IAASB Quality Control Task Force Chair, Karin French, leads a discussion on proposed changes to International Standard on Quality Control (ISQC) 1 for firms. The proposed changes will result in a restructured and enhanced standard that will change the current approach to firms' systems of quality control.

The Institute of Chartered Accountants of the Caribbean (ICAC) and IFAC held a joint workshop on June 21, 2017 in Guyana with representatives from 10 professional accountancy organizations in the region. Participants gathered together with the twin objectives of examining the role of the accountant in a changing world along with the trends (technological, economic, social, etc.) impacting the profession and tomorrow’s accountant as well as to discuss the challenging issues facing the accountancy profession and the future-readiness of today’s accountant and professional accountancy organizations.

Compiled for the Professional Accountants in Business Committee meeting in March 2017, this presentation addresses tech trends and their impact, and disruption, of accountancy and the finance function.

The presentation is both an overview of key topics and a collection of resources.

This presentation is available to IFAC member organization to share and/or customize. Please contact stathisgould@ifac.org to request use.

Thank you for the privilege of being with you today. I’m honored to address such a distinguished group of dignitaries and professional accountants during my first visit to Nigeria.

In my time with you today, I’m going to set out a number of ways in which accountability and good governance go hand-in-hand. I will talk about: how this institute is a crucial part of the Nigerian economy, the standards that govern our profession are vital to the public interest, public sector accountability is crucial to rebuilding trust between citizens and institutions, the UN’s Sustainable Development Goals are an important lens for our profession, good governance is crucial to the fight against fraud and corruption; and, finally, how fighting fraud and corruption is an excellent demonstration of both our public interest mission, and our ability to bring people and organizations together to fight a common foe. And after all that, I will set out some challenges for you!

Institute of Chartered Accountants of Nigeria

Let’s begin with the role of the Institute of Chartered Accountants of Nigeria—or ICAN—in Nigeria’s economy and public life. I want to acknowledge its contributions at the global, regional, and national level, and its commitment to the public interest. First, as a leading professional accountancy organization, ICAN contributes at the global level through its membership of IFAC, and representation on international boards and committees. ICAN contributes at the regional level through its membership of the Association of Accountancy Bodies in West Africa (ABWA) and the Pan African Federation of Accountants (PAFA)—two valuable forums for sharing best practices—and through the support it provides to professional accountancy organizations in neighboring countries. I thank you for sharing your knowledge and experience beyond your national borders. It is the valuable contribution of leading organizations such as ICAN that makes ours a truly global profession.

Second, I wish to acknowledge ICAN for its commitment to the public interest at the national level—a commitment clearly demonstrated by your role in national reform and contribution to Nigeria’s international economic integration. Nigeria’s adoption of International Financial Reporting Standards or IFRS, including IFRS for Small and Medium-sized Entities, and the International Standards on Auditing is significant. I commend the Ministry of Finance for the decision to adopt accrual-based International Public Sector Accounting Standards—or IPSAS—as the government’s reporting framework. It is vital that governments have high-quality information on which to base decisions. It is also important that citizens have easy access to understandable financial information on which they can base their decisions—often at the ballot box—and hold their governments accountable. These two necessities lie at the heart of IFAC’s Accountability. Now. initiative—a global call for change. It challenges policy makers and governments around the world to recognize the importance of financial reporting that meets international standards.

Accountability

This brings me to my third acknowledgement of ICAN. I thank you for embracing the Accountability. Now. initiative at the national level, and taking the lead at the regional level. Accountability. Now. Nigeria.—the theme of this 46^th Annual Accountant’s Conference—is evidence of your commitment to play a key role in public sector transparency, accountability, and governance. Given the large sums that flow through governments on both the supply and demand sides, there is an acute and urgent need for public financial management (PFM) reform. Recently, the Nigerian Director-General, Bureau of Public Service Reforms, said government should be open with information especially in relation to contracts and procurement because people deserved to know how their money was spent. He said, “Citizens actually know very little about what government does and how they do it, and that breeds suspicion. When you proactively disclose information, it lessens that suspicion. Being open with information requests helps us to engage better with citizens.” As accountants, we know that it’s not only important to be open with the information—but that the information must be correct to begin with. All too often we see the consequences of poor PFM—poor public services, sovereign debt crises, and municipal bankruptcies—resulting in loss of trust by citizens that their governments are able to create a sustainable future. PFM reform—including implementing internationally accepted standards for budgeting, accounting, and financial reporting—supports public sector accountability and transparency. It provides complete, high-quality information, enabling governments to develop policy, make informed spending decisions, and manage assets and liabilities, both now and for future generations. And it’s vital to ensuring sustainable public services and economically stronger societies. Our profession’s support for high-quality public financial reporting—the cornerstone of sound PFM—is vital to enabling sustainable public services and stronger societies. ICAN is ideally positioned to act in the public interest by establishing partnerships between government and the accountancy profession, with the profession acting as a trusted advisor to government. And IFAC gladly collaborates with you.

We facilitate and participate in events that bring together accountancy and governmental leaders to explore working together to advance PFM. We facilitate capacity building by engaging with professional accountancy organizations to develop a pipeline of well-trained professional accountants to work with or in government to bring about needed changes.

This last part—building public sector accountancy capacity at a country level—is key. Countries that have the most to benefit from PFM reforms often lack the accountancy capacity necessary to execute reforms. A great deal of what we do at IFAC is facilitating the advancement and growth of professional accountancy organizations in parts of the world that desperately need more accountants.

As IFAC President, it has been my pleasure to visit many countries that have really grasped the PFM challenge. Let me highlight a few examples of how our profession—even in small countries with scarce resources—can achieve great things. In Sri Lanka, the Chartered Institute of Public Finance and Accountancy is working with CA Sri Lanka and the government to develop a new qualification to help professionalize public sector personnel, increase the understanding of accrual accounting, and build a framework for accounts preparation and audits.

In Malta, the government is getting its “ACT” together—with ACT being an acronym for Accountability, Credibility, and Transparency. The Ministry of Finance is implementing International Public Sector Accounting Standards across the government and believes strongly that it will improve overall decision making.

In Kosovo, the Society of Certified Accountants and Auditors of Kosovo has partnered with the government and supreme audit institution to develop professional qualifications in the public sector. The program has helped build the profession’s numbers and attract new students, and the external certification has helped enhance the perception of independence of the Auditor General’s office.

In Uganda, the Institute of Certified Public Accountants of Uganda is partnering with government to build public sector accountancy capacity. These activities are extending to other African countries with the Accountant General seconding staff to Somalia and South Sudan, and the Auditor General seconding staff to South Sudan and the African Organisation of English-speaking Supreme Audit Institutions.

Under the IFAC PAO Capacity Building program, we are funding a project to strengthen public sector accountancy capacity in Zimbabwe. Almost all of our other projects under the program have a public sector component.

Nigeria, similar to many other nations with dependency on commodities, is experiencing significant budgetary pressure, especially in a year that saw both the highest budget ever and a significant drop in oil prices.

This pressure firmly places the spotlight on fiscal responsibility, making transparency and accountability absolutely necessary, and, as mentioned earlier, a significant opportunity for our profession.

Nations around the world are facing significant lack of trust in governments. Citizens do not trust governments to make sound decisions, or to do the right thing. They are losing faith that governments are able to chart a sustainable future. This is both a cause and effect of global events that, more recently, include the Brexit vote, the impeachment of the president of Brazil, and the rise of unlikely political leaders. In some cases, it is because of national events, such as the failure to provide essential public services, a sovereign debt crises, or municipal bankruptcies. In other cases, it is because of fraud and corruption (An audit of the Nigerian National Petroleum Corporation showed that from 2011 until 2015, the company withheld more than US $25 billion from the public, according to The Economist). These events create uncertainty and instability. Our profession plays an important role in helping to establish and supporting effective public sector accountability and governance.

