LYNCEUS MANAGEMENT CONSULTING
RESPONSE TO THE EXPOSURE DRAFT
OF THE REVISIONS TO IFAC STATEMENTS OF MEMBERSHIP OBLIGATIONS 1-7 (REVISED 202X)
PART B: Responses to Specific Questions related to Revisions to SMOs 1-7
Q1: Do you agree with the proposed revisions for SMO 1 regarding quality management? If not, please provide an explanation and indicate what changes you/your organization would suggest.
Overall response: Agree, with comments below
Detailed comments (if any):
Q1: Do you agree with the proposed revisions for SMO 1 regarding quality management? If not, please provide an explanation and indicate what changes you/your organization would suggest.
Overall response: Agree, with comments below
Detailed comments (if any):
- Para. 11 (b) – the newly introduced term “satisfactory” instead of “adequate” will need objective criteria as it is a significant area of judgement as to what might be satisfactory system of quality management.
- Para. 24 – consider including the term “design” before “guidelines” as follows: “Examples of procedures that may be considered in the quality assurance review system design guidelines include:”
- Para. 35 – 38 – paragraphs could be restructured for clarity, see specific comments below.
- Para. 35 (a) – consider adding “consideration of” before the subsequent wording.
- Para. 35 (c) – consider adding “and review of other relevant documentation” which would correspond to Para. 38 or in Para. 38 adding “Other” before “Procedures the quality assurance team may consider…”
- As Para.36 is an elaboration of Para. 35 (a), the introductory sentence to Para. 36 should reflect that in the wording (as is the case for Para. 37 reflecting Para. 35 (b)).
- Para. 36 (a)(i) – consider splitting the sub-paragraph into two separate sub-paragraphs to ease the understanding and rewording the part starting from “designing and performing of monitoring activities…”, e.g. “the design and performance of monitoring activities to identify and assess deficiencies and provide a basis remediation”
- Para. 36 (a)(ii) – if the national standards are assumed, this should be explicitly stated in the paragraph to position it against Para. 36 (b). If under professional standards the IESBA Code is assumed, this could sit under Para. 36 (b) as an international set of standards as opposed to IESBA Code adopted and modified for national context.
- Para. 47 – “The body responsible for the quality assurance program shall have a process for determining the impact of the individual’s ability to quality as a quality assurance review team member if their ability to practice public accountancy has been limited.” - the highlighted word should be amended to “qualify”.
Q2: Do you agree with the proposed revisions for SMO 2 that encourage IFAC member organisations to evaluate flexible entry requirements and professional development pathways to provide broad access to professional accounting education programs? If not, please provide an explanation and indicate what changes you/your organization would suggest.
Overall response: Agree (with no further comments)
Overall response: Agree (with no further comments)
Q3: Do you agree with the proposed revisions in SMO 3 clarifying expectations of IFAC member organisations concerning the ISA for LCE? If not, please provide an explanation and indicate what changes you/your organisation would suggest.
Overall response: Agree, with comments below
Detailed comments (if any):
Para. 6 – Consider adding “and IFAC member organisations” after “Responsible parties” to emphasize that IFAC members should participate in, promote or advocate for the evaluation of applicability of ISA for LCE.
Overall response: Agree, with comments below
Detailed comments (if any):
Para. 6 – Consider adding “and IFAC member organisations” after “Responsible parties” to emphasize that IFAC members should participate in, promote or advocate for the evaluation of applicability of ISA for LCE.
Q4: Do you agree with the approach of incorporating sustainability-related standards into the extant SMO 7? If not, please provide an explanation and indicate what changes you/your organization would suggest.
Overall response: Agree, with comments below
Detailed comments (if any):
Consider removing “accounting standards” after IFRS as the full written form of the term will lead to double use of term “standards” i.e. International Financial Reporting Standards Accounting Standards”.
Overall response: Agree, with comments below
Detailed comments (if any):
Consider removing “accounting standards” after IFRS as the full written form of the term will lead to double use of term “standards” i.e. International Financial Reporting Standards Accounting Standards”.
PART C: Phased approach to incorporating other international sustainability standards
Q5: Do you agree with the proposed phased approach (shown in the tentative timeline table in the explanatory memorandum) on incorporating the other international sustainability-related standards into the SMOs and potentially expanding the scope of SMO 1 for mandatory sustainability assurance? If not, please provide an explanation and indicate what changes you/your organization would suggest.
Overall response: Agree, with comments below
Detailed comments (if any):
Consider moving the effective date for SMO 3 and SMO 4 forward to 1 January 2028 due to emphasize the importance of the related standards to ensuring quality audits and related services.
Changes to IES generally take longer to adopt and implement as the impact of the change spans not just PAOs but also universities and learning providers in many jurisdictions and the adaptation process within the remit of Ministries of Education tends to be much slower and more conservative.
Q5: Do you agree with the proposed phased approach (shown in the tentative timeline table in the explanatory memorandum) on incorporating the other international sustainability-related standards into the SMOs and potentially expanding the scope of SMO 1 for mandatory sustainability assurance? If not, please provide an explanation and indicate what changes you/your organization would suggest.
