In her introduction of Dr. Thomadakis, panel moderator and IFAC President Olivia Kirtley cited the following statement from his 2009 speech entitled "Estonia" given during his tenure as chairman of the Public Interest Oversight Board (PIOB):

"To do the accounts of one entity well is indeed a matter of private interests. To do all accounts well, so that entities can compete with one other and so that outsiders can compare the outcomes of competition with a common yard stick, is a matter of public interest. In other words, the ability to ensure that all accountants maintain high quality standards produces social value add."

In this multimedia presentation, IPSASB Technical Manager Paul Mason leads a discussion with IPSASB Member Bob Dacey on some of the key issues raised in the IPSASB’s recent Consultation Paper on Social Benefits. 

During her introduction of Prof. Schilder, panel moderator and IFAC President Olivia Kirtley cited the following statement from his 2013 remarks given at the 8th Annual Auditing Conference in New York:

"Throughout history it is clear that there has been a strong call for professional accountants to act in the public interest and to take into account the expectations society places on them and to understand these expectations and to respond to them through meaningful interactions. Interactions therefore in my view are more than a concept. Rather, they are an essential and fundamental principle underpinning what we do."

Good morning ladies and gentlemen.

First of all, my warm congratulations to the PIOB on its 10th anniversary. The PIOB has had an impressive history, with great contribution to the work of the IAASB over the years. In that spirit, I have chosen to start my remarks with a bit of history of major IAASB standard-setting milestones. But I will also talk about what the future holds for the work of the Board. 

One of IAASB's key past accomplishments was the Clarified International Standards on Auditing (ISAs), released in 2009, a merit of my predecessor, John Kellas, and his team. The project was not only a clear public response to audit failures, such as Enron and WorldCom, but also a holistic response to heightening regulatory attention to audit quality, and challenges in implementing global standards. At the time of these developments a decade ago, the start-up of the Clarity Project was also a key backdrop to the robust 2003 reforms established in collaboration between the Monitoring Group and IFAC.

The objectives of the Clarity Project were clear: to improve understandability of the ISAs and eliminate ambiguity between requirements and guidance; to enhance quality of auditor performance; to improve relevance and applicability of the ISAs to audits of SMEs, and to facilitate global adoption. The result was a comprehensive revision and redrafting of all the ISAs.

A few years later, we carried out a post-implementation review and the results confirmed that the Clarity Project in essence achieved its objectives.

That work has led to today where 110 jurisdictions across all parts of the globe  are now using or committed to using the Clarified ISAs—and there certainly is more to come in Francophone Africa and Latin America, for example. As IASB Chairman Hans Hoogervorst mentioned earlier, there are 116 countries using IFRS—so, we are close!

That was IAASB's first major project to respond to public interest concerns, and its focus was on audit quality. The IAASB's second major initiative—its most recent flagship project—was Auditor Reporting and its focus was on responding to users' needs.

The Auditor Reporting Project is said by some to be a response to the financial crisis. That is not true. Research commissioned by IAASB started well before the crisis, asking: "What do users actually think of the auditor's report? What are your expectations of such reports? What should change?"

The new Auditor Reporting standards are, in my view, the future of global auditor reporting and stimulate improved auditor communications. They are essential to the continued relevance of the audit profession globally. Users have told us that the audit opinion is valued, but the auditor’s report can be more informative. And they were very clear that they want more relevant and decision-useful information about the entity and the financial statements audit.

So, we responded with new reporting features, including a major new section on Key Audit Matters, enhancements regarding the role of the auditor with respect to Going Concern and Other Information, and more information about auditor responsibilities and independence .

I am pleased to report that already adoption is progressing, even ahead of the required date, in Europe, South Africa, Australia, Singapore, and other jurisdictions. At first there were voices of reluctance, as can be expected with any new major change. But now: acceptance, positive feedback, and from some enthusiasm. Indeed, I am hearing now that more and more "the auditor is coming out of the 'black box'" - and that the audit is becoming "more observable," a phrase I noted in a recent IFIAR report.

Three years ago, much of this would not have been dreamed possible. But it is now reality.

Earlier in 2014, we also published the Framework for Audit Quality, describing the many factors that play a role in achieving audit quality.  The key message there, indeed, is the importance of interactions between auditor, users, TCWG, regulators, and others. Of course, the primary responsibility for performing quality audits rests with auditors, but each stakeholder plays an important role supporting high-quality financial reporting. Audit quality is best achieved in an environment where there is support from other participants in the financial reporting supply chain.

I recall my time as an auditor and how central a role an active and challenging audit committee could play to help stimulate good financial reporting quality and good audit quality. Interactions and ongoing dialogue are essential. 

I am pleased to see the Framework for Audit Quality being taken up more and more, because I believe the messages it delivers are very important.

The Framework has set the scene, and the IAASB is now moving forward to the future. We have embarked on four major new projects.

