During the Institute of Internal Auditor's International Conference, IFAC Senior Technical Manager Vincent Tophoff on integrated reporting, including implementation, trends, and best practices globally. Mr. Tophoff also focuses on the role of the internal auditor in the process.

Ladies and gentlemen, esteemed Minister of Finance, distinguished President of LACPA, eminent authorities and dear colleagues,

On behalf of the IPSASB and from my personal side, I am delighted to express my gratitude for the invitation to speak to you today. And I would like to acknowledge the Ministry of Finance, the Lebanese Association of Certified Public Accountants and the World Bank, for making this event possible.

Even though I only have ten minutes for this speech, I will do my best to convince you that IPSASs are the best way of accounting for governments…

Should I fail – I am sure that the training course that will be held this week will demonstrate that IPSASs can be a realistic and successful endeavour for governments.

However, I do not want to disappoint you in full, and, so, I am going to briefly address three topics I consider key to this week’s discussion: WHAT information is provided under an IPSAS-based system; HOW IPSASs improve the quality of financial reporting for governments; WHY you should adopt IPSASs, focusing on expected benefits.

IPSASs are standards for government financial reporting. IPSASs are not requirements for preparing and using budgets during the year. IPSASs are applied in the preparation of end-of-year reports to communicate to the entire user community the financial position and financial performance of public sector entities. We call these reports General Purpose Financial Reports.

IPSASs are full accrual accounting standards. The term “full” means that the government entity accounts for all transactions, which affect its financial position, prior to - and regardless of - any movements in cash. However, the term “full” also refers to a comprehensive notion of financial position that includes cash – IPSAS “followers” do not question that cash is relevant! – But such a notion extends well beyond cash, encompassing all the financial and non-financial assets and liabilities. As a consequence, financial performance is the change in net assets over the reporting period, which is much more than movements in cash.

So, an IPSAS-based system provides more information than a cash system or any other system that doesn’t account for all the transactions, all the assets and all the liabilities of an entity. That is why we need an integrated set of 38 accruals IPSAS, concerning the recognition, measurement and presentation of components of the financial position and performance of an entity. That is why in September 2014 we have issued a Public Sector Conceptual Framework, which provides guidance for preparers of General Purpose financial reports for public sector entities. And that is why we are continuously developing new projects dealing with issues not currently covered by the existing IPSASs, such as accounting for social benefits and public sector specific financial instruments. Let me say that for the IPSASB the horizons of full accrual reporting are constantly shifting, as new issues emerge across the globe.

But transitioning to IPSASs is not only a matter of more information…It is also a matter of better information.

IPSASs are issued by an international standard setter operating in the public interest under the auspices of the IFAC, the worldwide organization of the accountancy profession. If I may say so the IPSAS Board is a unique hub of expertise in the field of government accounting. I am honoured to work with 17 high-standing professionals, selected – on the basis of an official nomination procedure – from ministries, audit institutions, the accountancy profession, and academia of all corners of the world. They are supported by Technical Advisors and a dedicated staff of 8 people.

The IPSASB operates as an independent, global, and accountable standard-setter. Being an independent board means that we are open to dialogue with all stakeholders, but our work is not biased to the needs of any of them. Being global means that we continuously work to identify, assess and add to our agenda emerging world-wide issues. Our standards are not meant to serve the specific needs of single countries or international institutions but to serve the global user community.

We like to be independent but we do want to be accountable. IPSASB’s capacity to work in the public interest in a transparent way is overseen by the Public Interest Committee that has been established in 2015 and includes representatives from international institutions which have an interest in government accounting, such as the OECD, the IMF, the World Bank, and IOSCO.

The entire work leading to the issue of a new standard has to comply with “due process”. All the IPSASB’s agenda materials and meetings are open to the public. Throughout due process, key documents are submitted to public consultation in the form of Consultation Papers and Exposure Drafts. We attach the utmost care to the fact that opinions and comments gained through public consultation are taken into consideration in the course of our work.

So IPSASs are intended to be high-quality standards which set requirements for high-quality financial information in the interest of users, that is to say financial information that is relevant, faithful, understandable, timely, comparable, verifiable and internationally consistent. Among those characteristics, let me point out that the IPSASs are the only set of international accounting standards designed for the public sector at present.

