promoting the principles of accountability, transparency, and integrity across all Abu Dhabi government entities and institutions, whether local or international, in which the Abu Dhabi government has a vested interest of over 25%.

“On behalf of IESBA, I applaud ADAA for this historic commitment to ethics and the public interest,” said Gabriela Figueiredo Dias, IESBA Chair. “IESBA’s ethics and independence standards could not fit better with ADAA’s mandate to work for the integrity and transparency of businesses within its remit. ADAA’s commitment to ensuring fair and transparent financial reporting and improving the quality of audit across all its subject entities will benefit immensely from its adoption of the Code.”

The Code has been further strengthened in several important areas in recent years, including provisions addressing the role and mindset expected of professional accountants, and auditor independence requirements in relation to the provision of non-assurance services to audit clients and fees. Above all, the Code places a responsibility on all professional accountants to act in the public interest. The strength and global acceptance of the Code are evident as it has been adopted or is used in over 130 jurisdictions, translated into about 40 languages, and adopted by the 34 largest international networks of accounting firms for transnational audits.

Wael Abdul Qader, Acting Head of Monitoring and Auditing Sector at ADAA, said: “We announce the full adoption of the standards set by the International Ethics Standards Board for Accountants. The standards will be applicable to preparers of financial information and financial statement auditors of Abu Dhabi Government Entities as part of our efforts to promote the principles of transparency, integrity and accountability and elevate the quality of audit.”

The IESBA meeting will continue all week. In the days ahead, the IESBA will continue deliberating strategic issues on its project to develop ethics and independence standards for sustainability reporting and assurance as well as in a related project addressing the use of experts by professional accountants in both business and public practice. Among other agenda items, the IESBA is also expected to finalize a consultation paper on its strategy and work plan for 2024-2027.

For more information about the ADAA's announcement, contact ADAACommunication@adaa.gov.ae.

For more information about the IESBA March meeting, including how to register to observe, click here.

About the IESBA

The International Ethics Standards Board for Accountants (IESBA) is an independent global standard-setting board. The IESBA serves the public interest by setting ethics standards, including auditor independence requirements, which seek to raise the bar for ethical conduct and practice for all professional accountants through a robust, globally operable International Code of Ethics for Professional Accountants (including International Independence Standards).

The IESBA believes a single set of high-quality ethics standards enhances the quality and consistency of services provided by professional accountants, thus contributing to public trust and confidence in the accountancy profession. The IESBA sets its standards in the public interest with advice from the IESBA Consultative Advisory Group (CAG) and under the oversight of the Public Interest Oversight Board (PIOB).

IESBA Staff Releases Q&As to Spotlight Key Changes to the Definitions of Listed Entity and Public Interest Entity in the IESBA Code

DavidJohnson@ifac.org — Friday, March 10, 2023

The Staff of the International Ethics Standards Board for Accountants (IESBA) today released a questions and answers (Q&As) publication on the revisions to the definitions of listed entity and public interest entity (PIE) in the International Code of Ethics for Professional Accountants (including International Independence Standards) (the Code). The development of the Q&As has been informed by the extensive discussions and consultations with a wide range of stakeholder groups and the IESBA’s own deliberations during the development and finalization of the PIE revisions.

The Q&A publication is designed to highlight, illustrate or explain aspects of the PIE revisions in the Code and is intended to complement the Basis for Conclusions for the final pronouncement. It will assist national standards setters, professional accountancy organizations, and firms in adopting and/or implementing the PIE revisions. The Q&As will also assist regulators and audit oversight bodies, the corporate governance community, investors, preparers, educational bodies or institutions, and other stakeholders in understanding the revised PIE definition and related provisions in the Code. Among other things, the PIE revisions:

Include an expanded definition of a PIE by specifying a broader list of PIE categories, including a new category “publicly traded entity” to replace the category “listed entity.”
Recognize the essential role local bodies responsible for the adoption of the Code play in delineating the specific entities that should be scoped in as PIEs in their jurisdictions, encouraging them to properly define the PIE categories in the expanded definition and adding any other categories relevant to their environments.
Introduce a transparency requirement for firms to publicly disclose the application of independence requirements for PIEs where they have done so.

