IFAC: How We Can Help Shape the Future of Developing Nations
Russell Guthrie | IFAC Director, Quality Assurance and Member Body Relations
Sep 28, 2006 | at Africa Region Learning Workshop | Nairobi, Kenya | English
Good morning ladies and gentlemen. It is a pleasure for me to speak to you on this second morning of the Africa Region Learning Workshop. It is an honor for me to have the opportunity to share with you today IFAC’s key priorities related to the development of the worldwide profession. IFAC, as an international accountancy organization and standard-setter, has a number of key initiatives underway that focus on the growth of the accountancy profession and the needs of the profession in developing nations and transitioning economies. That is the focus of my discussion today; however, I would first like to thank those who have made this Workshop possible.
The generous sponsorship of the African Development Bank, and our co-sponsor, the World Bank, whose commitment to Africa and to the objectives of this Learning Workshop are greatly appreciated. ECSAFA, FIDEF and UNCTAD have also made important contributions and provided technical guidance as members of the Organizing Committee.
I would also like to say a special thank you to the staff of IFAC for their efforts in organizing this workshop, assisting with travel arrangements and support your work during the breakout sessions. They are an excellent team and I am proud of both their professionalism and their friendship.
Most importantly, I would like to recognize the commitment of you, the participants, who represent 37 African countries. As professional accountants, representatives of government, and academia in Africa, your presence here at the Workshop demonstrates the support and commitment you have for development and improvement.
I now would like to turn to IFAC and its focus on development of the profession. With 20 African professional accountancy bodies as its members, IFAC believed it was critical to take an active role in this Learning Workshop. In addition to the secretariat support provided by IFAC staff in organizing the Workshop, IFAC’s Developing Nations Committee and the Compliance Advisory Panel also held meetings here earlier this week in order to participate in these two days.
If there is one thing that is clear to me when I think of Africa is its diversity. With its significant geographic size, its diverse cultures and traditions, and with 53 countries, Africa does face unique challenges. With such diversity come different needs and priorities, but at IFAC we believe that through our common goals we can work together to address key issues and needs that are fundamental for all professional accountancy bodies.
I would like to now share with you some of the specific activities is currently undertaking to meet the challenges facing professional accountancy bodies and practitioners.
The first important initiative was established to strengthen the profession and support implementation of standards – and this resulted in the formation of the Developing Nations Committee. The Developing Nations Committee objectives include:
- Development and mentoring of existing and potential IFAC members
- Establishing strong working relationships with Donor Community
- Providing input to international standard setters on behalf of developing nations
- Producing guidance to assist in development of professional accountancy bodies
For an example of this type of guidance, the Developing Nations Committee launched new guidance November 2005 on Establishing and Developing a Professional Accountancy Body. The new guidance, available online through the IFAC website or on the CD-Rom included in your conference bag, is designed to assist national and regional accountancy bodies in building capacity around the world.
Based on feedback received in the past several months, we have also learned that it is considered a valuable tool for donor and development agencies in increasing the effectiveness and efficiency of development efforts related to the profession. This guide demonstrates our commitment to building the infrastructure necessary to contribute to economic growth and stability in emerging countries and to enhance performance by the profession globally. I am also extremely pleased to announce that part of the funding for this event is being used to translate this guidance into French with the assistance of UNCTAD.
Another sign of IFAC’s commitment to Developing Nations is evidenced by a recent IFAC Board decision to establish a pilot program to subsidize the participation of developing nations in IFAC Boards and Committees. $100,000 has been set aside to provide financial support to candidates from IFAC member bodies in developing nations to attend and participate in IFAC standard setting and other activities.
Another important IFAC initiative grew from IFAC’s recognition that - even with globalization and its undeniable impact on every country in the world - it is Small and Medium Enterprises (SMEs) that drive the growth of national economies. They drive job growth, wealth creation and stability. It is a fact in the United States, in the European Union and a fact in Africa. And it is our profession’s Small and Medium Practitioners (SMPs) that provide professional services to these companies.
The SMP Committee, formed in 2005, is a vigorous force within IFAC. Its members, from both developed and developing countries, seek to identify and address the most challenging issues facing SMEs and SMPs.