UN SDGs

And this brings me to the UN Sustainable Development Goals—or SDGs. While they are about many topics that we positively impact either directly or indirectly as professional accountants, it is a global action framework into which we can—indeed MUST—be seen to be actively supporting. I know anti-corruption initiatives are top-of-mind—not just for leaders, but for everyday citizens all over the world who desire—and deserve—the best possible leadership. I commend your nation for the steps it has taken, and the high profile President Buhari has placed on fighting the scourge of fraud and corruption.

He has appointed ministers who place the same importance on fighting corruption as he does, and some former officials have even been charged for past offenses. The Nigerian Ministry of Finance has instituted a “treasury single account,” consolidating all inflows from ministries, departments, and agencies into a single account at the Central Bank of Nigeria. The Minister of Finance—who knows something about accounting!—a fellow of this institute and of the Institute of Chartered Accountants in England and Wales, requires governors to make their finances public before receiving additional federal funds. And the Nigerian National Petroleum Corporation is also now publishing monthly financial reports. But it is Nigeria’s leadership on the global stage in relation to the United Nations Sustainable Development Goals that I want to touch on now.

The Goals are not only good for the nation, they are good for you as professional accountants. Firstly, President Bhuari’s speech at last month’s UN General Assembly in New York was warmly received. He said,

Fighting corruption remains a cardinal pillar of our administration. Corruption freezes development, thereby undermining the achievement of the Sustainable Development Goals. I am pleased that our efforts in fighting corruption are yielding positive results including significant stolen assets recoveries. The recovered funds are being channeled towards the development of critical infrastructure and the implementation of social inclusion programs for our people. We are also strengthening our capacity of government entities to institutionalize reforms to ensure transparency and good governance.

He is right on three fronts. The Sustainable Development Goals are worth achieving, corruption is blight that prevents their attainment, good governance is key achieving the SDGs and preventing corruption.

I recently returned from Geneva, where—on behalf of the global accountancy profession—I articulated the need for greater developing world accountancy capacity as crucial to SDG delivery. At their heart, SDGs are an agenda for people, planet, and prosperity at a time when corporate responsibility is high on board agendas. The goals frame the areas of sustainable development and market failure that help governments and business determine what they do, and what they invest in.

What is clear is that SDGs will require heightened accountability from governments and companies, a broader perspective from boards and management, strong leadership and culture, and increased transparency. And in all these things, ICAN’s members—as I’m sure you have already understood—have an extremely significant role to play.

Before moving on to speak about good governance, I want to touch on another reason why it’s important for our profession to speak in terms of its role supporting the SDGs: young people.

Youth

This Institute has always been a tremendous supporter of young Nigerians. In all that you do, you fulfill your public interest mandate. But in your physical and practical support, you demonstrate that Nigeria’s professional accountants offer real, tangible initiatives that inspire young people to learn, and to consider accountancy as a calling. ICAN provides professional accountancy education, scholarships, books, and computers to higher education institutions; learning materials, library development projects, construction of lecture theaters in institutions across the country; and even a national essay competition for undergraduates. These are wonderful examples of action, not just words. Into this mix, the linking of our daily and strategic work and vision to the Sustainable Development Goals will further enhance our relevance to young people—the next leaders of our profession.

Good Governance

So now, to good governance—vital to the economic health and prosperity of any nation, and to any organization: public, private, not-for-profit. I have devoted many years to governance—both serving as a non-executive director of several publicly listed companies, and as a consultant to businesses, boards, and governments. I have seen firsthand how robust governance greatly enhances decision making and accountability in any organization. Embedding strong governance into a country’s DNA, and expecting it in government and every organization and business, is one of the most important steps that can be taken. Sustainably growing Nigeria’s economy and solidifying its position in an internationally integrated economy is going to require a strong, decisive, and embedded governance culture. Again, this is something President Bhuhari noted in his General Assembly speech, referencing the nation’s public wealth inherent in your rich, diverse natural resources:

Nigeria remains committed to the Extractive Industries Transparency Initiative (EITI), a global coalition which promotes transparency and accountability in the management of revenues from the oil, gas and solid minerals sectors. We voluntarily signed up to EITI because we are convinced that transparent governance is an imperative for resource-rich developing countries like ours.

The National EITI has been empowering citizens with critical information they can use to hold government and other players in the extractive industries to account, and make recommendations that drive reforms in these strategic sectors of our national life.

The International Framework: Good Governance in the Public Sector issued by IFAC and CIPFA in 2014 provides a framework for governance codes for the public sector. To deliver good governance in the public sector, both governing bodies and individuals working for public sector entities must try to achieve their entity’s objectives while acting in the public interest at all times, consistent with the requirements of legislation and government policies, avoiding self-interest and, if necessary, overriding a perceived organization interest. Acting in the public interest implies primary consideration of the benefits for society, which should result in positive outcomes for service users and other stakeholders. It therefore requires two things: 1) behaving with integrity, demonstrating strong commitment to ethical values, and respecting the rule of law; and 2) ensuring openness and comprehensive stakeholder engagement.

• In addition to the overarching requirements for acting in the public interest achieving good governance in the public sector also requires effective arrangements for:             
  • Defining outcomes in terms of sustainable economic, social, and environmental benefits;
  • Determining interventions necessary to optimize the achievement of the intended outcomes;
  • Developing the entity’s capacity, including the capacity of its leadership and the individuals within it;
  • Managing risks and performance through robust internal control and strong public financial management; and
  • Implementing good practices in transparency, reporting, and audit to deliver effective accountability.

Professional accountants are uniquely qualified and stand ready to help establish and ensure good governance. In 2012, I was part of a Corporate Governance Study Group sponsored by the Rockefeller Foundation. Our charge was to examine and suggest ways to bridge governance gaps. During one of our meetings, the Dean of Columbia University Business School in New York made the observation that: “There are three kinds of gaps that [those charged with governance] must address: gaps in information, gaps in oversight, and gaps in expertise.”

The accountancy profession is uniquely positioned to help address those gaps. Financial expertise and professional skepticism are our core competencies. Information is our business. We help organizations understand the essential elements, structures, and processes of strong governance. It is in the accountancy profession’s best interest to play a significant leadership role. Effective governance leads to high-quality information and transparency that enables professional accountants to do a better job. It is essential that our profession is involved at every level.

I encourage you to read IFAC’s latest submission to the G-20: Trust and Integrity—The Accountancy Profession’s Call for Action by the G-20.

Our #BuildTrust social campaign recognizes:

• Accountancy plays a critical role in achieving transparency in the global economy, contributing almost USD $600 billion in gross value added each year, and enabling capital flows, economic activity, and higher standards of living; and
• Organizations and individuals must be empowered by strong governance in the business and public sectors, underpinned by a coherent public policy and regulatory environment.

To these ends, IFAC—as representative of the global accountancy profession—called on the G-20 to enhance sustainable growth through stronger governance for trust and integrity in business and public sector and creation of a cooperative, consistent, and smart global regulatory environment. Strong financial management, transparency, accountability and enhanced governance are essential for sustainable, long-term economic growth that benefits the world’s citizens.

To achieve this, we must not only have good intentions; we must act intentionally. I would like to close by challenging each of you to act intentionally by finding ways to #1—ADVOCATE for strong governance and to position your national profession as trusted advisors in the PFM reform process. Be interested in all aspects of governance, talk about what changes should be made, what works well for others, and share experiences. #2—EVALUATE. Review your current governance arrangements and identify areas for improvement. Seek out what has been effective elsewhere, highlight existing gaps, and create an action list to bridge those gaps. #3—PARTICIPATE. Talk to your government representatives. Make sure they understand the importance of high-quality financial reporting as cornerstone of sound PFM. Support them in their PFM reform efforts. Be visible leaders, and lead by example.

