Principles for Oversight of Independent Auditors (1997)
The Council of Securities Regulators of the Americas ("COSRA") supports full and fair disclosure of information about public enterprises, including presentation of financial information. Full and fair disclosure is essential to investor protection, enhances investor confidence, and promotes market liquidity and efficiency.
Independent auditors play a critical role in enhancing the reliability of financial information by attesting as to whether the financial statements prepared by management fairly present the financial condition and past performance of the public enterprise in compliance with accepted standards. Audits should be conducted in accordance with a comprehensive body of high quality auditing standards.
To improve the quality and oversight of financial information reported by public enterprises, COSRA members studied mechanisms to enhance oversight of independent auditors. In this sense, COSRA members determined that to effectively oversee independent auditors, an oversight framework would require the following components:
- Qualifications: ensuring that independent auditors are properly qualified and required to maintain professional competence;
- Independence: ensuring that auditors are independent in fact and appearance from the enterprises that they audit;
- Oversight: monitoring compliance with applicable laws, regulations and standards imposed by self-regulatory or professional organizations and/or government authorities; and
- Enforcement and Sanctions: enforcing laws, regulations and standards governing the activities of independent auditors.
The principles set forth herein are intended to assist securities market regulatory authorities in developing and enhancing legal and regulatory structures for the oversight of independent auditors. The adoption of mechanisms to implement these principles will vary and depend on regulatory structures in each jurisdiction. These principles complement COSRA's "Framework for Full and Fair Disclosure in the Americas" (1994) and the "Declaration on Combatting Bribery in the Americas" (1996). COSRA members recognize that it is essential that regulators work with the auditing profession in order to develop and implement mechanisms to effectively oversee independent auditors. These efforts will also need to be enhanced by cooperation between regulators and industry to increase the public's knowledge of auditing.