In July, the committee organized a forum in Hong Kong to discuss the challenges and opportunities facing SMEs and SMPs. Over 130 participants from 35 countries attended the conference, and their deliberations identified two significant challenges facing SMEs and SMPs: SMEs need financial reporting standards that are appropriate for their users’ needs and reduce the associated cost of compliance; and, in an increasingly globalized economy, SMPs should continue to explore new ways to support the growth and accountability of SMEs.
To help address these challenges, IFAC’s SMP Committee is taking a two-pronged approach to helping SMEs and SMPs converge and comply with international auditing and accounting standards – this approach includes helping to shape the form and content of international standards and providing practical assistance to SMPs and SMEs that have to use such standards.
For example, the SMPC is developing a guide to International Standards on Auditing for SMEs and a web-based knowledge resource for SMPs. Additionally, IFAC continues to respond to exposure drafts of international standard setters where an SMP or SME focus is needed.
In addition to the SMP and Developing Nations activities, are IFAC’s efforts to encourage quality in all that we do as a profession. Quality, for each professional accountant, begins with education and so I will mention some of the work of our Education Board.
IFAC’s International Accounting Education Standards Board seeks to bring consistency to accountancy education, training and certification around the world. Our global environment does, I believe, demand this kind of consistency. How else can we assure the public that a professional accountant practicing in the United Kingdom or France is as qualified as one practicing in Kenya or Senegal?
The Education Board has issued the International Education Standards which address the vital topics of education prior to qualification, the minimum education requirements to become a member of the professional body, the final assessment of professional competence and capabilities, the specific competence requirements for auditors and continuing professional education.
Another area of focus for the Education Board is ethics education. Last month, the Education Standards Board issued an information paper entitled Approaches to the Development and Maintenance of Professional Values, Ethics and Attitudes in Accounting Education Programs. The paper, which was the result of a wide-ranging research project into ethics education in the worldwide accountancy profession, is designed to stimulate discussion and debate on the subject of ethics education.
This information paper served as the basis for the Education Standards Board to develop a proposed International Education Practice Statement entitled Approaches to Developing and Maintaining Professional Values, Ethics and Attitudes. The proposed practice statement provides guidance to IFAC member bodies on how to achieve good practice in developing and maintaining professional values, ethics and attitudes in accordance with International Education Standards and suggests that member bodies may adopt an approach to ethics education based on the IAESB’s Ethics Education Framework. In addition, since ethics education is a lifelong commitment that begins when an individual begins training to become an accountant, and continues throughout a professional accountant’s career, the proposed new practice statement also provides guidance for member bodies on ethics education through continuing professional development.
In addition to the information paper and the practice statement, the Education Standards Board is preparing a toolkit on ethics education to assist member bodies, academic institutions and others in instilling a strong ethical foundation in the accountants of tomorrow.
Underpinning all of these activities is IFAC’s Member Body Compliance Program. IFAC has established a rigorous Member Body Compliance Program to provide clear quality benchmarks for professional accountancy bodies and to require the identification of required actions which all assist our members in continuously improving standards, quality control and support to members of profession. Through this program, IFAC seeks to contribute to the quality of financial reporting and thus to building sound market economies by facilitating convergence to international standards. Indeed, making best endeavors to converge national and international standards is a requirement for IFAC member bodies as set out in IFAC’s Statements of Membership Obligations (SMOs). The SMOs, which also require member bodies to implement quality assurance and investigation and discipline programs, form the basis of IFAC’s Member Body Compliance Program. These are the requirements for IFAC members and we are also prepared to take actions, and indeed have taken actions, to suspended or expel bodies that do not participate in the program or demonstrate persistent non compliance, I want to emphasize that the program is focused on encouragement and improvement and making progress.
Part 1 of the Compliance Program, a fact-based questionnaire to assess the regulatory and standard-setting frameworks in the home countries of each of IFAC’s members and associates, is now complete. This portion of the program provides information on the roles and responsibilities of IFAC members – which vary from jurisdiction to jurisdiction. Responses from all active members and associates have been posted on the IFAC website.
Part 2, the SMO Self-Assessment Questionnaire, was launched last December and approximately 35 responses been published with more to follow during this year. The responses from these questionnaires are important for several reasons: they provide a global snapshot of the accountancy profession from both a regulatory and standards perspective. Additionally, they can be used to help IFAC gauge where it needs to focus its efforts to support the development of the profession and to work to achieve convergence.