As I have witnessed many times throughout my career—individually, we may be ordinary individuals, but together we can achieve extraordinary things. Thank you once again for the invitation to be with you today. It is indeed a pleasure and privilege for IFAC to be a small part of this chapter as your story continues to unfold.

In early December, IFAC Professional Accountants in Business Committee Deputy Chair Sanjay Rughani gave the keynote address at the National Board of Accountants and Auditors Tanzania's annual conference. Mr. Sanjay addressed the importance of the accountancy profession, and professional accountancy organizations, remaining relevant to accountants in business.

“In a rapidly changing world, audit does have a future.” That is how the report from Grant Thornton and ACCA sets the tone.

The title of this conference does not have a question mark at the end. Rightly so. I was attracted to this profession in 1971 by a Dutch report, called The auditor, Tomorrow? Yes, with a question mark—but one full of hope and perspectives. And earlier this year the Fédération des Experts Comptables Européens (Federation of European Accountants, or FEE) published a report with this promising quote: “The challenges that lie ahead for the profession go along with plenty of opportunities to further evolve and better serve new markets’ needs.”

To me, challenges and opportunities are two sides of the same future-of-audit coin. I would like to put four coins on the table today—each with its own sets of challenges and opportunities.

1. Understanding the business of the auditee, its corporate defense, and value preservation is a cornerstone of a robust audit.

The importance of the auditor’s understanding of the business was emphasized by many who commented on the IAASB’s Invitation to Comment (ITC), Enhancing Audit Quality in the Public Interest. It sounds like an open door. But it was mentioned so often with a twofold background. First, the rapidly changing world that all businesses are part of. Several panelists in the next discussion will elaborate on that. Second, a concern that audits have become a “check-the-box” exercise. Standards and rules can be good guides—but the real journey cannot be predicted. You have to find out yourselves. That is the essence of auditing—your professionalism and independence.

This understanding of the business includes how the auditee has organized its value preservation, and its corporate defense around that. I quote these concepts from a recent book by Sean Lyons that fascinated me. I don’t have the time to elaborate on this, but if I just mention the eight components of the “corporate defense umbrella,” the importance is clear: governance, risk, compliance, intelligence, security, resilience, controls, and assurance. Just one quote to illustrate: “Each organization is required to focus on bringing the dollar in through the front door (offense) while also focusing on preventing the dollar from leaving through the back door (defense).”

This certainly is a great challenge as well as an equal opportunity for assurance providers. This brings me to the next coin.

2. Professional skepticism and professional judgment are key inputs to audit quality. Professional skepticism, as a state of mind and attitude, should govern the performance of auditors (see ITC p. 12).

Professional skepticism is a fundamental concept and core to a high quality audit. The IAASB received many comments on this topic of the ITC (all comments are publicly available on the IAASB website). Let me quote a few from one of our agenda papers—they illustrate both challenges and opportunities:

• Professional skepticism is about the appropriate mindset of the auditor. It is relevant throughout the entire audit.
• A sufficient knowledge of the business enables the auditor to ask probing questions, more effectively challenge management, and identify when evidence is contradictory.
• Professional skepticism is about behavior—how can auditors be encouraged to act as critical challengers? And how can quality control at the engagement level stimulate this, such as putting together a team with the right skills, expertise, and experience?
• Training and education is important to infuse a professionally skeptical attitude into the DNA of auditors.
• There is a strong link between professional skepticism and the role of the “tone at the top” and the “tone at the middle.”

Each of us can, and should, stimulate this professional behavior. It is difficult enough!

3. “Audits are not dying yet, but they do need to adapt to the digital age.”

And now the third coin. This quote from the Grant Thornton-ACCA report says it all. And let me add another one from a book by Rob Nixon: “Industries all over the world are being disrupted by technological advancements, social change and innovative thinking.” So the scene is set. The impact of new technologies including data analytics on both businesses and audits can only be underestimated. The IAASB recently published a paper, Exploring the Growing Use of Technology in the Audit with a Focus on Data Analytics. The link between these new innovative technologies and understanding the business with all its ongoing changes is obvious. But equally important is the impact on new audit practices and methodologies. Obviously our standards were not, and could not be, written with tomorrow’s technological challenges and opportunities in mind. But the use of data analytics in the audit can lead to 1) better informed risk assessments, through understanding the business of the auditee and 2) more available evidence to support professionally skeptical behavior.

It is important that we pursue this area with great intensity and an open mind. A constructive dialogue between businesses, auditors, regulators, and standard setters is a must to make effective and efficient progress. So please send us your comments on this paper and advise us about the best way forward.

4. The new auditor reporting with key audit matters cannot be encouraged enough. It innovates the audit by clearly speaking out to users. And it provides a link to wider forms of assurance on emerging external reporting, including integrated reporting.

This brings us to the fourth and final coin and so let me conclude with my favorite topic: the innovation in auditor reporting. For many decades external users of financial statements and the attached independent auditor’s report received only one sentence from the auditor, the audit opinion. A binary pass or fail. That is now changing completely. Auditors will now provide a number of observations on key matters in the audit that are most relevant to users, in a very readable way. We know from surveys in early adoption countries, notably the United Kingdom, how much this is valued by these users. There are even investor awards for the most innovative and most insightful auditor’s reports. This new more informative and relevant reporting by the auditor helps clarify the public’s perception of what an audit is. It also stimulates professional dialogues between the company, its investors, auditors, and regulators.

It is vital that we continue to stimulate highly relevant auditor reporting. At the IAASB we have a special auditor reporting implementation support group. But all of us have a role to play here.

The new auditor’s report will also have an impact on other forms of assurance reporting. There are many interesting developments in external reporting and providing assurance thereon. Integrated reporting is a well-known example. The IAASB published a discussion paper in September 2016 on this subject, and we have recently extended the deadline for comments to February 3, 2017 so we invite you to please send us your feedback.

This is my last example of challenges and opportunities. Let’s now move to the panel!

Charles Tilley, Chair of the IFAC Professional Accountants in Business Committee and Executive Chairman of the CGMA Research Foundation, recently addressed how professional accountants in business and finance professionals can meet today's business challenges. Among other topics, Mr. Tilley addresses the evolution of the role of the CFO and the expectations of today's business enivronment.

Firstly, my thanks for the kind invitation to be with you this evening, and to deliver the third True & Fair lecture. I think it’s a fine tradition to have commenced in these hallowed halls.

I’ve chosen to talk about something close to my heart: globalization—and our profession’s deep engagement in the global economy.

Now, as you might have gathered, my family didn’t hail from the shores of Great Britain.

I like to think that I am product of early globalization … born in Bangladesh, school in Australia, Singapore and the UK, University in the UK and then a working career in the UK, Africa, and the USA. My wife has an even more international background. But, our kids—born and brought up in the USA—are smarter, and more globally focused, than we ever were at their age.

So from wherever we hail, the truth is that most of us are beneficiaries of this great wonder … globalization … the greatest source of wealth creation that humanity has ever seen. However, rapid wealth creation has also raised major questions about fairness and inequality in society.

Those of you with a keen eye will have noted my acknowledgement to Joseph Stiglitz, Nobel Prize-winning Economist, and former Chief Economist at my old shop, the World Bank.

Published in 2002, his book Globalization and its Discontents became a US best-seller. Fourteen years later, some of his warnings are more prescient than ever.

In my time this evening, I’m going to set out my lecture in three parts.