Overall response: Agree, with comments below
Detailed comments (if any):
Consider moving the effective date for SMO 3 and SMO 4 forward to 1 January 2028 due to emphasize the importance of the related standards to ensuring quality audits and related services.
Changes to IES generally take longer to adopt and implement as the impact of the change spans not just PAOs but also universities and learning providers in many jurisdictions and the adaptation process within the remit of Ministries of Education tends to be much slower and more conservative.
Part D: Proposed changes to enhance clarity in the SMO document
Q6: Do you agree with other proposed changes to the SMO document (e.g., removing repetition from individual SMO text and consolidating to introductory text)? If not, please provide an explanation and indicate what changes you/your organization would suggest.
Overall response: Agree, with comments below
Detailed comments (if any):
Q6: Do you agree with other proposed changes to the SMO document (e.g., removing repetition from individual SMO text and consolidating to introductory text)? If not, please provide an explanation and indicate what changes you/your organization would suggest.
Overall response: Agree, with comments below
Detailed comments (if any):
- Preface Para. 22 – Consider clarifying in what form a written self-assessment of their actions and compliance should be presented (e.g. in the action plan or self-assessment checklists or a new document).
- Preface Para. 24 – Consider adding “written” before “…self-assessments to demonstrate their understanding of…” and the format of the reporting of the self-assessment findings (e.g. in action plan, self-assessment checklists, other).
- SMO 5 – Consider removing “standards” after IPSAS as the full written form of the term will lead to double use of term “standards”.
- SMO 6, para 3 – Consider removing “standards” after IFRS as the full written form of the term will lead to double use of term “standards”.
Part E: SMO fulfillment framework
Q7: Do you agree with simplifying the SMO Fulfilment statuses to three levels? If not, please provide an explanation and indicated what changes you/your organization would suggest.
Overall response: Agree, with comments below
Detailed comments (if any):
The simplification will reduce the burden on both PAOs and IFAC staff in needed to interpret and classify their status of compliance, the new classification is very clear cut in its terminology, the definitions (descriptions) still retain the original six statuses.
The removal of the reference to “Consider” status is reasonable as it easily overlaps with the status “Plan” and in the current version of status classification leaves the appropriateness of status use to interpretation.
Q7: Do you agree with simplifying the SMO Fulfilment statuses to three levels? If not, please provide an explanation and indicated what changes you/your organization would suggest.
Overall response: Agree, with comments below
Detailed comments (if any):
The simplification will reduce the burden on both PAOs and IFAC staff in needed to interpret and classify their status of compliance, the new classification is very clear cut in its terminology, the definitions (descriptions) still retain the original six statuses.
The removal of the reference to “Consider” status is reasonable as it easily overlaps with the status “Plan” and in the current version of status classification leaves the appropriateness of status use to interpretation.
Part F: Request for General Comments
Q8: Are there other matters that IFAC should consider as it reviews and finalizes the proposed revisions?
Overall response: See comments below
Detailed comments (if any):
General comments:
Consider referencing the IFAC Strategic Planning Toolkit in the MCP requirements to create a direct link between IFAC resources and specifically SPT and the MCP so that PAOs understand the connection and specifically highlight that the SPT is an instrument that enables PAO compliance to SMOs and integral part of the MCP.
SMO 1:
For example, smaller PAOs may consider the scope of the QAR system based on their capabilities (i.e. perform fewer QAR in a given period but to a higher standard of quality) or the option to outsource the QAR with the responsibility for the conclusions and communications made to firms retained by the PAO made explicit.
Q8: Are there other matters that IFAC should consider as it reviews and finalizes the proposed revisions?
Overall response: See comments below
Detailed comments (if any):
General comments:
Consider referencing the IFAC Strategic Planning Toolkit in the MCP requirements to create a direct link between IFAC resources and specifically SPT and the MCP so that PAOs understand the connection and specifically highlight that the SPT is an instrument that enables PAO compliance to SMOs and integral part of the MCP.
SMO 1:
- Para. 13-16 – the SMO should reflect instances where PAOs are responsible for quality assurance but are constrained by resources as the SMO should enable PAOs. The section on the Scope of QAR system should explicitly include criteria for reducing the scope of the firms, services and engagements subject to quality assurance review whilst still ensuring that the QAR system is fit-for purpose. This will provide a foundation for small PAOs to undertake QAR and reduce the risk of the scoping criteria being arbitrary.
- Para. 34 – the implication for the scope of QAR from acquisition or divesture by a firm under QA review could be explicitly mentioned e.g. the possibility of extending the QA review to the newly acquired services in the current review period which entails parallel engagement with the previous owner. Possible impact needs to be noted to provide PAOs an understanding of how the QAR might be augmented and reduce ambiguity.
- Para. 64 –consider amending the wording of the paragraph to reflect a proactive approach by the PAO to obtain the responses from the firm rather than a responsive approach to a firm providing a response, e.g. “The body responsible for the quality assurance review system shall obtain from the reviewed firm a timely written response to the recommendations and conclusions…”
For example, smaller PAOs may consider the scope of the QAR system based on their capabilities (i.e. perform fewer QAR in a given period but to a higher standard of quality) or the option to outsource the QAR with the responsibility for the conclusions and communications made to firms retained by the PAO made explicit.
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