These projects address the review of:

• Our over-arching Quality Control standards at both the firm-wide and engagement levels;
• The ISA addressing Group Audits;
• The auditing of Fair Value Estimates, with a view to re-assessing the ISA 540 on that subject in light of accounting developments, as well the need for additional guidance when auditing Financial Institutions; and
• Professional Skepticism.

If you ask "why is it that these topics are on the agenda?" one simply has to have regard to the external environment. Globalization and complexity are changing the way business are structured and operate, as is technology. These affect how audits are being carried out, and there are also developments and innovation with the audit firms themselves. Each of our project topics have the potential to further enhance audit quality in light of these global trends.

These topics are also on the agenda because we have learned from our post-implementation review of the Clarified ISAs, and we have ongoing input from the International Forum of Independent Audit Regulators (IFIAR) and others. We have given serious consideration to these inputs, among other.

They are seemingly four different topics, but when we began discussing them in March this year it became clear there is a lot of commonality between the four topics, in particular certain issues that cross-over each of the areas. Take for example professional skepticism: it has relevance to our thinking on the way forward not only as an issue in and of itself but also to each of the other three topics.

What the IAASB decided, therefore, was to pull all these topics into a single consultation -- our so-called "Invitation to Comment"—similar to what was done for purposes of our Auditor Reporting Project. We plan to publish this Invitation to Comment in December.

We will make the Invitation to Comment readable for non-technical audiences, through a separate special section highlighting key areas of attention. That is important as we need to hear from all varieties of stakeholders. Naturally, there is a need also to consult on matters at a more detailed technical level. We will therefore use a separate second section of the Invitation to Comment to address that. An early warning: that section may be fairly comprehensive.

Once we have the benefit of multi-stakeholder input on the Invitation to Comment, we will from that vantage point then determine appropriate standard setting. However, there is progressive discussions within the Board and with our Consultative Advisory Group that are shaping our actions. One recent outcome from those discussions is that already a project proposal on work on enhancing the ISA addressing auditing fair values and considering issues relating to auditing financial institutions will be developed for discussion by the Board this December. 

So, in the end: What is this new work all about? What are we trying to achieve? In brief:

The ISAs need to better address increasing complexity and new technologies in the business and audit environment, and deliver against the public’s heightening expectations of quality. And the profile of tomorrow’s auditor has to be one of a critical challenger, supported by a regime focused on public interest and quality management, and better observable for stakeholders.

This Invitation to Comment will be a strong call for ongoing and active dialogue with and input from all kinds of stakeholders on these topics and our public interest aims. I am confident that that call will be answered. 

I also want to mention Integrated Reporting and Data Analytics, which are topics that were featured in the Board's latest meetings. These are developing areas, yet are likely to become a increasingly prominent feature of the landscape and are therefore relevant and important. The IAASB is actively informing and preparing itself for the future in regard to these topics. Such preparation is an essential first step.  

In closing, I want to come back to the point of interactions, in the context of our consultation process for the upcoming Invitation to Comment and the public interest lens we must always keep at the forefront of our minds.  For this, let me share a moment from our discussions at our last Board meeting.

We were encouraged by the PIOB Observer at our meeting to be inclusive in outreach when soliciting feedback on the Invitation to Comment, including reaching out to stakeholder communities, for example, employee groups, who may not otherwise typically engage on such consultations.

From that very broad challenge, the question arose - who else then should we ask? And he said: "your mother-in-law maybe?"

That brought out some smiles; but I thought about it.  And I knew what she would have said to the question of what is the right course of action. She would say: "Do what is right for the children." For me, "the children" represent society at large—all those that rely on the work of the auditor, the current generations, and the next—whose trust in the profession will be shaped by the success and failures of tomorrow’s auditors. But also these auditors themselves are entitled to have fit-for-purpose audit standards.

For that, we must engage and interact, with the public interest in mind, so that we are fully informed before deciding on our path. 

Thank you for the privilege of being with you today. It is an honor to be in Ghana, and to have the opportunity to address such a distinguished group of people.

As IFAC President, I have the privilege of traveling extensively and meeting with leaders of the accountancy profession all over the world. The profession’s valuable contributions to support strong and sustainable organizations, financial markets, and economies continues to amaze me. I see first-hand the impressive difference the profession can make in the lives of ordinary citizens and the economic health of a country or region.

I want to take this opportunity to acknowledge The Institute of Chartered Accountants (ICA) of Ghana and its deep commitment to its public interest mandate, demonstrated in its leadership and commitment to assisting national reform and facilitating Ghana’s international economic integration.

Your early adoption of International Financial Reporting Standards, including for Small and Medium Sized Entities, and International Standards on Auditing is significant. And you did not stop at the private sector …

I commend the Ministry of Finance and, in particular, The Honorable Mr. Seth Terkper – an ICA Ghana member – for the decision to adopt accrual-based International Public Sector Accounting Standards as the government’s reporting framework within the next five years.