• I will start by outlining the inexorable Eastward shift in global trade and commerce;
• I’ll then highlight some of the deep societal risks we face as a consequence of this extraordinary and rapid change; and
• I’ll conclude by putting the profession at the heart of the global economy, and talk more about the vital importance of the role we can and must play.

First, the Business Move from East to West 

The desire to trade and to create wealth is of course part of the human condition—and so, it appears, is the desire to look east for new trade and commerce opportunities.

Ancient Europe went to the Far East via the Silk Road; and then fast clippers made sea routes increasingly profitable, leading to the rise of entities like the East India Company. Columbus of course sailed west in search of the New World, but the point is this: as prosperity grew, so did innovation.

Steam, internal combustion, and then jet engines provided new horsepower that made moving things around our planet easier, faster, and more profitable. And finally, the Internet and smart phones have connected consumers and businesses in ways that continue to change almost daily.

Perhaps what has been most surprising is the pace—and the uneven pace—at which change has occurred. In 1960 when Ghana became independent, its GDP was greater than that of South Korea—and of course we know what today’s picture is.

But it is the rise of China—and indeed the BRICs generally—over the past 20 years that has changed the global economy forever.

China only began opening its economy to international trade in the late 1970s. In 1972, annual bilateral trade between the United States and China was less than $100 million.¹ Two-way investment in each other’s markets was close to zero. And only a handful of American jobs relied on Chinese trade.

Today, well over a $650 billion dollars of goods and services flow between them and nearly a million US jobs depend on producing goods and services sold to China. Tellingly, of that $650 billion, $500 billion is US imports from China and $150 billion is US exports to China.

There’s a reason why FedEx—the company that invented airborne logistics and is the world’s largest express freight carrier—is considered a “bell weather stock” of the US economy.

Simply: when the economy is doing well, more people are buying and selling goods, and therefore are shipping more packages. The company’s stock price chart closely mirrors a chart of US GDP.

Three years after Stiglitz published his book in 2002, FedEx announced it would redraw the map of global aviation logistics by relocating its Asia Pacific Hub from Subic Bay in the Philippines to Guangzhou, China.

At the time, Fred Smith, the company’s CEO and President said “we need to go where our customers want us to go.”

Guangzhou is on the Pearl River Delta—a region that produces over a third of China’s exports. It’s known as the world’s factory floor. The World Bank says the delta is also the world’s largest urban area. At end of 2013, its 9 largest cities were home to more than 57m souls.

But this region’s story is more than just a microcosm of China’s extraordinary rise. It’s a telling example of just how far, and how fast, globalization has arrived.

From China to Bangladesh, to India and to Vietnam, to Indonesia and Malaysia, and places in between, factories are assembling products sold and bought by Western consumers in shops, and online.

FedEx didn’t just move its Asia hub to the Pearl River Delta because of China’s economic growth, but because it recognized that the intra-Asian market offers immense potential as its middle classes grow, and their consumption increases.

China’s “trade awakening” was some 35 years ago. In that time, the cities of the Pearl River Delta have transformed into industrial powerhouses producing garments, toys, electronics, and textiles for the world. And in the last decade, it has begun to see advanced manufacturing, high-tech, and service sector industries emerge.

And I wonder what Mao would have made of the fact that in 2013 China overtook the United States as the biggest sales market for Rolls Royce Motor Cars. More than 1,000 Phantoms, Ghosts, and Wraiths made it to China that year.

But the spectral names of Rolls’ cars may have come back to haunt the marque.

Last year, the brand’s sales crashed by 54%, dropping China to third behind the USA and the Middle East.

The story of “why” Rolls’ sales dropped is far more interesting. And it leads me to part two of my discussion tonight: vox populi risk, and globalization’s discontents.

At the beginning of this year in a joint paper, Citigroup’s Global Chief Political Analyst, and the former Director of Carnegie Europe, coined the phrase “vox populi risk”—which this audience will know is from the Latin “voice of the people.”

The drivers for Citi’s paper were simple. Pricing geopolitical risk is hugely important to investors, and always has been. The Dutch East India Company was the first listed company because it wanted to share the risk of losing its ships to piracy.

But Citi’s paper got a lot of media attention because it declared the demise of the assumptions of the post-Cold War era in which most money managers and investors have grown up.

Citi defines four main Vox Populi risk categories:

• Election risk;
• “Flash mob democracy mass protest risk”;
• Referendum risk; and
• Geopolitical risk.

Beyond the Arab Spring color revolutions that began in mid-2009 with the Green Revolution in Iran, the Occupy Wall Street (and, indeed, St Pauls’ Cathedral forecourt) movement received global interest. Railing against a wide range of economic concerns, the movement was at its heart a disorganized, inchoate protest against globalization, “banker greed,” and general social and economic inequality.

Meanwhile, here in Europe, the unthinkable began to solidify into the plausible. And then the plausible became shocking reality.

From Russia’s annexation of Crimea and its proxy war in Ukraine, to the Scottish referendum which nearly changed forever the UK’s composition, to the restless Catalonians. And of course—Brexit: an earthquake.

Wherever we look, it appears society and politics are becoming more and more discontent. And with the fracturing of consensus—the abandonment of the sensible center—we are seeing elections and politicians moving further and further to the extremes.

Outsiders who say and do outrageous things are suddenly mainstream. Let’s take a quick look:

• In Italy: The comedian Beppe Grillo’s 5-Star Movement;
• In France: Marine LePen’s National Front;
• In the UK: Nigel Farage’s successful UKIP campaign for Brexit; and to a lesser extent, the hard Left takeover of Her Majesty’s Opposition;
• In Austria: a re-run of the Presidential election soon—a re-run awarded by the courts after an appeal by the Far Right candidate, beaten in the original vote by a scant 31,000 votes;
• In Germany: the far right Alternative for Germany party which has just achieved the 5% of the electorate vote it needed to gain seats in the Bundestag; and
• Of course, in the USA, there’s Donald Trump and his wall-building.

Whether left or right, what unites them all is a mix of populism, nationalism, and an aversion to globalization.

And you have to wonder: why is that people are falling for their siren songs? What happened to looking for smart politicians who could build consensus around centrist ideas?

Partly, the answer appears to be that we’re in something of a perfect “discontent-producing” storm.

New, non-mainstream politicians espousing populist, nationalist, anti-immigration views are either a response to—or cause of—more protests and referenda.

This hotbed of public angst, as Citi’s paper points out, is converging with stagnant global growth, high public expectation that governments should do something about it, but limited public trust that they can do something about it; and, meanwhile, many governments have either limited structural or fiscal capacity for major reform.

A few minutes ago, I mentioned the 50% drop in sales for Rolls Royce cars in China. And I also mentioned the transformation of the Pearl River Delta into the world’s factory floor.

Rolls Royce saw a slump in sales because President Xi’s government launched a crackdown on corruption. Conspicuous consumption was suddenly out.

Meanwhile, in 2010 at a Foxconn factory in Shenzen—one of the Pearl River Delta’s largest cities—18 workers attempted suicide to protest working conditions. Fourteen succeeded. They were among 400,000 employees at the factory churning out smartphones and tablets sold by a range of tech providers. They made 137,000 iPhones a day, or around 90 a minute.

And as your BBC reported last year, on the outskirts, the largest industrial city in inner-Mongolia, the rush for the rare earths that enable production of the world’s smart phones has created a vast toxic sludge “lake.”

Elsewhere in the world, the collapse of a garment assembling factory in my native country, Bangladesh, made global news because it killed more than 1,100 workers. Shoddy construction; shoddy governance; shoddy greedy owners who wanted to cash in on globalization’s benefits.