The PIE revisions are effective for audits of financial statements for periods beginning on or after December 15, 2024. Read the revisions here.

IESBA to Hold First-Ever Board Meeting in the Middle East

DavidJohnson@ifac.org — Tuesday, March 7, 2023

The International Ethics Standards Board for Accountants (IESBA), the independent standard-setting board that develops the International Code of Ethics for Professional Accountants (including International Independence Standards) (the IESBA Code) in the public interest, is holding its next Board Meeting in Abu Dhabi, UAE, from March 13-17, 2023. The five-day meeting, which will be hosted by the Abu Dhabi Accountability Authority (ADAA) will feature multiple sessions on sustainability as the IESBA looks to fulfill its commitment to developing a global baseline of ethics and independence standards for sustainability reporting and assurance within the next two years.

“On behalf of IESBA, I thank ADAA for inviting us to Abu Dhabi and for hosting our Board meeting,” said Gabriela Figueiredo Dias, IESBA Chair. “We are at an important juncture on our journey to develop the strong standards needed to guide the ethical behavior of those involved in the preparation of corporate sustainability disclosures and in providing related assurance reports. Those ethics and independence standards will be not only an essential part of the regulatory regime, but also fundamental to market integrity and public trust in such information. The timing of our meeting in the United Arab Emirates is auspicious as it aligns with the UAE’s Year of Sustainability as well as with ADAA’s commitment to raising awareness of the principles of accountability, integrity, and transparency. Holding the meeting in Abu Dhabi will also allow our work and messages to reach new audiences, which will help further promote ethics as an integral part of sustainable businesses and economies worldwide.”

The sustainability standards being developed by the IESBA will form the third pillar in the global standards infrastructure needed to deliver transparent and trustworthy sustainability information, alongside the global sustainability reporting and assurance standards being developed by the International Sustainability Standards Board (ISSB) and International Auditing and Assurance Standards Board (IAASB), respectively.

Wael Abdul Qader Head of Audit Affairs at ADAA stated “The IESBA Board meeting is aligned with ADAA’s mandate as an independent body responsible for safeguarding Abu Dhabi’s public funds and resources across all Abu Dhabi government entities. In addition, sharing experiences with our colleagues from around the world supports the promotion of ADAA’s underlying principles of integrity, transparency, and accountability.”

Mr. Abdul Qader added that hosting the meeting for the first time in the Middle East demonstrates ADAA’s commitment to the highest standards of ethical behavior. The meeting titled ‘Building the Ethical Foundation for Sustainability’ will highlight in particular the value of the ongoing work of the IESBA and its members around the world towards sustainability reporting.

Along with sustainability and other topics on its meeting agenda, the IESBA will discuss strategic issues in a project addressing the use of experts by professional accountants in both business and public practice, including in relation to sustainability reporting and assurance, and finalize a consultation paper on its strategy and work plan for 2024-2027. The agenda also features an IESBA-ADAA panel session, focused on the theme of “Ensuring transparency in sustainability reporting.”

For more information about the meeting, including how to register to observe, click here.

IAASB Digital Technology Market Scan: Digital Assets

meganhartman@ifac.org — Monday, March 6, 2023

Welcome to the seventh Market Scan from the IAASB's Disruptive Technology team. Building on our ongoing work, we will issue a Market Scan every 2-3 months. Market Scans cover exciting trends, including new developments, corporate and start-up innovation, noteworthy investments and what it all might mean for the IAASB.

In this Market Scan, we explore Digital Assets, with a focus on recent developments within the Cryptocurrency market and what it might mean for the audit and assurance ecosystem. Future Market Scans will build on this area by focusing on related technologies, such as blockchain and smart contracts.

