Developing National Economies by Developing PAOs

Alan Edwards, Member, IFAC PAODC and Marta Russell, Technical Manager, Quality & Development, IFAC | November 7, 2019 |

Available Languages: English | French

I am an accountant and I love history and politics. So, all my interests come together in the work of Jacob Soll, Professor of History and Accounting at the University of Southern California. Hence, when the UK Department for International Development (DFID) and IFAC wanted to quantify the impact of their investment in professional accountancy organization (PAO) development, I started from an historical perspective. One of my favorite quotes of his sums up my initial reaction to even doubting there is a link:

“From Renaissance Italy, the Spanish Empire, and Louis XIV’s France to the Dutch Republic, the British Empire, and the early United States, effective accounting and political accountability have made the difference between a society’s rise and fall. Over and over again, good accounting practices have produced the levels of trust necessary to found stable governments and vital capitalist societies, and poor accounting and its attendant lack of accountability have led to financial chaos, economic crimes, civil unrest, and worse.”

Jacob Soll, The Reckoning – Financial Accountability and the Rise and Fall of Nations


But asserting the value of investing in the accountancy profession is not enough to pass an evidence-based public policy test. So, led by IFAC and an expert consultant, a small group of us have been re-assessing what evidence there is to demonstrate a positive relation between stronger PAOs and economic and social development.

All public policy is contested and very few non-crisis aid initiatives have universal support. However, for many of us, the argument for investing in the accountancy profession is strong. DFID and IFAC, as part of the business case for the PAO Capacity Building Program, developed a compelling theory of change. This links inputs (both financial and change management support), outputs (e.g., strategic PAO plans) and outcomes (e.g., recognition of a PAO’s value by key stakeholders) with impact on the economic development of a country. It is clear that real, visible impact is possible only in the long term. So how do we validate that theory of change?

What we found is that there is a lot of supportive evidence at a macro level and in critical sectors of the economy. We know for example that the Nexus reports commissioned by IFAC from the Centre for Economics and Business Research (Cebr) found the accountancy profession is linked to national economic growth and improved living standards. It estimated that the global profession contributes USD$575 billion annually to the global economy and shows the correlation between the share of accountants in total employment, and both GDP per capita improvement and improved human development outcomes.

At the country level, the information captured by IFAC through the Member Compliance Program illustrates both the status quo and the progress being made by the PAOs and the individual jurisdictions. The PAO Capacity Building Program delivers stories that show the work being done, the challenges, successes, and crucial lessons learned. It also captures internal statistics from the PAOs it supports to show details such as student number growth, pass rates, and PAO revenue.

The UK and Ireland profession, via the Consultative Committee of Accountancy Bodies (CCAB), has also looked across all sectors. Their advisors, Oxford Economics, found that the accountancy profession contributed £59 billion to UK GDP in 2017, with total employment of around 613,000 in accountancy roles. The accountancy profession also generated an estimated £8.9 billion in tax revenue or 1.5 percent of all Her Majesty’s Revenue and Customs (HMRC) receipts in 2017. Similar positive results were shown in Ireland.

On a sector basis, we found compelling evidence that accountancy is critical to the development of small- and medium-sized enterprises as the driving force of many countries’ economies. We also identified evidence that accountancy has a key role in the growth of financial services and is fundamental to stronger public financial management.

However, all the literature shows that research to establish the type of causal link we would all want is challenging, if not impossible. Hence, whilst the findings suggest an association between the accountancy profession and economic development, it cannot be interpreted as a causal relationship.

Perhaps there is no perfect answer.

One idea is that we should put more energy into the impact the accountancy profession has on social development. As someone bought up in social housing in the UK, I know from first-hand experience the social mobility benefits the profession can offer. Much more importantly, those of us involved in the DFID-funded IFAC PAO capacity building projects have seen the societal impact of PAO investment in the developing world, not least in opening opportunities for women to enter the profession.

Although our politicians love it, public policy analysis needs more than anecdote. So, whatever our personal stories, there may be opportunities for more robust analysis and data. This requires effort on the part of all members of IFAC’s global network. For example, PAOs could champion the economic impact assessment approach used by CCAB. In the social development area, one approach that is gaining traction is an analysis of social return on investment as a tool to assess impact. There are excellent examples of PAOs investing in their jurisdictions.

An excellent example of building the profession while helping to secure access for all is the South African Institute of Chartered Accountants’ Thuthuka program. SAICA developed a way to provide a consistent flow of educated, competent accountancy professionals that represent South Africa’s demographic via initiatives at primary, high school and tertiary education levels. I am sure other PAOs have similar great social development stories to tell.

There is no doubt that IFAC, its volunteers and partners will continue to advocate with donors for investment in PAO development. As a UK accountant I am proud that Britain started the move to professionalization by creating accountancy institutes to support the first industrial revolution. It is pleasing to see DFID now assisting the profession’s global growth as we gear up for the 4th industrial revolution.

 

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