Introduction
Auditing standards refer to principles that are set by either a government or an independent body in order to govern the practice of auditing. In the United States, the US Public Company Accounting Oversight Board (PCAOB) is the body that is mandated to set standards for auditing and assurance activities (McDonnell, 2004). In past years, the body delegated the responsibility to accountants but later decided to set the standards itself to avoid compromise of quality. Several other bodies that are involved in setting auditing standards include the Auditing Standards Board (ASB) and the International Auditing and Assurance Standard Board (IAASB) (Well, 2012). There have been debates concerning which is the best board to set auditing standards for the United States of America. Based on their performance and quality of standards, IAASB should set auditing standards for the U.S.
Discussion
The ASB’s main responsibility is to offer guidance on performance and quality control with regard to audits in non-public companies (AICPA, 2012). In addition, the board is supposed to improve and facilitate the implementation of newly developed auditing services. On the other hand, the IAASB is an independent body that sets standards for auditing and assurance for international audit firms. In addition, it facilitates the use of both national and international auditing and assurance standards in the practice of auditing (Washington, 2012).
It is vital for the United States to adopt international accounting standards in addition to its national standards. This would be beneficial because it would aid in comparing the performance of U.S companies with international companies, thus helping investors to make informed investment decisions. In addition, it would help to make accounting rules easier and minimize compliance costs that companies incur (Chasan, 2012). As such, IAASB should be the body to set auditing standards for the U.S.
PCAOB has power to regulate all auditors, whether local or foreign. However, it is not evident as to what extent it should regulate foreign auditors. The advantage of having PCAOB to set audit standards is that the process that is used in setting auditing standards involves discussion, participation of firms and companies, and it is observed by different participants to avoid biasness (McDonnell, 2004). This ensures that the standards that are established are fair to all auditors and companies involved. However, there is a disadvantage of PCAOB setting auditing standards for the US. There is lack of a definite provision as to the extent to which PCAOB requirements bind foreign investors (Chasan, 2012). As such, it gives an advantage to foreign auditors at the expense of local auditors. For example, Chinese companies have been involved in fraud activities, which have caused an auditing dispute between the U.S and China (Lubman, 2013). In addition, the activities of PCAOB are funded by publicly traded companies and auditing firms this increasing costs. Private companies are not under their jurisdiction and it would be necessary to have a body that governs all companies. PCAOB has experienced several challenges that have undermined its efficiency such as erroneous audits due to poor training of auditors (Chasan, 2012).
ASB’s responsibility is to offer quality control, auditing and attestation statements and standards for non-public companies (AICPA, 2012). The advantage of ASB setting audit standards is because of its workforce that comprises more than 30 task forces that ensure that all issues are addressed satisfactorily (Washington, 2012). However, it only sets standards that govern firms that audit non-public companies. Publicly owned companies are not under its jurisdiction and it cannot govern their auditing activities. Therefore, its auditing scope is very narrow. IAASB is an independent body that sets international auditing standards that are applied internationally. This means that their auditing standards are of high quality and are therefore reliable (Well, 2012). Considering the need for international standards in the US, IAASB could be the best body to set auditing standards.
IAABS should set auditing standards in the US because of the following reasons. First, its standards are of higher quality compared to the standards of either ASB or PCAOB because it is an international body. This ensures that there is no compromise, and that the standards of auditing match the standards of other countries around the globe. Secondly, it would enable investors make better decisions by enabling them compare the performance of US companies and other international companies. Thirdly, unlike PCAOB that is funded by auditing firms and publicly owned companies, IAABS funds its own activities and as such, it does not increase the costs incurred by companies for audits (Well, 2012).
Conclusion
Several bodies are involved in setting auditing standards in the U.S. PCAOB sets standards for publicly owned companies while ASB sets standards that govern non-public companies. IAABS is an international body whose role is to set auditing standards that govern international firms involved in the auditing service. It combines both national and international auditing standards to ensure that the auditing standards that govern auditing firms are of high quality and that they are in the best interest of the public. IAABS is the body that should set auditing standards in the US because of its international approach to auditing. In addition, it would present opportunities to investors to make decisions that are more informed by comparing the performances of companies from an international standards’ perspective.
References
AICPA. (2012). Auditing Standards Board. Web.
Chasan, E. (2012). PCAOB Says Staffing, Training Among the Root Causes for Audit Deficiencies. Web.
Lubman, S. (2013). What U.S. –China Auditing Dispute Means for Chinese Business Culture. Web.
McDonnell, P. (2004). The PCAOB and the Future of Oversight. Web.
Washington, H. (2012). Auditing Standards Board. Web.
Well, J. (2012). Do not Cram Audits down Investor’s Throats. Web.