Lastly, but perhaps most importantly, the responses to the questionnaires will lead into Part 3 of the program – Development of Actions Plans. Member bodies will be required to develop action plans to close any gaps between current practice and the SMO requirements. These action plans will demonstrate the international accountancy profession’s willingness to be accountable for its actions to meet high standards, to deliver quality and to protect the public interest – all important responsibilities in the changing and complex environment in which we all work.
I now want to make a few comments about IFAC membership. One of IFAC’s objectives is to have a high quality professional accountancy body in every country in the world. As you can see from this map where countries without representation are indicated with light colors, we have important work to do in Central and South America, in Central Asia, in Southeast Asia.
And we have the most work to do in Africa – there are over 30 countries where the profession is not represented within IFAC. This represents both an opportunity and a challenge. This is not an easy task or one we can accomplish on our own. We need the sustained efforts of governments, professional bodies, educational institutions and donor assistance to make this objective a reality.
There is good news – several African professional bodies are making good progress and are actively working on their application and related compliance questionnaire requirements. We hope to consider a number of applications from the African continent during 2007. We look to the Developing Nations Committee, existing IFAC members and our regional accountancy bodies to mentor potential members.
I would like to emphasize that the IFAC membership requirements have been significantly strengthened in the past three years through the Member Body Compliance Program, which is overseen by the Public Interest Oversight Board for IFAC. Generally, the application process can take between 6 to 9 months. This includes preparation of the application and related compliance questionnaires, obtaining sponsorship from an IFAC member, having the application reviewed by staff, the Developing Nations Committee and the Compliance Advisory Panel – all this must take place before a recommendation is made to the IFAC Board and Council in November each year. The staff and the CAP have made a policy decision that only those applications submitted by May 31 each year will be considered for recommendation to the Council in November of that calendar year. We therefore strongly suggest that applicants submit materials in January or February to permit adequate time for these review processes. Normally, professional bodies will join IFAC as Associates with an agreed action plan based on our Statements of Membership Obligations. Associates are expected to demonstrate clear progress on these action plans and would generally be considered for full membership during a period of one to three years based on progress on the action plan.
We also recognize that there are countries where the profession is not appropriately organized, or where the profession does not yet really exist. We are committed, through our Developing Nations Committee, to support the capacity building needed in these countries and to eventually mentor them through the membership process at the appropriate time.
Later this morning you will hear from Honorable Henry Obwocha on the Role of Government. I just want to mention here that IFAC clearly recognizes the vital role the profession has to play in the public sector. In Africa, as in many countries, the public sector accounts for more than 50% of annual GDP and therefore public sector accountability and transparency is an important priority. IFAC’s work to strengthen public sector financial reporting and financial management is accomplished largely through the International Public Sector Accounting Standards Board, known as the IPSASB.
The IPSASB develops International Public Sector Accounting Standards, which are designed to improve public sector financial management and accountability.
To enhance government’s credibility, both nationally and overseas, governments need to report their financial position and performance and their cash flows in a transparent and high quality manner. Such information is vital to the efficient operations of government and can assure the public that government resources are managed effectively. These efforts should be supported by a sufficient number of professional accountants working in the public sector.
It is important to keep in mind that the need for high quality professionals and information from governments is as important as it is for business and industry. Without a financial structure that engenders confidence, a government’s infrastructures may crumble and with them, the ability to support its citizens.
So this is a brief description of some of the work that IFAC is doing to assist our members and all professional accountants and we welcome your participation and support. And, we also recognize that our work involves listening and learning and indeed that is the purpose of these two days.
Let me conclude my remarks by reminding you of the vital role of the professional accountants in supporting economic growth. The bedrock of our international commercial system is high quality financial information: information based on ethics and integrity, on high quality international accounting and auditing standards and on the work and sound judgment of both internal and external professional accountants. Credible and reliable financial information is fundamental to investment. It builds investor confidence which, in turn, facilitates business development, contributes to job growth and leads to individual financial prosperity.
Fundamental to achieving this growth and prosperity is achieving our goal of having an IFAC member body in each country of the world – and to transform the map of Africa today with IFAC members into the map of Africa IFAC members of tomorrow.