Strengthening Financial Reporting and the Audit Function

Near-Term Measures:In the near term, the following 'convergence' processes must be completed to benefit the global financial markets and their stakeholders:

• Complete the effort by the International Accounting Standards Board (IASB) and the Financial Accounting Standards Board (FASB) to harmonize differences between international and U.S. reporting standards, as currently envisioned. Complex rules must be resisted and withdrawn. Today's rules can produce financial statements that virtually no one understands. Standards need to be principles-based.
• Launch and complete a similar process for the convergence of national audit standards, which should make use of the International Standards on Auditing (ISA) that already have been developed with the oversight of the Public Interest Oversight Board (PIOB) of the International Federation of Accountants (IFAC).
• Similarly, minimize national differences in the oversight of auditors and enforcement of relevant audit standards, including rules relating to the way auditors conduct their activities. The recently established Independent Forum of International Audit Regulators (IFIAR) may be the appropriate body to pursue this objective. We are encouraged by recent statements from the U.S. audit regulator, the Public Company Accounting Oversight Board (PCAOB), that it intends to join and actively participate in IFIAR.

Consistency in business reporting standards, audit standards and enforcement of audit standards is necessary to support a global economy with the lowest cost of capital. Alignment of the accounting profession and the regulators around common objectives and application of principles-based standards will enable companies to produce consistent global information. A sensible global regulatory framework also will reduce barriers to growth and entry by other audit firms or networks in our profession, thus providing increased choice for auditing services.

Longer-Run Measures: Over the longer run, experts agree that the current systems of reporting and auditing company information will need to change — toward the public release of more non-financial information (some or much of which may be industry-specific) customized to the user, and accessed far more frequently than is currently done. It is time, therefore, for all global capital markets stakeholders involved to launch a process that will lead to the development of a new business reporting model, with a clear identification of the role of the independent audit and requirements dictated by that model.

Our firms pledge to work with issuers, investors, regulators and other market participants to develop this new model including ways of disseminating a broad array of company information to users in a manner more suited to the Internet age than the traditional quarterly and annual reports.