Based on its own observations and consultations with market participants, the World Bank observed in 2004 that Mexican Generally Accepted Auditing Standards (GAAS) are "broadly comparable" with International Standards on Auditing (ISAs) promulgated by the International Auditing and Assurance Standards Board. The 2006 self-assessment prepared by the Mexican Institute of Public Accountants, the auditing standard-setter, as a part of the International Federation of Accountants' Member Body Compliance Program, stated that the policy of the Institute is to eliminate differences between national pronouncements and ISAs. Although acknowledging the progress made by Mexico in moving toward compliance with international standards, the World Bank made a number of recommendations to improve the existing practices. Among other issues, it recommended establishing an independent oversight body for audit practitioners that will enforce compliance with accounting and auditing standards and the code of ethics, strengthening enforcement mechanisms and educational requirements, and finally considering the full elimination of differences between Mexican GAAS and ISAs.

General Overview

Auditing standards in Mexico, known as bulletins, are set by the Auditing Standards and Procedures Commission (Comisión de Normas y Procedimientos de Auditoría, or CONPA) of the Mexican Institute of Public Accountants (Instituto Mexicano de Contadores Publicos, or IMCP). The IMCP is a self- regulated organization which oversees the accounting profession in Mexico, according to a 2004 World Bank review of the accounting and auditing environment in Mexico. In addition to its standard-setting responsibilities, the IMCP is in charge of overseeing professional conduct of auditors, conducting investigations, and imposing sanctions, as well as establishing education requirements. It is a member of the International Federation of Accountants (IFAC) and the International Accounting Standards Board (IASB).

The World Bank report further explains that all entities that are supervised by a regulatory agency must have their financial statements audited. Specifically, insurance companies and guarantee issuers must submit their financial statements to the National Insurance and Sureties Commission (Comision Nacional de Seguros y Fianzas, or CNSF), while listed companies, brokerage firms, and banks must present the statements to the National Banking and Securities Commission (Comision Nacional Bancaria y de Valores, or CNBV). Both the CNBV and the CNSF have established procedures to review financial statements of the regulated entities in order to enforce compliance with accounting and auditing requirements. The 2006 Securities Market Law (Ley de Mercado de Valores, or LMV) provides the foundation for enforcing accounting and auditing standards in listed companies and other securities market participants. Prior to the adoption of the law, the powers of the CNBV to sanction auditors had been restricted -- they were stipulated in the circulars and not under the law. Both organizations rely on external auditors in ensuring compliance with accounting and auditing requirements. The National Commission for Pension Funds (Comision Nacional del Sistema de Ahorro para el Retiro, CONSAR) supervises pension fund administrators and requires entities under its supervision to submit the financial statements.

Based on its own observations and consultations with market participants, the 2004 World Bank report observed that Mexican Generally Accepted Auditing Standards (GAAS) "are well developed, although steps are needed to further harmonize them with International Standards on Auditing (ISA). A strengthening of the code of ethics -- consistent with the recent proposals of the International Federation of Accountants -- is also needed, which has led to the Mexican Institute of Accountants recently taking steps toward achieving that goal" (cover page). The 2006 self-assessment prepared by the IMCP as a part of the IFAC's Member Body Compliance Program explains that "existing national standards are compared with IAASB [International Auditing and Assurance Standards Board] pronouncements to eliminate to the extent possible differences between the national standard and the IAASB pronouncement" (p. 28).

Although acknowledging the progress made by Mexico in moving towards compliance with international standards, the World Bank made a number of recommendations to improve the existing practices. Among other issues, it recommended establishing an independent oversight body for audit practitioners that will enforce compliance with accounting and auditing standards and the code of ethics, strengthening enforcement mechanisms and educational requirements, and finally considering the fully elimination of differences between Mexican GAAS and ISAs.

The Principles

ISA 200 Objective and General Principles Governing an Audit of Financial Statements (effective 2006)

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ISA 210 Terms of Audit Engagements (effective 2006)

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ISA 220R Quality Control for Audits of Historical Financial Information (effective 2005)

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ISA 230R Documentation (effective 2006)

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ISA 240 The Auditor’s Responsibility to Consider Fraud in an Audit of Financial Statements (effective 2004)

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The 2004 World Bank report stated that although there is a corresponding Mexican standard on the topic, "ISA provide more elaborate guidance on how the auditor should consider, from the outset of the audit process, factors that could lead to irregularities or errors in the financial statements. Also, ISA appear more up-to-date with the recent development of corporate governance practices, and better reflect the important role played by audit committees and other bodies charged with governance of corporate entities" (p. 14). However, the World Bank acknowledged that, as of the time of the assessment, the exposure draft of the new Bulletin 3070 gave outstanding consideration "to fraud as part of an audit of financial statements." No information as to the compliance of the exposure draft with ISA 240 is publicly available.

ISA 250 Consideration of Laws and Regulations in an Audit of Financial Statements (effective 2004)

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ISA 260 Communications of Audit Matters With Those Charged With Governance (effective 2004)

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The 2004 World Bank report stated that "there is no Mexican standard covering communications of audit matters with individuals trusted with governance" (p.14).

ISA 300 Planning an Audit of Financial Statements (effective 2004)

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ISA 315 Understanding the Entity and Its Environment and Assessing the Risks of Material Misstatement (effective 2004)

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The 2004 World Bank report stated that "although the issue of knowledge of business is dealt with in several Audit Standards and Procedures, none addresses it as specifically as ISA do; and the requirement for auditors to ensure that less experienced professionals obtain adequate knowledge of business transactions is not explicitly set forth" (p.14).

ISA 320 Audit Materiality (effective 2004)

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ISA 330 The Auditor’s Procedures in Response to Assessed Risks (effective 2006)

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ISA 402 Audit Considerations Relating to Entities Using Service Organizations (effective 2004)

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ISA 500 Audit Evidence (effective 2004)

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The 2004 World Bank report stated that "Mexican GAAS specifically address the issue of audit evidence mainly through Bulletin 3060 and to a lesser extent through Bulletins 3040 and 3050. Bulletin 3060 defines the fundamental underlying assertions attached to the financial information and through which the audit evidence should be obtained. However, contrary to ISA 500 little guidance is provided on the quantity and quality of audit evidence to be obtained" (p. 14).

ISA 501 Audit Evidence - Additional Considerations for Specific Items (effective 2004)

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ISA 505 External Confirmations (effective 2004)

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ISA 510 Initial Engagements — Opening Balances (effective 2004)

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ISA 520 Analytical Procedures (effective 2004)

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ISA 530 Audit Sampling and Other Selective Testing Procedures (effective 2004)

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ISA 540 Audit of Accounting Estimates (effective 2004)

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ISA 545 Auditing Fair Value Measurements and Disclosures (effective 2004)

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ISA 550 Related Parties (effective 2004)

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ISA 560 Subsequent Events (effective 2006)

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ISA 570 Going Concern (effective 2004)

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ISA 580 Management Representations (effective 2004)

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ISA 600 Using the Work of Another Auditor (effective)

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ISA 610 Considering the Work of Internal Auditing (effective 2004)

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ISA 620 Using the Work of an Expert (effective 2005)

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ISA 700 The Auditor’s Report on Financial Statements (effective 2006)

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ISA 701 Modifications to the Independent Auditor's Report (effective 2006)

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ISA 710 Comparatives (effective 2004)

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ISA 720 Other Information in Documents Containing Audited Financial Statements (effective 2004)

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ISA 800 The Auditor’s Report on Special Purpose Audit Engagements (effective 2006)

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