Applying them means having financial reports prepared on the basis of standards acknowledged at the international level, and thus financial reports that can be understood, analysed, compared, audited anywhere on the basis of a shared international language.

Developing IPSASs is undoubtedly a costly activity. It may be argued that also applying them can be a costly exercise. Nevertheless, the increasing number of countries and international institutions that have already adopted IPSASs or are on the road to adopting them, demonstrates that this is a feasible venture and that the expected benefits can overrun the costs of transitioning to, and managing the new system.

Over 40 national governments have, or are in the process of adopting IPSASs. A number of projects have reached milestones or are fully completed such as Austria, Spain and Kazakhstan. Strong momentum in IPSAS adoption has emerged in Latin America such as Chile, Colombia, Brazil, Panama and Costa Rica. In South-East Asia, countries such as Indonesia, Malaysia, China, Cambodia and Vietnam, are at the forefront of adoption. IPSAS adoption in Africa is being led by, Nigeria, Ghana, Tanzania, Kenya, Uganda, Rwanda and Burundi. There is an increasing literature on national cases available, as different jurisdictions adopting accrual IPSASs have documented their experiences and benefits gained. I would highlight as interesting case studies those of Costa Rica, Guatemala, Malta, Malaysia, Panama, Austria and Switzerland.

It should be noted that the approach to adoption of IPSASs is varied in different jurisdictions. Some have adopted IPSASs directly as they are, some others are using IPSASs indirectly as a basis or reference for their own set of national standards. A flexible approach to adopting IPSASs is then possible. Let me stress, however, that the more IPSASs are modified during the application stage, the fewer the benefits that can be expected from their application.

This leads us to the benefits of applying IPSASs.

The recent sovereign debt crisis has been described as a “balance sheet crisis”, that is to say that the understanding of the financial position of governments and potential shocks to that position was inadequate, as shown by the emergence of previously unrecognized deficits and debts.

As IPSASs enable a more comprehensive and accurate portrait of the financial position and performance, and the impact and sustainability of public policies, they provide a better basis for decision-making at different levels of governments and provide robust support to public financial management. In particular, because the IPSASs give a full vision of the resources of an entity and its obligations, they make it possible to manage them in a more informed way. Also, service management can be based on a fair view of the costs incurred, of the sources to recover them and whether the entity has acquired resources economically and used them efficiently in the delivery of services. Let me just say …you can only manage what you know…

Most monitoring authorities for financial stability currently base their decisions on outcomes provided by government finance statistics. IPSASs are not meant to provide the same information or to serve the same needs as statistical accounting systems. Nevertheless, government finance statistics (GFS) are based on an accrual approach and build upon financial accounting data produced at single entity level. As the application of IPSASs improves the quality of basic accounting data, it results in greater reliability of the figures provided for the general government sector by GFS and allows the reconciliations between statistics and accounting.

In the wake of the sovereign debts crisis, there is a greater awareness of the importance of better information concerning public sector borrowers for the assessment of sovereign risk by financial markets. In this context, IPSASs have been addressed by some international financial institutions as a main tool for improving fiscal transparency of governments. There is also increasing evidence – and a growing body of empirical research showing that enhanced fiscal transparency is associated with better sovereign credit ratings for both advanced and developing economies. This naturally, results in a reduction in the cost of government debt. This, in the long term, can be expected to positively impact on governments’ finances.

Shifting from cash to accrual accounting calls for cultural and mind-set changes; requires overcoming strong resistance to change; and demands investments in training and IT systems.

The IPSASB can help governments with the transition process. We have issued a Study document and a specific IPSAS – IPSAS 33 - to assist with transition issues and we are willing to be involved in supporting activities, such us this week’s training course.

Nevertheless, lessons learned show that change is not possible without a strong commitment at the very top of both politicians and government officials. Struggling with budget constraints is not only a Lebanese problem. Social consensus is necessary anywhere when investing resources in a new accounting reform.

It is fundamental that the need for change is communicated to people in the right manner. It is not merely a book-keeping exercise. Definitely, applying IPSASs impproves decision-making in the public sector facilitates holding governments accountable and enhances fiscal stability and sustainability.

As an accountant, I believe this is not only in the interests of technocrats, markets or financial institutions. It touches the rights and wealth of each member of our community as a resource provider or service recipient.

