Technical Articles

International Journal of Auditing – October 2004

Developing International Auditing Standards: Cooperation between INTOSAI and the International Federation of Accountants

The recent memorandum of understanding between INTOSAI’s Auditing Standards Committee (ASC) and the International Federation of Accountants’ (IFAC) International Auditing and Assurance Standards Board (IAASB) is an important step forward in the development of INTOSAI’s financial auditing guidelines. Many SAIs are involved in this worldwide effort, bringing both public and private sector auditors together on a global basis.

IFAC and the IAASB

IFAC is the global organization for the accountancy profession. Founded in 1977, it has its headquarters in New York. IFAC works to protect the public interest by encouraging high quality practices on the part of the world’s accountants. IFAC has 158 member organizations from 118 countries and represents over 2.5 million professionals from private auditing and accounting firms, the public sector, business, industry, and higher education.

IAASB is IFAC’s standard-setting body. As outlined in IAASB’s annual report for 2003, its objective is to serve the public interest by setting—independently and under its own authority— high-quality auditing, assurance, quality control, and related standards.

Most of IAASB’s 18 members are practicing auditors and accountants representing IFAC’s member organizations throughout the world. Three are “public members,” representing, for example, academia, the public sector, or business and industry. Currently, two of the three public members represent the public sector.

International Standards on Auditing (ISA) are well-established auditing standards developed by IAASB. They are subject to continual revision and update, and new ISAs are developed as necessary.

IAASB’s Consultative Advisory Group (CAG) consists of representatives from various user groups and provides input and feedback on IAASB’s work program, project priorities, and major technical issues. INTOSAI has a representative in the CAG.

Development of International Auditing Standards

Numerous factors have influenced the development of international auditing standards in recent years. Several of these are outlined in the following sections.

Financial Scandals and the Need to Rebuild Confidence in the Accounting and Auditing Industry

Numerous financial scandals in recent years have been a primary influence on the development of international auditing standards. The accounting and auditing industry has lost credibility, and concentrated worldwide efforts are being made to rebuild confidence in the profession. Auditing standards related to quality control, risk assessment, risk management, fraud, and corporate governance have been given high priority by standard-setting groups.

The PCAOB: A New and Significant Player

As a result of the recent financial scandals, new legislation has been implemented in many countries, the most well known being the Sarbanes-Oxley Act of 2002 introduced in the United States. Among other things, this legislation establishes the Public Company Accounting Oversight Board (PCAOB). The PCAOB is a private sector, nonprofit organization. Its purpose is to oversee the auditors of public companies in order to protect the interests of investors and further the public interest in the preparation of informative, fair, and independent audit reports. The PCAOB has a statutory responsibility to develop auditing standards to be applied in the audits of publicly listed companies in the United States. With the establishment of the PCAOB, the accounting and auditing industry is no longer able to function with the same degree of self-regulation it enjoyed before.

Globalization, Convergence, and the Need for Harmonized Standards

Globalization and international convergence have also been factors influencing IAASB’s work on updating existing—and developing new—auditing standards. The European Union (EU) and the World Bank are looking for a wider use of harmonized, high-quality auditing standards. The EU requires companies listed on its stock exchanges to apply International Financial Reporting Standards developed by the International Accounting Standards Board. The EU has also indicated that it will require the use of ISAs for all audits performed in the EU. The United Kingdom’s Auditing Practices Board plans to adopt the ISAs starting in 2005. Activities are taking place worldwide to harmonize the ISAs with national auditing standards. There is also a trend toward a greater harmonization of public and private sector auditing standards.

Contact between the Public and Private Sectors

The public sector is already represented in several aspects of international audit standard-setting. For example, INTOSAI is represented on the IAASB and the CAG. Numerous SAIs already have well-developed public sector auditing standards. This is typical in countries like the United States and the United Kingdom, where certain government auditing work is outsourced to private contractors and then reviewed by the SAI. The SAIs in these countries have contact with national standard setters and are often consulted in the process of developing national auditing standards by, for example, participating in roundtable discussions.

Development of INTOSAI’s Auditing Standards and Guidelines

INTOSAI’s Auditing Standards Committee (ASC) has the task of developing INTOSAI’s auditing standards. Within the ASC, the task of developing additional guidelines for financial audits has been delegated to the Working Group on Financial Audit Guidelines, which is led by the Swedish SAI. Its other members are the SAIs of Austria, Canada, Cameroon, Namibia, Norway, Tunisia, the United Kingdom, and the United States.

The development of financial auditing guidelines will make up the fourth level in the INTOSAI hierarchy, which presently consists of the Lima Declaration, the Code of Ethics, and the INTOSAI Auditing Standards.

Numerous alternatives for developing guidance at the fourth level were debated, and the ASC concluded that developing financial auditing guidelines for the public sector by drawing upon the ISAs would be the most robust and effective method. The memorandum of understanding that has been signed by INTOSAI and IFAC is regulating their cooperation in this regard. The following chart illustrates the cooperative process guiding the two organizations.