IFAC and professional accountants around the world believe it is vital that (1) governments have high-quality information on which to base decisions, and (2) the public has access to easy-to-understand information in order to hold governments accountable. This is at the heart of IFAC’s initiative calling for governments and public sector organizations to adopt high-quality, internationally-accepted standards for financial reporting – what we call Accountability. Now. This is the initiative under which we supported ICA Ghana’s successful roundtables on public sector financial reporting held in May this year.

ICA Ghana is an active member of two valuable forums for sharing best practices and providing assistance - the Pan African Federation of Accountants (PAFA) and the Association of Accountancy Bodies in West Africa (ABWA). ICA Ghana has also demonstrated its strong regional leadership in the support it has given to the professional accountancy organization in neighboring countries.

I believe that individually we may be ordinary people but together we can achieve extraordinary results. I thank you for not only setting high goals for the profession in Ghana, but also for reaching out and offering your knowledge and experience to help the profession elsewhere.  

As I said before, it is the profession’s valuable contributions like yours in Ghana – individually and collectively – that continuously amaze me. I am so impressed!

***

In preparing for this visit, I listened to the Republic Day address of the President of Ghana, commemorating 55 years since the foundation of today’s modern Ghana. His message about the need for reform was very clear:

• He called on government to spend within its budget.
• He dedicated his administration to strengthening institutions, especially those that fight corruption and abuse of office.
• And he called on political leaders to come together to work in the long-term interests of the country.

These are wise words that demonstrate dedicated leadership. Embracing reform in the long-term public interest can be tough, especially in difficult economic circumstances, but good governance in all organizations depends on leaders who set an excellent ‘tone at the top’.

It is outstanding that the President of Ghana speak about the importance of ethics, trust and credibility – the foundation on which Ghana’s future success will be built. Coincidentally, these are the hallmarks of the global accountancy profession and we have found that being true to these three pillars – ethics, trust and credibility – has been the key to our success and the public we serve for many years.

***

Today, I want to talk about IFAC’s role to support the growth of this nation’s accountancy profession – it is a complete honor and very exciting to do so. Given the nature of this audience, I also want to discuss the absolute necessity for good governance, transparency, and accountability if Ghana is to create the future your citizens want and deserve.

First of all, let me explain how, and why, IFAC has chosen to support Ghana’s accountancy profession.

A core component of IFAC’s public interest mission is to help facilitate a well-educated, well-trained, well-qualified, and ethical accountancy profession and, in particular, to grow the number and build the capacity of professional accountants in emerging economies.

Several years ago, in pursuit of this public interest mission, a game-changing milestone for IFAC was the creation of MOSAIC. MOSAIC is an acronym that stands for Memorandum of Understanding to Strengthen Accountancy and Improve Collaboration. This initiative brought together IFAC and 12 donor organizations, including the World Bank, African Development Bank, and UK Department for International Development (DFID).

If you go to the MOSAIC website, and a click on the map of Ghana, you can see: (1) the World Bank’s report on Ghana’s observance of standards and codes; (2) IFAC’s own report on ICA Ghana’s progress on its obligations as an IFAC member; and (3) a wide range of Ghana-focused materials. I recommend you take a look.

And, soon, the MOSAIC website site will have another item of good news about Ghana!

The most important hallmark of the accountancy profession is our professional qualification. ICA Ghana has done excellent work in building a Chartered Accountant professional program and post-Chartered diploma, as well as participating in the Accounting Technicians for West Africa program.

Your Chartered Accountant qualification is a visible reminder of integrity, expertise, and trust. It is a passport to a career, and the mark of a trusted advisor.

It is widely agreed that the essential elements of a credible professional qualification include: (1) a world-class examination system; (2) accredited and monitored education institutions and training offices; and (3) high-quality practical training.

It is my pleasure to confirm that IFAC, with funding from the United Kingdom’s Department for International Development, commonly referred to as DIFD, has chosen Ghana to launch a project to further strengthen the accountancy profession and, in particular, the ICA G professional qualification in these important areas.

In 2014, IFAC received almost £5 million (or $8 million USD) from DFID to fund professional accountancy organization capacity building in ten countries over a period of seven years. We are doing that by identifying countries where we think we can really make a difference and then partnering with other professional accountancy organizations to assist us in that work.

Today marks the first announcement of a partner to deliver on that promise. The Institute of Chartered Accountants in England and Wales (ICAEW) – an organization well-known here in Ghana – has been selected to join forces with ICA Ghana to blend international best practice and local knowledge and experience.

We expect this to be completed by March 2017. This exciting project will focus on enhancing the ICA Ghana examination system, as well as developing roadmaps to enhancing the accreditation of education institutions and training offices, tuition provided by the ICA Ghana School in support of the examination, and the practical training and experience of newly qualified professional accountants.

This project will enable ICA Ghana to develop its reach, influence, and capacity to fully support Ghana’s economic development. I congratulate ICA Ghana and the ICAEW for undertaking what I am sure will be a very successful project.