It’s not just manufactured items being assembled in a global logistics chain. Labor has been globalized too. The sky-scrapers announcing Dubai’s rapid growth and Qatar’s entry to the world’s soccer stage were largely constructed by imported labor, the poor treatment of whom has created international outrage.

Extraordinarily rapid globalization, and the creation of a vast interconnected logistic chain, has wrought remarkable gains to the world’s economy, but it has also come with great human and environmental costs.

Back in the United States, Goldman Sachs’ economics research team produced a note in July this year entitled “The Workforce: Is There an App for That?”

Focused just on US employment and structural change in the economy, it identified a decline in labor demand for routine manual occupations over the last 15 years. This has likely contributed to the long-term decline of prime-age participation rates for less-educated men.

And here in the United Kingdom, citing research from Credit Suisse’s Global Wealth Databook, Oxfam last week highlighted the wealth disparity: the richest 1% owns 20 times more than the UK’s poorest 20%.

The left behind. The disenfranchised. The exploited.

The truth is, I fear, that we have taken for granted the stability globalization has generated, and which has delivered among the most peaceful and prosperous years in world history.

Following Brexit, Prime Minister May has made much of the need to bridge the gap between these “haves and the have-nots.” She is right. I believe she has been also been right to highlight corporate governance as being part of the solution.

Whichever way you cut it, globalization has created a sizeable number of citizens who are suspicious of it; mistrustful of incompetent and corrupt politicians; and fearful of immigration and foreign-born workers.

In their desire for change, they see renegade politicians as authentic voices, railing against the mysterious elites and vested interests.

And that gives nationalist-leaning anti-globalization and anti-immigration populists a platform from which they are garnering a surprisingly swift and large following of “discontents.”

As Brexit shows, public concerns about mass immigration and national way of life can no longer be dismissed as fringe issues. They are very much mainstream and we must do better at addressing those concerns.

Which brings me to part three: what the accounting profession is doing to support the global economy, and to support fairness.

While of course I don’t pretend we have all the answers, what I can do is make a great case for the profession’s role in the global economy.

And in doing so, I want to impress upon you the importance of speaking out about what it is we do, and especially now with anti-globalization and nationalism on the rise.

Last year, IFAC engaged the independent, and highly respected UK consultancy Cebr, to help us draw the profile of the global accountancy profession.

They estimate that there are almost 3 million licensed and regulated professional accountants who IFAC ultimately represents through its PAOs, like the ICAEW.

These accountants are estimated to have a value-add to the global economy of almost a quarter trillion US dollars.

And the broader accountancy ecology—people identified by national employment statistics as working in accountancy or a related or supporting field—contributes well over half a trillion US dollars a year.

Their research also shows strong correlations between the share of accountants in the work force to growth in GDP; to rankings of the Human Development Index; and to the rankings for a country in Transparency International’s Corruption Index.

They are significant numbers, and in part they reflect why ours is a voice that is credible, significant, and central to discussions about the global economy.

And we are part of those discussions. IFAC, on a regular basis on behalf of the global profession, is in contact with multi-lateral partners including the OECD, UNCTAD, the IMF, the World Bank and other development banks, aid agencies, and international regulatory agencies. Meanwhile, our G-20 submission this year was focused on how to build trust and integrity into the heart of the global economy.

But individually, and collectively, we need to do more.

There are a number of significant areas which are critical to the national and global landscapes where the accountancy profession has knowledge and credibility, and where our voices can be influential and must be heard.

They are all also issues which contribute in some way to the atmosphere of angst and distrust which underpin much of the discontent that I talked about earlier. I would like to touch on some of them this evening.

Smart Regulation: IFAC undertook a global survey last year on the state of regulation around the world. We had some 350 respondents from all the continents representing a wide array of sectors. We followed this up with roundtables in Hong Kong and then London, the latter in partnership with ICAEW. The messages that came back were strong and surprisingly consistent. Regulation was overly complex, costly, fragmented and stifling innovation and growth. No one argues that regulation is not needed. But what is needed is to have smarter regulation, fit for purpose, evidence based, developed in consultation with the regulated and other key stakeholders, and subject to periodic ex post impact analysis. The accountancy profession needs to be a strong voice on these issues.

Fairness in Taxation: I mentioned earlier the public sentiment about corporations not paying their fair share, at the expense of citizens—Edward Heath’s “the unacceptable face of capitalism.” This is an extremely complex area requiring the balancing of concepts of fairness and maintaining national competitiveness on the one hand, while maintaining a level playing field and transparency at the global level. The OECD BEPS project is a great start, signaling the international community’s willingness to collaborate. But the proof of the pudding will be in the eating, and whether the consensus achieved can hold when things move to the implementation stage is, many fear, doubtful. Taxation is a specialism that is squarely in the bailiwick of the accountancy profession: we need to be a strong voice on this issue.

Fraud and Corruption: The cancer of corruption—as it is aptly called—is endemic, and Transparency International estimates that it can cost global GDP up to USD$1 trillion a year. This of course is not a new issue, but one which has received, fortunately, new prominence on the international stage. The accountancy profession is well placed to be part of the effort. At the entity level we are skilled at forensic accounting and well versed on effective corporate governance arrangements and whistleblower policies. At the national and international levels, we can help in the development of effective regimes to prevent and detect corruption. We need to be a strong voice on this issue.

A High Performing Public Sector: Participation in private sector funding is entirely optional: we choose whether we wish to invest or transact with a private sector entity or not. Participation in a government’s finances is not: we are obliged under the force of law to pay all taxes and duties the government levies on us. Meanwhile, the government regulates the private sector to ensure that they maintain, inter alia, appropriate standards of financial transparency and probity. But who regulates government in these areas? The answer is the government itself, and in most cases in the area of public sector financial management, it allows itself far more latitude and laxness then it demands from the private sector, which it regulates. In the significant majority of countries, the consequence is poor financial information; poor decision making; huge liabilities being handed down to future generations; and no real means to hold elected officials accountable. We need to be a strong voice on this issue.

Supporting Small- and Medium-Sized Enterprises: It is well established that SMEs provide by far the bulk of private sector employment and private sector growth. When we see that the public is increasingly intolerant of the dominance of big business, and when the economists tell us that the increasing disparity in income distribution is a source of significant risk to the economy and the social equilibrium, then clearly nurturing the growth of the SME sector is a priority. There is empirical evidence from around the world that when SMEs are advised by professional business advisors they perform significantly better. The accountancy profession and the breadth of business services they provide are thus crucial to growth in the SME sector. We must join in advocating for issues which can help stimulate growth of this sector such as reduction of burdensome, disproportionate regulation; easier and more innovative access to financing; and reduced vulnerability to being victims of fraud and corruption. We need to be a strong voice on this issue.

Beyond Financial Reporting: Investors and other interested parties increasingly find that financial reporting alone does not capture the more holistic information that is wanted about an entity. The emphasis on financial results,  without the accompanying narrative of how those results are achieved, in part contribute to an increasing sense that corporate entities are driven by the notion of shareholder value and financial returns, rather than acknowledging a broader responsibility to a wider set of stakeholders. Integrated Reporting (or IR) is gaining more and more attention from reporting entities and stock markets around the world for telling this broader story of how entities add value by utilizing not only financial capital but also human capital, natural capital, manufacturing capital and so on. This enhanced notion of transparency and accountability would be a significant step forward. We need to be a strong voice on this issue.

But to speak out with legitimacy and credibility on these issues we also have to mindful of our own profession, and continue our efforts to create a global profession bound by common standards and a strong ethical code. As a profession, we are probably the most intensely self-regulating one. IFAC administers a compliance program that ensure all our member organizations around the world comply, or are on a structured journey toward complying, with our seven statements of membership obligations. We also monitor the capacity of the national professional accountancy organizations to license and regulate the local profession to appropriate standards. We advocate for the importance of a strong accountancy profession as an underpinning for economic development to the donor agencies, and systematically interact with them to partner on capacity building efforts around the world. A globalized world needs a globalized accountancy profession—and we are working on it.