Technology Landscape, September 2022

We cover:

What are digital assets and why are they important?
The latest developments
What this might mean for the IAASB

What Are Digital Assets and Why Are They Important?

A digital asset is anything that exists in digital form only, has or provides value, is identifiable and discoverable, and is associated with ownership or use rights. Types of digital asset include cryptocurrencies and non-fungible tokens (NFTs) as well as digital content like photos, audio files, videos, websites, presentations, spreadsheets, or text files.

Cryptocurrencies (or crypto-assets) such as Bitcoin, Ethereum and Solana use blockchain technology, a distributed ledger that is a computerized database using strong cryptography to secure transaction records, control the creation of additional coins, and verify the transfer of coin ownership. Using this decentralized approach eliminates the need for traditional intermediaries, such as banks, to enable funds to be transferred between two parties. Cryptocurrencies can be bought and sold using accounts with cryptocurrency exchange platforms (e.g., Coinbase, Crypto.com) or through a standalone digital wallet.

Stablecoins are a type of cryptocurrency whose value is pegged to that of another currency, commodity or financial instrument. Stablecoins seek to offer price stability by maintaining reserve assets as collateral or through algorithmic formulas designed to control supply. Examples of stablecoins include Tether, USD Coin and TerraUSD.

Cryptocurrency coins are native to their own blockchain (e.g., Ether on the Ethereum blockchain) and are mainly used for payments, investments and trading.

Cryptocurrency tokens have many uses, such as for buying products (transactional tokens), representing ownership (security tokens), conferring voting rights (governance tokens), accessing services (utility tokens) or supporting decentralized applications on the blockchain (platform tokens).

Coins vs Tokens: What’s the Difference? Three-minute watch, Coin Gecko

The advantages of cryptocurrencies include less expensive and faster money transfers and decentralized systems that are not reliant on a central intermediary. Disadvantages of cryptocurrencies include their price volatility, high energy consumption for mining activities (where proof of work is the consensus mechanism used to confirm values on the blockchain) and how easy it is to use crypto for criminal activities.

From an audit and assurance perspective, there is an ever-increasing likelihood that audited entities may be engaged in digital asset related activities, such as holding, transacting or using digital assets; facilitating trading of digital assets on customers’ behalf; or creating digital assets for sale or distribution to third parties. These activities may have unique risks of material misstatement that need to be understood and appropriately addressed as part of a financial statement audit. For example, where digital assets are held by third parties (such as trading platforms or other custodians), obtaining an understanding of the material custodial arrangements and relevant controls related to safeguarding and maintaining records of those assets may be appropriate.

In its Inspections Insights publication in November 2019, the Canadian Public Accountability Board noted certain recurring findings in its inspections of audit files of reporting issuers with activities in the crypto-asset sector. Areas for improvement included:

Obtaining an adequate understanding of audit risks when designing the audit approach;
Evaluating the reliability of information to be used as audit evidence obtained from crypto-exchanges and custodians, as well as from blockchains;
Obtaining sufficient evidence to support an entity’s ownership claims to self-custodied crypto-assets; and
Performing procedures in addition to vouching crypto-assets received to the blockchain, for entities engaged in crypto-asset mining activities.

A follow-up publication in August 2022, Auditing in the Crypto-Asset Sector, highlighted considerations for auditors when auditing the financial statements of reporting issuers that use custodians to safeguard their crypto-assets.

Recent Noteworthy Developments in Digital Assets

These recent developments may signal ongoing or future disruption in this area. It is not a complete list of all activities related to digital assets.

1. The Crypto Winter

FTX Empire Goes Bankrupt in Sudden Fall of Bankman-Fried | Bloomberg Law – The collapse of cryptocurrency exchange FTX in November 2022 was the most significant in a series of company failures that hit the cryptocurrency industry in 2022.