***

Before I close, I want to touch on one other topic that is also essential to Ghana’s future – and that is good governance. Governance arrangements and effectiveness have a vital role in the economic health and success of any nation. If accounting is one side of the coin – strong governance requirements and practices is certainly the other.

First, I want to acknowledge the work of ICA Ghana, the Ghanaian authorities, and others who believe deeply in good governance. From the Ghana Securities and Exchange Commission’s guidelines on governance best practices to ICA Ghana’s demonstrated support for good governance, it is clear there is a willingness to succeed on this front.

Governance is an area I have devoted many years to – both in serving as a non-executive director of several publicly listed companies over the past 20 years, and as a consultant to businesses, boards, and governments. I have seen how robust governance greatly enhances decision-making and accountability in ANY organization. Embedding strong governance into your country’s DNA, and expecting it in each and every organization and business is one of the most important things you can do.

And although there is a stated commitment to good governance by Ghana’s leaders, there is more to do. I know anti-corruption initiatives are top-of-mind – not just for leaders here today, but for everyday citizens who desire – and deserve – the best possible leadership. Building Ghana’s economy and solidifying its position in an internationally integrated economy is going to require a strong, decisive, and embedded governance culture.

Very quickly, I would like to highlight three areas from my personal experience I believe can significantly move the needle towards stronger, more effective governance.

1. Executives – as well as boards – have critical leadership roles in achieving strong corporate governance

Good governance begins with individuals and leaders who have a deep knowledge and understanding of business or organizations. Boards must be willing to honestly assess themselves – as a group and as individuals – and ask:

• Do we truly understand the business, the issues, and the risks?
• Are we equipped to effectively represent our stakeholders?
• Are we sufficiently informed – on an ongoing basis – and are we willing and able to not only understand the implications of judgments and decisions being made, but also to offer credible challenge?
• And do we understand the risks of the business model or actions – is too much risk or too little risk being taken? Boards must make (1) risk management and oversight a priority and regular agenda item; (2) risk appetite must be discussed and agreed upon with management; and (3) risk mitigation actions must be monitored and evaluated for their effectiveness.

If Board members do not understand the business model, the risk, the transaction, the market, then you have a problem. The Board – individually and as a group – must have relevant knowledge, willingness to challenge, and the courage to hold people accountable to agreed-upon strategies and risks to make meaningful contributions.

2. Good governance within management is also critical

Good governance begins with having strong executive management and robust management structures. If management cannot comfortably explain the overall picture of the business direction, the effects of decisions, and assess enterprise-wide risks, how can a CEO or board member do their job effectively?

Start with a critical examination of your talent pool. Ask whether your organization has recruited people with the right experience and skills to manage critical risk and control functions: (1) within operations (the first line of defense); (2) within accounting, finance, and risk management (the second line of defense); and (3) within internal audit (the third line of defense).

3. Professional accountants are uniquely qualified and stand ready to help

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 made the following observation: “There are three kinds of gaps that boards must address: gaps in information, gaps in oversight, and gaps in expertise.”

I am convinced from many years serving on boards that the accountancy profession is uniquely positioned to help companies address those gaps. Industry and 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 corporate governance.

It is in the accounting profession’s best interest to play a significant leadership role. Effective governance leads to transparency and high quality information that enables professional accountants to do a better job. It is essential that our profession is involved at every level.

In summary, I would like to leave you with three “take-aways” regarding the leadership role you can play in strengthening corporate governance in Ghana – and also a challenge.

First, the “take-aways” …

#1 – ADVOCATE for strong corporate governance. Be interested in all aspects of governance, talk about what changes should be made, what works well for others, and share experiences. There are many resources available including the websites of many of the large accounting firms.

#2 – EVALUATE. Consider a “governance review” and identify areas for improvement. Seek out what has been effective elsewhere, highlight existing gaps, and create an action list to bridge those gaps. The accountancy profession is well positioned to help address the gaps.

#3 – PARTICIPATE. Be visible leaders, and lead by example. Board members, CEOs, and senior leaders must demonstrate effective information flow, constructive challenge, and strongly transparent and accountable processes.

And now for my challenge to you …

Each of you can contribute greatly to reaching the next level of governance effectiveness. As senior leaders in Ghana, you have the influence to take this message forward to wider audiences, to advocate for strong corporate governance – and to help others see what that looks like through your own examples.

You have the power to impact economic growth. And you have the power to send a strong message of corruption intolerance.

And as I always like to remind myself: We must not only have good intentions - we must act intentionally.

I am aware of an Ashanti proverb: When a king has good counselors, his reign is peaceful.

I believe the accountancy profession in Ghana is that good counselor.

With the goodwill and leadership represented in this room, and ICA Ghana’s continued and steadfast support of good governance and transparency, the unwritten chapters of Ghana’s future are going to be an excellent read.

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.