So there you have it.

This apparent retreat from globalism, and globalization—and the lack of trust in institutions that is precipitating it—is something about which we must be acutely aware.

As I’ve said, IFAC’s goal is to forge a global profession, bound by global standards and acting in the public interest.

But if the move to looking inwards—to rebuilding national boundaries or walls, to short-term national interest—instead of acting in the global public interest, becomes entrenched, then our work becomes that much harder.

It has been a pleasure to be with you this evening—and to expand upon a very contemporary problem, that has been decades in the making.

In this third True & Fair lecture, I have attempted to examine both the truth and the fairness of globalization.

Yes, globalization has major problems. But the alternative is far, far worse.

I believe it is incumbent on all of us, in the public interest, to continue to speak the language of common ground, collaboration, and global public interest.

Ours is a powerful voice, and it needs not only to be an antidote to demagoguery and political opportunism—it must be part of a far more important discussion: Globalization 2.0.

The IPSASB has created a two-part webinar on financial instruments. It was prepared and presented by Lucy Qi, the technical staff member responsible for the IPSASB’s Financial Instruments Update project.

The webinar serves as an education session in the context of the IPSASB’s current project to update its suite of IPSAS pronouncements on financial instruments, and provides an overview of the key changes introduced by IFRS 9, Financial Instruments: Recognition and Measurement, as issued by the IASB. 

Part A of the webinar covers the classification and measurement, as well as impairment of financial instruments, and Part B covers hedge accounting.

As additional resources, SlideShare versions of the presentations are included below.

Click here to view the webinar.

Good morning. 

I’m delighted and honored to be here on the final day of your conference, and to be included as a keynote speaker in the company of such eminent and outstanding keynote speakers as former NY Mayor Rudy Gulliani and the former Australian Prime Minister, Julia Gillard.

Before I begin my remarks on Internal Audit and the Boardroom, I would first like to make a few comments as Chairman and President of the International Federation of Accountants (IFAC), and acknowledge the valuable, long-term relationship between IFAC and the IIA.

IFAC is the organization for the global accounting profession, comprised of 175 national professional accounting organizations in 130 countries.  In addition to facilitating and supporting four international standard-setting boards for audit, ethics, education, and public sector accounting, IFAC supports the global accountancy profession with thought leadership, speaking out on public interest issues, and advocating for ways to enhance the effectiveness and impact of the profession in the public interest.

The IIA represents an important IFAC constituency and, shortly, my friend Richard Chambers—your global president and CEO—and I will sign a renewed MOU between our two organizations.

This MOU will formalize the continuing superb cooperation and collaboration between IFAC and The IIA. 

It enables both organizations to continue to benefit from each other’s knowledge, experience, work, and advancement on many fronts.

We benefit greatly from the work that you do.  And it helps us, together, advance many important issues in the public interest, including high-quality financial reporting, good governance, and strong risk management practices. 

Thank you for all you do to contribute to the global impact and importance of our profession.

Over the last two days, the other keynote speakers have focused on quite broad issues—including the global economy and crisis leadership. There is certainly much to be said about these important topics in a world that is in desperate need of insights and leadership on many fronts. 

But today, I want to bring it down to the level that is a bit more personal to you in your day-to-day activities—things that are directly in your control as you go about performing your job.  I will focus specifically on your opportunity to impact the overall effectiveness of governance structures and corporate boards.  

Throughout my career, I have very much been a proponent that everyone’s job, regardless of title or position within a company, is to help other people succeed. 

I believe that should be the mindset of everyone in an organization, whether you are a seasoned leader or at the beginning of your career journey.  If you think of your role in that way—to help everyone around you succeed—then I think you will view everything you do a little differently, and find it tremendously more rewarding. 

Internal auditors, individually and as a group, are critical to the success of corporate directors in the boardroom.  Our effectiveness in fulfilling our role of providing oversight and strategic advice for management is substantially dependent on your effectiveness. 

Frankly, I do not know how I could have succeeded throughout my career—in the C-suite or in the boardroom—without internal audit’s independent and objective information. 

But how you fulfill that role—how you communicate your findings, how you assess the organizational capabilities and effectiveness, how you evaluate current and emerging risks —all this really makes a difference not only in your effectiveness, but in how you can enable others to truly succeed. 

I’d like to frame our discussion today with a quote from one of my favorite filmmakers— Stephen Spielberg.

You may ask: what does filmmaking have to do with internal audit?  Well, filmmakers write their own stories. And we all have the opportunity to write our own stories—in our jobs and in our lives. 

This quote is from a commencement address that he delivered at Harvard’s graduation just a few months ago—and his quote was this:

"Your conscience shouts, 
'Here's what you should do,' 
while your intuition whispers, 
'Here's what you could do.' 
Listen to that voice that tells you what you could do. 
Nothing will define your character more than that."   

And I would add: nothing will define your impact and success—and the success of those around you—more than that. 

When you come to conferences like this one, you hear a lot about what you "should" do. You hear about experiences of others, best practices, tools, and techniques you might use.

But "should" is a passive view. "Could" is an active way of looking at the challenges and opportunities that you deal with on a daily basis. 

So what could you do?  How could you write your story differently to increase not only your success but to increase your impact on the success of all those around you?

Spielberg has more than 20 remarkable films to his credit – movies like Jaws, Jurassic Park, Indiana Jones and the Raiders of the Lost Ark, and Schindler’s List.

It was interesting for me to see that Stephen Spielberg was continuing one of his key themes from Schindler’s List—which was based on a true story—in his message to the Harvard graduating class.  He was still focused this concept of what one “could” do.  That story was about World War II. Some of you may remember that film, rated as one of the greatest of all time. 

Oskar Schindler ran a factory with the help of his chief advisor and accountant, Itzhak Stern, which employed Jewish workers; he ultimately saved over 1,200 of them.  At the end of the film there was a scene where Schindler received word that the war was over. His reaction was not one of celebration, but instead he said, quite emotionally:

“I could have done more.  I could have got more out.”

So how does this translate into corporate governance and internal audit?

Oskar Schindler reflected on his failure to not save more people – that he could have done more if he had been more intentional, or less self-centered, or more focused - maybe this was fair, maybe not.

But in the corporate world, I have to wonder how many internal auditors and others have reflected on what more they could have done when they were associated with a corporate failure.  Corporate failures destroy lives in their own way. All of us know plenty of examples, including many former household names: WorldCom, Enron and Tyco. And we all know there are many others that are not headlines.

That is where strong corporate governance comes in—and internal auditors have a crucial role to play in supporting the Board and the entire governance process.  Your importance in this is not something to be taken lightly.

First, let’s define "corporate governance." It’s not just about board oversight. It’s a broader, holistic view of the systems, controls, risk, compliance, and oversight infrastructure throughout an entire organization.

Each year, there are surveys to identify the top issues that that keep boards and senior management awake at night.  Currently, there are three issues at the top of that list that I would like to talk about.  They are:

• Cybersecurity
• Regulatory expectations
• And Human Capital.

Let’s start with cybersecurity.

Cybersecurity keeps moving higher on board and audit committee agendas, partly due to major data breaches, ransomware, state-sponsored external attacks and organized crime.

The proliferation of technology platforms and devices has caused an explosion in the amount of available data and information. And the value of data has increased exponentially—presenting a tempting target for many actors.

Every organization, in every sector, is a potential victim—no matter what kind of information it has.