During CReCER 2015, IFAC Senior Technical Manager and Head of Professional Accountants Stathis Gould gave a presentation on integrated reporting, discussing both the work of the International Integrated Reporting Council and IFAC's efforts to support integrated reporting.

The Institute of Cost Management Accountants of Pakistan recently held a webinar with IFAC Senior Technical Manager, Vincent Tophoff, on good governance, risk management, and internal control. 

In early March, IFAC Senior Technical Manager Vincent Tophoff presented at the Institute of Internal Auditors 2015 General Audit Management Conference on risk management. The conference brought together internal audit leaders and key stakeholders, including audit committee and board members.

Mr. Tophoff’s presentation reminded the audience that the main objective of any organization is not to have effective controls, nor to effectively manage risk, but to properly set and achieve its goals, avoid surprises, and create sustainable value. But managing risk is an inseparable and integral part of this.

This presentation from a March 27, 2015, webinar discusses key elements of the IPSASB’s Strategy and Work Plan for 2015 Forward and how input received shaped the final documents. 

To view the archived webinar, click here. Those who were not registered for the original event must complete the registration field before viewing.

Ladies and gentlemen,

It is a great pleasure to be in Rome again, so soon after the successful World Congress of Accountants. It illustrates how active you have been in pursuing the public interest in accounting and auditing. When I say “you,” I note with pleasure the strong cooperation between the Ministry of Finance (and specifically Ragioneria Generale), the markets regulator CONSOB, the professional body CNDCEC, and the professional associations ASSIREVI and INRL.  But can one expect otherwise in the home country of Frà Luca Pacioli?

In preparing for this Conference, I read again about Pacioli. The title of his famous book is powerful:  “Summa de Arithmetica, Geometria, proportioni et proportionalita.” And a key principle in his double entry bookkeeping is the “bilancio del libro:” balance in the books. If you have a debit, there is also a corresponding credit. Aren’t these great principles for society at large: balance and proportionality?

You have worked hard to successfully achieve the translation and adoption of the Clarified ISAs in Italy. I had the pleasure of participating in some discussions regarding the way the ISAs should be adopted and applied here. Basically, this was precisely to achieve balance and proportionality. The ISAs are principles-based, leaving room for balancing them with specific national laws and regulations. You have carefully studied that, resulting in some specific additions on a national basis. The ISAs are also designed to be applied proportionately; that is – tailor-made to the specific circumstances. There is a well-known statement, ”An audit is an audit,” meaning that every individual audit is of high quality. But the practical application of that principle differs; an audit of a multinational group is quite different from an audit of a small sales company. One of the great merits of Luca Pacioli is that he made bookkeeping relevant to smaller trading companies. It will not be a coincidence that another Italian, Giancarlo Attolini, leads IFAC’s Small and Medium Practices Committee in producing helpful guidance for smaller practices.

The organizers of this Conference have asked me to specifically address three topics. The first is: an overview of the international situation of ISA adoption/adaptation.  Well, that is very positive. The ISAs were thoroughly reviewed, rewritten and enhanced in the so-called Clarity Project. This was finished in 2009. Since then, we have seen good progress in national adoption. We now count 104 jurisdictions that are using the Clarified ISAs already, or are committed to using them in the near future. This is well-spread all over the world: 40 jurisdictions in Europe, 17 in the Americas, 21 in Asia and Oceania, and 26 in Africa/Middle East. Russia was the latest addition in December 2014. And we expect more this year. Taking into account important matters such as translation and adaptation to national circumstances, that is great progress. If I say “adaptations,” I mean in particular additions and clarifications on a national basis. We respect that fully. We would not be happy, however, with deletions or carve-outs.

To our best knowledge, that takes place only occasionally for specific national reasons. This certainly is helped by our very thorough due process and full transparency during the development of standards. We listen carefully to concerns expressed to our exposure drafts, and the IAASB will only conclude after due consideration of all comments. At the end, our adherence to full due process has to be approved by the Public Interest Oversight Board (PIOB).