President Coelho, thank you for the kind invitation to be here tonight.

Ladies - and I see, a few gentlemen - it is a privilege to be with you all here in beautiful Foz de Iguazu, Brazil, to be among the highly regarded Brazilian accountancy profession.

It is especially an honor to stand before you as the first female President of the International Federation of Accountants, and to speak to a conference dedicated to more than 2000 female accountants in this vast—and important—country.

You have chosen an interesting theme for your conference: Energy, Knowledge and Art. 

And so it is with lots of energy, and an affirmation of a quest for knowledge and courage, that I honor you and your involvement in the art of our profession.

Why energy?

Because as a girl growing up in a small Kentucky farming community, I never anticipated:

• graduating from university as an accountant, when that was viewed as a career path reserved almost exclusively for men;
• becoming the first female chair of the American Institute of CPAs—110 years after it was founded; and
• being elected to lead the profession globally last November at the World Congress of Accountants in Rome— which, coincidentally, was 110 years after the first World Congress.

And I could never have imagined travelling to Brazil, and speaking to more than 2,000 women about our wonderful profession. It was inconceivable. Particularly when I think about the fact that, at my first job interview some 40 years ago, I was told that the firm didn’t hire women for its professional staff—only for their office support functions.

But, just like you all, I learned to accept that sometimes life throws us challenges.

Sometimes they are life changing, sometimes they are career defining. But they all require energy and commitment to overcome. 

When I was struck by Bell’s Palsy last year, after a virus attacked my facial nerve and caused temporary (hopefully) paralysis of one side of my face, I first viewed it as  a potentially huge distraction. However, over time I discovered that when I moved forward in spite of this setback, people responded with surprise and respect because I did not let it interfere with important goals and commitments. 

Vanity and pride had to be put aside, though it was tempting to dwell on the negative. But I thought—“If this is the worst thing that happens to me, it will be a very good life” … I can walk, I can talk, I have a wonderful family, and my brain still works.  I may smile and talk with a lopsided mouth but it doesn’t keep me from thinking—and leading our global profession with passion and energy.

Why knowledge? 

Because it takes knowledge to put yourself forward for a new challenge or opportunity.  First of all, there is absolutely no substitute for competency.  But that is not enough. 

It also takes courage.  Research has shown that men are more willing to put their hands up when they are not fully prepared to take on the next assignment or challenge.  But women, on the other hand, tend to wait until we think we’re fully prepared.  We must be willing to do things we do not feel completely ready to do.  That is how we grow.  By having the courage to do this, by pushing through those moments of doubt, that is when we have breakthroughs and are viewed as capable leaders. That is when we gain experience – and experience success. 

Or to quote Sara Blakely, the founder of a billion-dollar hosiery manufacturer, Spanx: 

“Don’t be intimidated by what you don’t know. That can be your greatest strength and ensure that you do things differently from everyone else.”

We must also use our knowledge and courage to challenge, to advocate, and to persuade. 

We must continually challenge the status quo; and always articulate the case for inclusion and diversity in our profession globally.

And we must constantly remind ourselves to pause, look over our shoulder, and help the next generation of women on their journey to success.

And why art?

Because our profession is not an exact science. There is artful symmetry in creating new approaches to address challenges, in learning and adapting to changing demands, in making sense out of data and numbers in a way that allows companies and clients be the best that they can be: looking forward, growing and succeeding.

When the numbers enable good decisions, when governance is strong, and when we advise our companies and clients—in the public interest—to be transparent, accountable, and sustainable, we add tremendous value to our communities and the world around us.

That is what drives my excitement and passion for our great profession. 

I am excited to be here with you this week.

I applaud your attendance, I honor your commitment to our profession and I look forward to meeting as many of you as possible and learning more about your challenges and opportunities.

Thank you again for inviting me to Brazil to be with you all—it is indeed a great privilege and honor. 

Following a well-received presentation at both the 2013 and 2014 Institute of Management Accountants (IMA)’s Annual Conferences, IFAC Senior Technical Manager Vincent Tophoff and Campbell Soup Company Finance Director and Comptroller J. Stephen McNally gave a follow-up presentation during at the 2015 conference to discuss additional risk management and internal control (RM/IC) issues and considerations.

This presentation addresses the core compentencies of professional accountants as it relates to risk management and internal control, including

• Good risk management is good accounting, not compliance, as risk affects job duties and objectives
• Risk management becomes virtually invisible when fully embedded in our core managment accounting principles.

This presentation follows the June 2013 presentation, Leveraging Effective Risk Management and Internal Control for your Organization, and the June 2014 presentation, Upgrading Risk Management and Internal Control in Your Organization.

Good morning.

Thank you for the warmth of your welcome.

It is a privilege to be with you this morning

And it is a privilege to call President Herath a friend and colleague. In his short time as president of CA Sri Lanka, and even before, he has shown vision and fortitude in advancing the growth and development of the accountancy profession in Sri Lanka, and by sharing his insights with us as we work globally.