I have heard it said that you can divide companies into two categories regarding data breaches and cybersecurity—those that have been hacked and those who don’t know they’ve been hacked.  So while we might read in the news about some of the more high profile events— like recent issues at Target, Morgan Stanley, Deutsche Telekom, the Ukraine power grid, Hyatt, Twitter, or even the CEO of Facebook, Mark Zuckerberg, who had his social media accounts hacked—no one is immune and without issues.  

One recent study reported 64% more security incidents in 2015 than in 2014. And another study said that the average cost of a single data breach has reached $4 million.

And data breaches and cybersecurity events do not just cost money. They can wreak havoc with computer systems… cause loss of data and intellectual property… prevent timely access to critical information, particularly in the health care industry…leak sensitive information to third parties or the media… damage investor confidence and customer loyalty… and severely harm a company’s reputation.

And although external attacks are often the focus of the media, internal threats posed by employees are certainly equally as dangerous.  

A recent Harvard Business Review article estimated that at least 80 million insider attacks occur each year in the United States. And that number is likely much higher, as many internal attacks go unreported.

I recently participated on an Audit Committee Chair Advisory Council where there was wide consensus that “people risk” continues to be the greatest point of weakness, and one of the most costly sources of problems.

Often, these internal breaches are unintentional. An employee opens an email or an attachment with a virus… or clicks on a link and visits a website that infects the company’s network… or responds to ‘spear phishing,’ where an email appears to come from a legitimate business, bank, or credit card company, requesting verification of information and warning of dire consequences if it’s not provided.

A similar instance of malware was demonstrated just a few months ago at Bangladesh Bank. An official's computer was used by hackers to make payments via SWIFT, and carry out one of the biggest-ever cyber heists, stealing $81 million.

Internal auditors bring these cybersecurity issues to corporate boards on a frequent basis.  Yet one study I read said that less than 1 in 3 organizations called themselves “very effective” at managing cybersecurity risk to an acceptable level.

Why is this and what role “could” internal audit play?

First, reflect on how you report your findings in your IT / cybersecurity audits.  Do you simply report what the findings were—whether they were “satisfactory” or “needs improvement” — or do you also tell them why it matters? 

In other words, does your reporting spell out what the consequences could be if these findings are not corrected and your view of the urgency of remediation? 

As an example, we all know that inappropriate access, identification, and lack of updated and robust passwords is something you have been reporting on for years—in fact, so long that it has become expected in your report. 

This ongoing issue should not be acceptable—particularly when research tells us that up to 80% of cybersecurity problems are not the result of attacks from outsiders, but from insiders.   

However, until reporting is enhanced to include examples not only what you found but why it matters, the Board may not understand what could go wrong nor the magnitude of the potential issue. 

You could greatly enhance your report by giving examples of how similar situations were likely part of the problem of recent data breaches in the news.  What the findings are is certainly what you “should” report, but clearly detailing why it matters is of equal importance – and this is what you “could” do. 

A second issue that keeps boards and senior management up at night is regulatory expectations and demands.

Today, businesses are faced with a complex and ever-changing array of regulations. And with the recent Brexit vote, more time and resources will be needed for many of us, as we analyze the implications and the impact, the potential changes in the regulatory structure, and how it impacts risk and audit plans.

Regulatory demands and increasing regulatory fragmentation makes everyone’s job more difficult—Boards, management and internal audit—but that is particularly true in the area of anti-bribery, fraud and corruption.

18 years ago, the OECD member states signed a convention to criminalize bribery of public officials. Since then, a growing number of governments—including the US, the UK, other European governments, and emerging economies such as China and Brazil—have passed anti-bribery and corruption laws.

Depending on your industry, you are required to comply with many regulations regarding fraud and corruption, including OFAC, anti-money laundering, FACTA, and more. We spend an enormous amount of time and resources on these compliance processes and controls. And a tremendous amount of time and resources understanding and staying up-to-date on the ever-changing regulations.

These are important investments. According to the World Economic Forum, the cost of corruption equals more than 5% of global GDP, or US$ 2.6 trillion. The World Bank estimates that the amount of bribes worldwide totals $1 trillion a year. The WEF further estimates that corruption increases the cost of doing business by an average of 10%. And, importantly, it diverts resources from people and places where they could do most good.

As part of the World Congress of Accountants held in Rome in late 2014—all those attending (6,000 of us) were invited to have an audience with His Holiness, Pope Francis, in his private auditorium.

He had a purpose for inviting us.  Since being elected Pope, he was very focused on the impact of fraud and corruption on society and companies, which have the capacity to make lives better through a growing economy and employment.

Here I am introducing to him our profession’s leaders from around the world—a pretty incredible moment.

His Holiness said, when the economy is difficult (and I quote):

“There is a stronger temptation to defend one’s interest without concern for the common good, without paying much heed to justice and legality. For this reason everyone, especially those who practice a profession which deals with the proper functioning of a country’s economic life, is asked to play a positive, constructive role in performing their daily work."   

His challenge to us, as a profession, was that we could do more.

Several months ago, I also had the privilege of speaking on behalf of the global accountancy profession at the OECD’s Ministerial Meeting on Anti-Bribery and Corruption. Attorneys General or Ministers of Justice from over 40 countries were gathered.  You can see the U. S. Attorney General Loretta Lynch at the center of the front row (and me in the peanut gallery on the back row on the right!).

At this meeting, Transparency International stated—

• Only 1B of the world’s 7B live in a country without serious fraud and corruption
• Corruption costs $2.6T US$—5% of global GDP annually (remarkable!)
• And in IFAC’s own 2015 Global Small and Medium Practice Survey—over 50% reported that at least one client experienced financial crime—including bribery / corruption. 

If you think this is not an issue for your company, you are very likely wrong—sort of like the companies that don't know they’ve been hacked.

Unfortunately, a recent survey showed that the substantial majority of internal auditors have no training on fraud beyond a very basic level. 

As companies continue to expand internationally, this is an area that requires much more focus and much more training.  Understanding local cultures and norms is essential to have the appropriate professional skepticism and knowledge.

The UK Financial Services Authority criticized compliance and internal audit functions several years ago, saying (and I quote): "compliance and internal audit staff generally completed no more than standard financial crime training, so their knowledge was patchy considering their important roles."

This is a really big governance issue—particularly the risk of running afoul of bribery, anti-money laundering or Office of Foreign Assets Control regulations.  These issues can bring a company into the sights of the regulators in ways that can halt growth and business as usual for very long and unpredictable periods of time.

This is among board members’ worst nightmares.  It is also a huge reputational issue, on which Boards are extremely dependent on Internal Audit to be their eyes and ears in identifying potential vulnerabilities and weaknesses.  And this is one area where materiality is not a consideration.  All issues are considered equally bad by the regulators.  The current environment is one of zero tolerance, so getting this right is critical.

This is an area where internal auditors “could” do so much more. By providing leadership in this area. By expanding the scope of what you do—particularly knowing that these issues are not judged by materiality. You could also do much more in the area of training and continuing education in certifications — individually and as a group. 

Formally identifying high-risk third parties. Exercising your right-to-audit clauses. Using data analytics to identify potential shortfalls in monitoring and controls—these are all areas for potential enhancements that would assist Boards in their oversight responsibility.

A third issue that keeps boards of directors and senior management up at night is human capital—or talent.

This is an area where internal auditors can plan to take specific steps to build their importance and value with all of those involved in governance—both within the management governance structures and the Board of Directors.

For internal audit professionals to be seen as trusted advisers and strong contributors to the governance process, they must be viewed by all key stakeholders as having strong knowledge of the organization’s key business matters and risks. 

You must be seen as able to provide advice and perspective on issues beyond merely providing assurance.  Without deep knowledge of the business, internal audit will not earn the trust of the line managers and senior management, nor of Board members.