INTOSAI/IFAC Cooperation in Developing International Audit Standards


To coordinate the work on behalf of INTOSAI, a project secretariat has been established at the Swedish SAI. One of the secretariat’s most important tasks is selecting experts from INTOSAI to participate in the IAASB task forces involved in developing ISAs. The experts are to contribute to the overall quality of the standards and provide input on specific issues and perspectives relevant for the public sector.

During the fall of 2003, INTOSAI’s members were asked to nominate experts to participate in the development of the standards and guidelines. A total of 84 experts were nominated from 43 different countries. One INTOSAI expert is to participate on each IAASB task force, assisted by two to three INTOSAI back-office experts. To the extent possible, the experts should represent different geographic areas and different organizational models (both auditor general and court models).

Based on their knowledge and experience, the experts will represent the broadly based interests of INTOSAI rather than their own SAIs. In addition to working on the IAASB task forces, the experts will consider, and if necessary propose, additional guidelines for practice notes. Practice notes will elaborate on specific public sector perspectives, in addition to what is included in the ISA, and provide guidance as to how the standard should be applied in the public sector. An INTOSAI financial auditing guideline will comprise both an ISA and a practice note.

There may also be topics that are highly relevant for public sector auditors but not for private sector auditors, such as compliance audits. Since there will be no applicable ISA in such areas, INTOSAI will need to develop its own guidance. At the INTOSAI Congress in Budapest, formal establishment of a separate INTOSAI working group, led by the Norwegian SAI, to address these areas will be proposed for approval.

Recent INTOSAI Activities

As reported in the April 2004 Journal, elected INTOSAI experts, as well as representatives from IFAC, attended a meeting in Stockholm in January 2004 hosted by the Swedish project secretariat. The group discussed the cooperation between INTOSAI and IFAC, the general framework for the work to be performed, the process for developing the ISAs and practice notes, and the role of the INTOSAI experts. The Stockholm meeting was an excellent opportunity for the various parties to meet and discuss progress to date and future plans.

In March 2004, the Cameroonian SAI hosted a meeting of the Working Group on Financial Audit Guidelines. Representatives from IFAC and one of the INTOSAI experts involved in an IAASB task force also participated in the meeting. The purpose of the meeting was to provide a status report on work carried out to date; agree on short- and long-term plans, priorities, and ambitions; and discuss cooperation and contact with IFAC, the World Bank, and the INTOSAI community and other challenges associated with the work. The group also received feedback based on INTOSAI’s participation in the IAASB task force working on ISA 230 - Documentation. At a June 2004 meeting in Oslo, the Auditor General of Norway hosted a meeting of INTOSAI representatives to discuss the terms of reference for developing financial auditing guidelines for compliance audit.

Participants at the meeting in Cameroon also discussed some of the fundamental differences between the public and private sectors and the related challenges in developing financial auditing guidelines based on the ISAs. An example of this is the need for a common language in the standards that is meaningful to both public and private sector auditors. Another example is the public sector auditor’s extended mandate, which includes elements of compliance as well as financial audit. At the meeting, participants agreed to an interim way forward in regard to these matters.

INTOSAI representatives from Norway, Sweden, and the United Kingdom at the June 2004 meeting in Oslo.
INTOSAI representatives from Norway, Sweden, and the United Kingdom at the June 2004 meeting in Oslo.



The cooperation between INTOSAI’s ASC and IFAC’s IAASB in developing international audit standards and guidelines provides many advantages. It is an excellent opportunity for INTOSAI to participate in a highly developed and professional international standard-setting process. Identifying and discussing issues from various systems and points of view can also enhance the quality of the standards and guidelines. This will be important in helping to establish robust best practice standards and guidelines that will benefit both the public and private sectors.

The knowledge built by participating in the IAASB task forces will be advantageous for INTOSAI in developing practice notes to provide specific guidance for public sector auditors. This working process will help INTOSAI develop the fourth level of guidance in a quicker and more efficient way than if it had carried out the work on its own. This is an advantage for the entire INTOSAI community—especially for countries that today do not have their own standards or guidelines.

Challenges still remain for INTOSAI, however. There is a continuing need for qualified experts to participate in IAASB task forces. Another challenge is the need for continued funding to ensure diversity related to INTOSAI’s participation in the work. Translating the guidance into INTOSAI’s five official languages will give rise to both linguistic and financial challenges in the future.

The cooperation agreement also has advantages for IFAC. IAASB’s Chairman, John Kellas, sums up the cooperation as follows:

IAASB is delighted that we have an active working relationship with INTOSAI. We believe that the potential for a common core of auditing standards used by both Supreme Auditors and the private sector is a step towards common understanding and mutual acceptance of audit reports by the two sectors in a global context. IAASB has been very appreciative of the participation of INTOSAI members on our task forces and we hope the interaction will prove beneficial to all parties as new standards are completed and issued.

For an update on the work on specific ISAs and practice notes, see “Inside INTOSAI” on p. 36.