How Terra's UST and LUNA Imploded |Decrypt – In May 2022, Terra’s UST stablecoin and governance token LUNA collapsed, sending shockwaves through the cryptocurrency market and leading to the fall in price of Bitcoin and other cryptocurrencies as investors started to pull their investments. This in turn led to crypto hedge fund Three Arrows Capital falling into liquidation and affected cryptocurrency lenders, including Voyager Digital, Celsius Network and BlockFi, which all subsequently filed for bankruptcy protection.

US regulators warn banks over cryptocurrency risks | BBC News – In January 2023, US regulators issued a joint warning to banks over the risks associated with the cryptocurrency market.

The Global Digital Assets and Cryptocurrency Association, a global self-regulatory association for the digital asset and cryptocurrency industry published an open letter calling for agreement on a set of fundamental core principles for the industry, including appropriate customer protection, governance and risk management procedures.

2. Crypto audits under scrutiny

Crypto Exchanges’ A La Carte Approach To Audits A Recipe For Disaster | MSN – A Forbes survey of the world’s largest cryptocurrency exchanges highlighted that not all are subject to full financial statement audits. The article noted that, “depending on where they are based, cryptocurrency exchanges do not have to submit to audits. If they do, their financial statements can remain private or be shared only with regulators. This is in stark contrast to issuers of publicly traded securities in major developed markets whose accounts must be regularly audited and made public.”

SEC Increases Scrutiny of Audits of Cryptocurrency Companies | WSJ – In the wake of the FTX collapse, a number of cryptocurrency exchanges sought to reassure investors by providing transparency reports or proof of reserves information, some of which had been subject to agreed-upon procedures (AUP) reporting by an independent auditor. However, the US Securities and Exchange Commission (SEC) raised concerns about investors placing too much confidence on the reporting, which Paul Munter, the SEC’s chief accountant, said, “is not enough information for an investor to assess whether the company has sufficient assets to cover its liabilities.” Several audit firms have stopped providing proof-of-reserves work in light of concerns over investor overreliance and reputational risk.

What This Might Mean for the IAASB

The IAASB is interested in maintaining its collective knowledgebase on digital technologies (including on specific sub-topics such as digital assets), promoting digital readiness and enablement through its engagement with stakeholders, and encouraging action by others to supplement and support the IAASB’s standard-setting activities.

Subject to the IAASB’s work plan decisions, possible digital technologies use cases for audited entities and audit or AUP engagements might provide input for further modernizing the IAASB’s standards so they are adaptable to and reflect the current business and audit environment, while remaining principles-based.

Despite the turbulence in the digital asset and cryptocurrency industry over the last year, there continues to be more than 300 million individual cryptocurrency users and approximately 18,000 businesses accepting crypto payments. The corporate failures experienced in this industry bring into focus audit’s important role in enhancing confidence in financial statements, thereby contributing to capital markets’ effective functioning and stability. In addition, it highlights the need for a consistent approach to financial reporting by, and regulation of, entities in the industry. Building suitable skills and expertise in this increasingly complex area is also necessary to enable audit and assurance professionals to act appropriately.

As this space evolves, the IAASB may need to consider how best to highlight the application of its principles-based standards in providing audit, assurance or related services to businesses operating in the digital asset ecosystem, including facilitating and supporting actions by others (e.g., in developing non-authoritative guidance).

Useful Articles and Resources

What Are Digital Assets? | the balance, four-minute read
The Relationship Between Blockchain and Cryptocurrency | GetSmarter Blog, five-minute read
The Different Types of Cryptocurrency Tokens Explained | MakerDAO, five-minute read
Cryptocurrency Explained with Pros and Cons for Investment | Investopedia, eight-minute read
Distributed Ledger Technology - Overview, Importance | CFI, three-minute read
Digital Assets 101: Intro to DeFi | Fireblocks Academy - YouTube, four-minute watch
Is Cryptocurrency Regulated? | CUBE global, five-minute read

Interesting story

Sales from the crypto: Muse NFT album to become first new chart-eligible format in seven years | The Guardian, three-minute read

British rock band Muse released their ninth studio album, Will of the People, in NFT form in August 2022 and it became the first NFT album to reach number 1 in the music charts.