Question

Discuss:

What are some of the current issues related to the International Standards on Auditing

Answer 1

The problems of adopting and implementing International Standards of Accounting are:

• Lack of standardization: While the IASB has issued IFRS, a lot of other major economies have issued their own accounting standards. IAS in India, US GAAP in the US, RAS in Russia are just a few examples. This lack of uniformity leads to differences in interpretation and multiplicity of financial statements. The different regulatory and disclosure requirements under the different international accounting standards mean that MNCs need to state their financials based on the domicile of the stakeholder.
• Developing economies and adoption challenges: As transition economies go through the process of shedding their centrally planned accounting model and replacing it with a market oriented model that uses international standards, they face a number of problems. Very few people know the new rules, since the international standards must first be translated into their language. This can prove to be a time consuming affair. There is also an inertia barrier to overcome. It is difficult to change the status quo accountants and managers who have been using the old system for 20 or 30 years do not want to change because they feel comfortable with the system they learned in school.
• Costs involved and lack of expertise: Until recently, deducting the cost of an IAS audit was not allowed by the tax code of many countries, which took some of the incentive away from having such an audit. Local accountants and auditors are not sufficiently well versed in international standards to implement them, with a few exceptions, and there do not seem to be enough educational initiatives around it. The Big 4 firms can monopolize the market as a result and swat away the smaller players due to the hands-on expertise they can bring to the table. This is bad for the auditing profession as a whole.
• Negative perception: There is also the perception that international standards are not needed, either because the the local standards are just as good as the international standards or because there is no demand for international standards. Although the big accounting firms and an increasing number of large enterprises now recognize that the main audience for the financial statements they prepare are shareholders, the smaller companies still think that accounting information is only for the tax authorities, and hence have very limited usage. The additional burden of time and resources placed on the company doesn't help either.