Arjuna also serves on IFAC’s Professional Accountancy Organization Development Committee. There he contributes greatly to strengthen the capacity of professional accountancy organizations globally.

Two former CA Sri Lanka presidents also serve the global profession by serving on an international standard-setting board: the International Accounting Education Standards Board and the International Ethics Standards Board for Accountants.

The global accountancy profession is supported by the volunteer work of so many. On behalf of IFAC, I want to thank CA Sri Lanka for sending individuals of such excellent caliber and commitment to serve on our committees and the profession’s international standard-setting boards.

I also acknowledge the long history between IFAC and the Institute of Chartered Accountants of Sri Lanka.  

IFAC was formed in 1977 and CA Sri Lanka has been an IFAC member since 1978, ensuring that the accountancy profession remains at the forefront of Sri Lanka’s growth and economic development.

***

As some of you may know, while this is my first official visit to Sri Lanka as IFAC President, it is not my first time in Sri Lanka. 

I was here almost exactly 10 years ago in a private capacity.  Following the 2004 tsunami, my local community in Louisville, Kentucky, raised over 1 million US dollars to help people whose lives had been devastated.  There were many people and organizations that arrived here for relief work, but our goal was to provide the assistance and funds needed for people to rebuild businesses and support their families and communities going forward.

But a million dollars is a lot of money to effectively put to work over a short period of time.  We knew that oversight, accountability and governance would be critical to success. 

At the time, I was on the board of an NGO that was doing economic, health and education work under demanding and difficult circumstances in Afghanistan. Since we had relevant experience in disbursing funds in a responsible and accountable way where needs were great, we volunteered to assist with disbursing these funds.  After much discussion and consideration, we chose to do this in a single country in order to maximize the benefits and impact.  The country we chose was Sri Lanka.

I arrived in Sri Lanka in October 2005 with a team of six people, including some very experienced executives like yourselves, and spent over a week visiting survivors who had lost entire businesses or essential operating assets, evaluating their needs and opportunities, and determining how to most effectively put these funds to work for the benefit of Sri Lankan families and the economy. 

We were acutely aware that we needed to assure that monies contributed were properly managed, with appropriate oversight and effective governance. And, most of all, that the funds benefited as many of the most in-need people and projects as possible. 

Ultimately, we helped to rebuild communities, replaced business establishments complete with new equipment, provided sewing machines to tailors and mothers, handed out boats to fishermen and bicycles to those in need of transportation to get to work. 

I will never forget what I saw or the incredible people that I met, including other Sri Lankan accountants and professionals working hard at every level to provide support for their country in this time of overwhelming needs.

I’ve heard there is a Sri Lankan proverb that says “Wisdom can be found traveling.” My first trip to Sri Lanka was an unforgettable learning experience. And I expect this one will be also.

***

I’m here today to talk with you about a topic that was helpful even during our post-tsunami work - and that is governance.  More specifically, I want to focus on the tremendous benefits strong corporate governance can deliver to the companies and organizations you lead.

The past few years have challenged companies and boards in quite serious ways. In the midst of the economic crisis, the importance of strong corporate governance was brought to the forefront.

As IFAC President of IFAC, I lead an organization which consists of 175 members bodies in 130 countries that represent over 2.8 million accountants.  Our entire profession views corporate governance as a critical link in the financial reporting supply chain and for the success and sustainability of any organization – regardless of size or mission. 

But my personal perspective on this is derived not only from inside the accounting profession, but is greatly contextualized by my experience inside the boardroom. 

I have served as a non-executive director of several publicly listed companies over the past 20 years, and on boards of many other organizations of all types.  I have seen the difference robust governance can make to enhance decision-making in ANY organization.

As CEOs, CFOs and senior leaders, I submit to you that embedding strong governance into your organization’s DNA is one of the most important things you can do as a leader.

Sri Lanka is one of the fastest growing markets in the South Asian region. Its GDP grew by 7.4% in 2014, up from 7.2% in 2013. Expectations for future economic growth, fueled by tourism and heavy investment in infrastructure, are for about 7% a year in 2015 through 2019.

So in many respects, the economic outlook for Sri Lanka is very positive. Yet challenges remain. There is always more to do.

Taking Sri Lanka and its businesses to the next level is going to require a strong, decisive, and embedded governance culture. All organizations–large and small, public and private—must care about it.

***

Sri Lanka is no stranger to corporate governance. And CA Sri Lanka has been at the forefront of strengthening governance in this country.   Sri Lanka’s first corporate governance code was issued by CA Sri Lanka in 1997. A revised version of the code, which was a joint effort between CA Sri Lanka and the Securities and Exchange Commission of Sri Lanka, was issued in 2013.

The accountancy profession has long been an active advocate for good governance.  In 2007, just prior to the financial crisis, IFAC commissioned a global governance survey of more than 340 people in financial reporting, including standard setters, regulators, investors, company managers, directors, and auditors.