Possessing that strong knowledge is particularly challenging in today’s fast-paced, changing business environment.  New subject matter areas and specialized knowledge are growing exponentially. 

But your work can only be as good as your people and their knowledge. And that must be appropriately matched against the knowledge of those you are auditing and the emerging issues. 

KPMG recently teamed with Forbes magazine to survey more than 400 audit committee chairs and CFOs regarding their perceptions of the value delivered by internal audit.  One of the findings of the survey was that 55% of respondents indicated they want internal audit to do more to improve its knowledge and expertise to a point where it can match the sophistication of its audit targets.  This level of knowledge and expertise is essential for key stakeholders— including those charged with governance—to view internal audit as providing valuable information regarding key issues and challenges.

And the evaluation of talent needs is not only for the internal audit staff.  It is also for the business lines and control processes that you audit.  This is an area where Boards particularly need insights. 

Although many of you may view this outside the scope of what you traditionally do, let me tell you why I think internal audit should also evaluate the talent in business areas.

I recently heard a great talk by Malcolm Gladwell, the famous author of books such as The Tipping Point, Outliers, and Blink.  I have had the privilege of hearing him speak twice over the past year, and each time was so impressed with his ability to frame difficult issues in memorable ways.

The first time I heard him, he talked about how we are moving from a world of solving puzzles to solving mysteries.  That it was no longer good enough to look at existing information and figure out how it all fits together—or completing the puzzle—but that we were now being expected to look forward and find ways to use large bodies of data and information and move to solving mysteries.  I think this is very analogous to the expectations of professionals today—including internal audit.

The second time I heard him speak, he talked about talent—and in particular what he called “weak link situations” and “strong link situations”. He illustrated his point by comparing basketball and soccer teams.  He called basketball a “strong link sport” where you should pay up for the superstar player because one or two really strong players could take you to the championship win. 

But soccer, he believes, is a weak link sport. It’s fundamentally collaborative. All 11 players on the team must understand their roles and make a contribution—even the ones that aren’t the most talented. Even one or two great players can’t move the ball downfield alone… and a mistake made by any team member is harder to overcome by the great players and disproportionately impacts the outcome. So you would do better to spread the pay across the team rather than relying on one or two star players, assuring that you have strong skills and talent throughout the team.

This is a great analogy for an optimal governance structure. The first line of defense is the staff in the business lines. The second line of defense is risk management and compliance. The third line of defense is internal audit. The first and second line are like the players on the field and the third line is like the goalie.

It shouldn’t be only a “star” goalie that is stopping the ball and protecting the goal.  You have to have good players on the field. 

As an internal auditor, you are the third line of defense, but you need to be concerned with the first and second lines too. If the people in the business lines and in risk management and compliance don’t have the right skills and talents—if the right people aren’t in those roles and there are weak links—there will be more balls getting through, which increases the risk profile. Goalies can only do so much.

The final talent issue is diversity – both within your internal audit teams and business line teams. This is critically important, particularly with the global nature of businesses today. 

This is not just an equality issue, or a moral or social issue. It’s smart business. It’s essential to have diverse teams to match against the many issues and perspectives coming at companies today. Research has shown that more diverse teams have higher performance and more innovative approaches to opportunities and challenges.

Diversity and inclusion goes far beyond gender and race. It includes generational diversity. And cultural and demographic diversity. Embracing the full variety of opinions, views, and perspectives enables better decisions and greater progress on many fronts.

Talent is an issue where internal audit should and “could” do more.

One area where internal audit can contribute greatly to the governance process is in how you communicate, how you gather information, and how you ultimately tell your story.  I think this will be a constant challenge and a work in progress for the rest of your professional careers. 

As situations change, as the different people and personalities of the people you deal with change—within management and on the Board—you will need to be constantly adjusting and refining to determine what is most effective.  This is definitely an area where “no one size or style fits all”, so asking and listening to various stakeholders about what works best to highlight and discuss critical issues will be an ongoing journey.

But you must begin, and be focused on that journey to truly be an effective internal auditor and for the outcome of all the hard work you do to have influence and help others succeed going forward. 

According to the IIA’s 2016 North American Pulse of Internal Audit research, many internal auditors need to improve their interpersonal skills.  Many respondents rated their average team member as only moderately proficient in most soft skills, with 49% rating their average team member as moderately proficient in organizing and expressing ideas clearly, and 9% rating the average team member as only slightly proficient at this skill.  That means over half of the ratings were less than proficient in organizing and expressing ideas. 

This definitely needs attention, assessment, training, and ongoing feedback to find ways to help everyone on your team improve. 

For internal audit to support the governance structure of any organization, communication and telling your story in a way that influences action and appropriate follow up is essential.  You will otherwise not have the impact necessary to help your Board and management succeed.

As an Audit Committee chair of several public companies, I have had the privilege of working with many Chief Audit Executives and their internal audit teams—ranging in size from 5 to 300.  Some of the CAE’s have reported directly to me as the Audit Committee Chair, with a dotted line to the CEO.  Together, we have worked hard to design reports to truly highlight and call out the most critical findings and messages—both positive and negative—for both the Audit Committee members and senior management. 

One CAE and audit team, in particular, has continuously exceeded my expectations, and that is at US Bank.  Although I am no longer the Audit Committee Chair there, since I have recently rotated to Chair the Risk Committee, it was so rewarding to see over the last two years how the reporting continued to get better and better every single quarter. 

They developed succinct executive summaries, graphs, colored-coded charts, and many other visual aids to really communicate their findings and tell their story.  And just when I would think they could not do it any better—they did!  This was critical since their reports to the Audit Committee are normally close to 300 pages long after including all the items the financial regulators want the Audit Committee to receive, so not allowing the real story to get lost in that volume of paper was extremely important. 

Since they embarked on this journey of improved reporting, the CAE, Mark Sparano, and his team have never been satisfied that there are not areas for improvement in both written and verbal communication.  They decided that excellent reporting is a journey, not a destination. In fact, they are driven by the motto “better every day”.

And I will tell you, it has been noticed by the rest of the Board. Board committee counterparts are now challenged to try to meet the standard that has been set by Internal Audit in their reporting to the Audit Committee.

It can be done.  And it is something that you not only should do—but it is what you “could” do —which would result in a much more effective job in telling your story and greatly aiding the governance process.

Let me close by saying that traditionally, internal audit controlled and safeguarded corporate assets, conducted regulatory compliance, and enforced corporate policies.

That is what you should do. - - - But there is so much more you could do.

You could build relationships and engage more across the organization—and outside it— with management… regulators… the audit committee… the risk committee… compliance… legal. You’ll gain information and knowledge that will help you better understand their perspectives and challenges.

You could move from only “calling balls and strikes”, to that of a trusted advisor by focusing on the future as well as the past.   

You could inspire an even stronger, sustainable control culture that supports and enables a strong governance environment.

You could not only report your findings—you could explain why they matter, what the risks are, and the urgency of remediation.

High-quality information to management, the board, and its committees is the lifeblood of good governance. 

I encourage you to start with a clean sheet of paper and think: What would you want to know if you were sitting on the other side of the table?  If you were on the board?

And what reporting format could best convey that information?

By focusing on what you could do to help others do their jobs more effectively, you’ll be more valuable to your organization and help the individuals within it be successful. 

And you must not only have good intentions, you must act intentionally—individually and as a team.  And remember that:

Individually, we may be ordinarily people, but together we can achieve extraordinary things. 

Or as Steven Spielberg said to graduates at Harvard:

"My job is to create a world that lasts two hours. Your job is to create a world that lasts forever. You are the future innovators, motivators, leaders and caretakers."

Thank you for having me here today—and I am glad to take questions.