How international standards on auditing were born: from New York to Munich
In the 20th century audit went through two major changes: first the USA required by law an independent audit for listed companies, then accountants all over the world began working on unified auditing standards.
An auditor in Tashkent and an auditor in Toronto use the same book, the international standards on auditing. How did this come about? The answer lies in two stages of the 20th century: first a law in a single country, then agreement across the whole world.
What did the USA require of listed companies?
In the 1930s the securities market in the USA began to be regulated by federal laws. The Securities Act of 1933 and the Securities Exchange Act of 1934 required registered companies to have their financial statements audited by independent accountants. The SEC was given the power to define who counts as an "independent" accountant.
An interesting detail: during the discussion of the bill, a representative of the profession said that almost all companies on the New York Stock Exchange were already undergoing independent audits. A Columbia University study also shows that most public companies were audited even before the SEC requirement. In other words, the law did not invent a new custom; it made an existing good practice mandatory for everyone.
What happened in Munich?
On 7 October 1977, at the 11th World Congress of Accountants in Munich, the International Federation of Accountants (IFAC) was founded. According to IFAC, it started out with 63 founding members from 51 countries.
The next steps were as follows: - Soon afterwards the International Auditing Practices Committee (IAPC) was set up under IFAC and initially began issuing international auditing guidelines. - From 1991 the committee's documents began to be called International Standards on Auditing (ISA). - In 2001 IFAC reviewed the committee's structure, and in 2002, as a result of that review, the IAPC was renamed the International Auditing and Assurance Standards Board (IAASB).
How does this history connect to an auditor in Uzbekistan?
Under Article 9 of the Law "On Auditing Activity" (25 February 2021, No. ZRU-677), the international standards on auditing are the standards of auditing activity. In other words, the work that began at the Munich congress has today become the local auditor's everyday manual.
| Aspect | Early 20th century | Today |
|---|---|---|
| Audit requirement | In many countries only custom or a separate industry rule | Set by law |
| Who writes the rules | Each country or firm in its own way | The IAASB's international standards |
| Auditor's report | Its form varied from firm to firm | A structure set by the standard |
| Comparing audits from different countries | Difficult | Easier thanks to a common standard |
In short, if in the 1930s the USA said "audit is mandatory", from 1977 onwards the world began looking for a common answer to the question "how should an audit be carried out".
See also
Sources
- Columbia Business School: Public company auditing around the Securities Exchange Act · most public companies were audited even before the SEC requirement
- SEC Historical Society: The Securities Act of 1933 (George P. Fritz gallery) · the 1933 bill and independent audit; most NYSE companies were already audited
- Congressional Research Service RS21257: Auditing and Accounting Regulation: Key SEC Powers · the SEC's power to define the concept of an "independent" accountant
- IFAC: About · IFAC 1977, 63 founding members, 51 countries
- IAS Plus: International Federation of Accountants (IFAC) · 7 October 1977, Munich, 11th World Congress of Accountants
- S. A. Zeff: IAPC and International Auditing Guidelines (Rice University) · IAPC: first international auditing guidelines, ISA from 1991, the IAASB in 2002
- ICAEW: Knowledge guide to International Standards on Auditing · ISAs have been issued since 1991
- IAS Plus: IFAC changes its structure for setting auditing standards (2001) · the 2001 review of the IAPC structure
- Law "On Auditing Activity" (25 February 2021, No. ZRU-677), Article 9 · international standards on auditing as the standards of auditing activity