This pre-crisis survey identified that progress had been made in improving governance since the corporate financial scandals early in the decade. But it found that more needed to be done in some key areas. Those areas included:

• Improving corporate ethics and the “tone at the top”;
• Linking remuneration structures to long-term sustainable performance;
• Moving away from legalistic compliance – or a checklist mentality – to principles-oriented oversight and management; and
• Improving financial reports by making them more transparent

A follow up report in 2008—again before the full effects of the crisis were being felt—highlighted other governance issues that needed to be addressed:

• Risk and control systems were too narrowly focused;
• Business models were not sufficiently integrated with overarching governance and sustainability;
• There was a lack of safe harbor protections for those charged with governance in some parts of the world; and
• There was a great need for better governance in public sector organizations.

*** 

As Sri Lanka becomes a more internationally integrated economy, your commitment to good governance is going to be essential to Sri Lanka’s success.

In the U.S. and Europe, there are many new governance rules and regulations companies and Boards must comply with.

But more regulation is not an adequate answer – it is mindset and commitment that enable effective governance. 

Several years ago in the aftermath of the financial crisis, I attended a London meeting with 20 corporate directors from the largest global financial institutions.  Most of them were audit and risk committee chairs.  It was our second meeting to discuss common governance challenges and how best to carry out our control and risk oversight responsibilities.  

An analogy provided by one participant asked what train we wanted to ride to the future: one that devoted time and resources to upgrading infrastructure and systems OR one that continued to operate in basically the same way as it did before the last disaster, with just a few added checkpoints and reports along the way.

The point was simple: we all need to devote much more time developing systems and infrastructure upgrades rather than writing plans about disaster recovery programs – or so-called “living wills”, now required of financial institutions. 

In my consultancy business, I work with public company board members to help them gain new insights and learn new techniques to better carry out their governance responsibilities. Or in the words of the prior example: improve their systems and infrastructure. 

They appreciate what I call “take away” items from these sessions: – ways to improve the quality of information they receive, questions they should be asking, follow-up techniques, and processes to improve effectiveness.   And while Boards I have joined have not always been comfortable with information and process change, without exception change happens as soon the benefits of robust governance are explained.

So today, I would like to highlight three areas that I have found can really move the needle towards stronger and more effective governance. 

1.  Executives as well as boards have critical roles to play in corporate governance reform

I’ll start with the competency test.  First and foremost, Boards and their committees must conduct a challenging assessment of their adequacy and qualifications to protect and represent investors and stakeholders.

Boards must be willing to honestly assess themselves - as a group and each director individually - and ask:

•  Do we truly understand the business, the issues, and the risks?
•  Are we equipped to effectively represent our stakeholders?
• Are we sufficiently informed and able to understand the implications of basic judgment calls in order to offer credible challenge?

It is hard for people to answer “no” to these questions, so I emphasize the “understand” point.  If any director doesn’t understand the business model, the risk, the transaction, the market, then that is a problem.

Directors must be equipped to ask the tough questions about:

• specific transactions, expenses, revenue streams and new initiatives ; and
• Board composition … whether   member “renewal” is required in order to achieve deeper experience and understanding.

This need for assessment and challenge was highlighted by the financial crisis, especially in relation to risk.

Prior to 2008, I think it is fair to say  financial services sector risk models were thought to be the most comprehensive, yet we still experienced unimaginable problems - a liquidity and interdependence crisis

So what is the message?  Risk management is a long, long way from good in many organizations.  

Will new regulatory risk management rules at the systemic level protect investors?  No.  

Each company is must build their own models and capacity to address risk.  Boards, senior management and accountants are all on the hook here.  

Directors must have high expectations and increased knowledge of the business to make meaningful progress.  This is an area where we have “miles to go” before we get to a desirable destination.  And true leaders need to be leading the march, not watching from the sidelines. 

I think working with internal and external auditors, along with “industry experts” will be necessary to make this happen.  Simply setting up a Risk Committee is not the answer.  In fact, a huge concern of mine is that establishing a board Risk Committee has great potential to create even more risk oversight gaps, with duties split among the Risk & Audit Committees, as well as the full board.

But initial steps must be taken, and those of us in this room must lead.  Those steps are to: 1) make risk management and oversight a priority, 2) make risk a consistent Board agenda item – not an occasional one, and 3) discuss risk appetite and mitigation plans, AND evaluate when actual mitigation steps take place to assess their effectiveness.  We must ensure there is meaningful progress in advancing risk oversight – it is essential for effective corporate governance. 

2. Governance within the management structure is also critical

As executives, we must challenge ourselves and our organizations to gain a deeper understanding of complex business models and issues.  As with effective Board governance, it begins with continually examining whether the right people with the right skills are working in the critical risk and control areas:  within operations (first line of defense), accounting, finance, risk management (second lines of defense) and internal audit (third line of defense).  

As business models and business complexity changes, we must ask: do our employees have technical skills, and deep operational understanding and experience?  Do we have the right mix of people and skills?  

If management teams and employees cannot comfortably explain the overall picture of business direction, the effect of decisions, and assess enterprise-wide risks, then how can a board member do their job effectively?

This may seem to be an oversimplification, but we need to challenge our business and staffing models.  Your business cannot ride into the future with the mismatched people skills and roles, and poor systems and structures.  

3. Professional accountants are uniquely qualified and stand ready to help

In 2012, I was part of a Corporate Governance Study Group sponsored by the Rockefeller Foundation.  Our charge was to examine governance gaps and suggest ways to bridge those gaps.  During one of our meetings, the Dean of Columbia University Business School, made the following observation:  “There are three kinds of gaps that boards must address:  gaps in information, gaps in oversight, and gaps in expertise.”  

I am convinced from many years serving on boards that the accounting profession is uniquely positioned to help companies address those gaps. Information is our business.  Industry and financial expertise are our core competencies.  In many countries, audit committees and our profession initially led the way for improved corporate governance. The accountancy profession stands ready to help organizations understand the essential elements, structures and processes for strong corporate governance.

Not only do professional accountants have the training and competencies that can give valuable input to this process, but it is ALSO in OUR best interest to play a significant leadership role.

Effective governance leads to transparency and high quality information that enables professional accountants to do a better job. It is essential that our profession is involved at every level of corporate governance.

We often think of our involvement from the perspective of accounting firms or of professional accountants working in business, but the expertise of the profession is needed both outside and INSIDE the boardroom.  I assure you, accountants make very good directors!

“Financial expertise” and “professional skepticism” are two of the most important factors in effective board and oversight functions.  These are at the core of highly developed professional accountant competencies.

At the end of the day, effective governance comes down to knowing what information is needed, and then having honest, frank and informed discussions on significant issues and risks.  Professional accountants can contribute greatly to this discussion – both as participants and facilitators

In summary, I would like to leave you with three “take-aways” regarding the leadership role you can play in strengthening corporate governance in Sri Lanka– and a challenge.  First, the “take-aways”:

#1 - ADVOCATE  - for strong corporate governance. Be interested in all aspects of governance, initiate dialogue on its most effective forms, and share experiences – with each other, across organizations and industries.

#2 - EVALUATE  - Consider conducting a “governance review”– and identify improvement opportunities (much like companies do internal control reviews).  Seek out what has been effective elsewhere, highlight existing gaps in company practices and create an action list to bridge those gaps.

This would create immediate value for individual companies, and benefit the national economy.

And please remember that the accountancy profession in Sri Lanka is well positioned to help address any gaps. Please:

• Seek out accountants to not only give advice but to serve on your corporate boards.
• Welcome and embrace their advice on how to strengthen your risk management systems
• Leverage their skills and expertise and utilize them as trusted advisors as you evaluate a broad range of corporate issues and challenges.

#3 - PARTICIPATE - We all need to lead by example - including inside the boardroom, as board members, demonstrating effective information flow, constructive challenge and strong accountability processes.

The competency and expertise of new board candidates has escalated to the top of the list as the world recovers from financial crisis.  Today’s boards seek qualified candidates with strong relevant experience including risk management, internal controls and executive compensation structures and incentives. You can help fill these needs as part of Board “renewal” efforts.

And now for my challenge.

Each of you can contribute greatly to reaching the next level of governance effectiveness. 

As Sri Lanka’s corporate leaders, you have the gravitas to take this message forward to wider audiences, to advocate for strong corporate governance - and to help others see what that looks like through your own examples.

You have the power to impact economic growth on a very broad scale –not just your own bottom line. 

You must not only have good intentions - you must act intentionally.

Thank you for the opportunity to join you this morning.

IAASB Chairman Arnold Schilder was a featured speaker at the HLBI International Audit Conference in Amsterdam, the Netherlands. Prof. Schilder discussed key IAASB initiatives, including auditor reporting, enhancing audit quality, and the IAASB 2015-2016 work plan. 

During its June 2015 meeting, the IAASB hosted a panel discussion on the topic of professional skepticism. IAASB member Annette Köhler, who chairs the Professional Skepticism Working Group introduced the topic. The panel was comprised of:

• Cindy Fornelli, Executive Director, Center for Audit Quality;
• Jeremy Justin,  Canadian Public Accountability Board’s Representative on the Forum of Independent Audit Regulators Standards Coordination Working Group;
• Helen Munter, Division of Registration and Inspections, US Public Company Accounting Oversight Board, and
• Doug Prawitt, Glen Ardis Professor of Accountancy, Brigham Young University. 

Prof. Köhler and each panelist gave a brief presentation and offered opening remarks, which were followed by a discussion period.  

IFAC Senior Technical Manager Vincent Tophoff discussed governance, risk management, and internal control in the public sector at the Institute of Internal Auditors International Conference.