Adoption of the clarified ISAs is also greatly supported by all 27 international networks of firms, united in the Forum of Firms. They are committed to applying the ISAs in their firm-wide methodologies. So adoption takes place along two axes: the national adoption, and the firms’ adoption. Finally, I note the great support from many regulators like IOSCO, IFIAR, the Basel Committee on Banking Supervision, and international organizations as the World Bank, IMF, OECD, UNCTAD and INTOSAI.  Many of them are represented in our Consultative Advisory Group (CAG) that advises us twice a year with a fair level of detail.

That brings me to the second topic: endorsement of ISAs in Europe. The European Commission is an official observer with active speaking rights in our Board meetings and has fully participated in the discussions on the Clarified ISAs. The Commission is also represented in the CAG, the PIOB and the so-called Monitoring Group that oversees the PIOB. So the Commission is a well-respected voice in our process.

In the revised European Audit Directive and the new Audit Regulation of 2014 the Commission is empowered to adopt the ISAs. Article 26.3 of the Directive specifies certain criteria for that adoption; e.g., that the ISAs have been developed with proper due process, public oversight and transparency, and that they are conducive to the European Union public good.  The appropriateness of the development process is obvious, as the Commission has been able to observe from nearby. But in all fairness, “conducive to the Union public good” can trigger all kinds of discussions. Article 48 of the Directive states that the Commission shall be assisted by a Committee for their assessment of the ISAs. We understand that this Committee will consist of national audit regulators and possibly others as well. The Commission’s staff has indicated to us that they will not hurry, that it may take years to go through this process, and that they cannot preempt on the outcome. And I have never seen a European Committee simply saying “ok, fine, done.” So this is a bit unpredictable.

We are pleased with the positive relationship with the Commission, and appreciate that there are complications that it needs to deal with. However, this should not delay progress in the public interest. So we have always strongly stimulated adoption at the national level, not without success. From the European member states, only a few are not yet on our adoption list, notably Germany and France as they are awaiting the European adoption process. But in practice they have largely implemented the requirements of the ISAs into their national standards, and many of their practitioners already apply them through their international firm methodologies. We also note the strong support from the Federation of European Accountants (FEE), working to further assist auditors using the ISAs.

So, as Chairman of the IAASB, I am most pleased with the adoption progress in so many European member states, and of course today in particular here in Italy – the fourth largest economy in Europe. But I must confess, as a European, that I am a bit disappointed that this takes so long in Brussels. In Pacioli’s terms: is this really balanced and proportionate?

Finally, you asked what is on our table now, and how you can anticipate what is to come. A very constructive question. The IAASB has entered a new phase. We have finalized a number of key projects: the Clarified ISAs, a completely new auditor reporting model, the revision of a number of other standards such as on review and compilation engagements, as well as new standards such as on the assurance to Greenhouse Gas statements. And now we have started work on various newer topics. To name some: quality control; group audits; financial institutions; integrated reporting. And soon data analytics; risk assessment; and professional skepticism.

This is partially in response to what we learned from our ISA implementation monitoring exercise, including feedback from regulators and practitioners. But much also after feedback on our consultation for the IAASB’s Strategy for 2015-2019 and Work Plan for 2015-2016. Further, we will be actively stimulating the implementation of the new auditor reporting standards – which, by the way, are very compatible and complementary with the new requirements in Europe, as FEE recently has concluded. And we hope to finalize soon a number of revisions to the ISAs with regard to the audit of disclosures in financial statements, emphasizing the importance of sufficient auditor attention for qualitative disclosures.

We will approach these topics with an open mind. Open to what we have to do – is it about revisions of standards, or more about education on the basis of current standards? How should we liaise with our various stakeholders – for example, we see our dialogues with regulators becoming more intense and at various levels. To which extent should we mirror that with regard to other stakeholders, such as investors, audit committees and practitioners? What would be useful output to facilitate dialogues and can we be more innovative therein? And how can we take into account Pacioli’s important notions of balance and proportionality?

So, how can you anticipate and be prepared proactively? Allow me to make three suggestions. First, nothing goes above observing our Board meetings. You have a nice opportunity to do so at our upcoming Board meeting from 16-20 March, as that will be held in Brussels. All agenda papers are on the IAASB website. Such observership provides for a thorough understanding of the issues at hand. Second, stimulate the implementation of the new auditor reporting standards. This is a huge change in the way auditors communicate with investors and other users. The preparation of these new style reports with so-called Key Audit Matters and other innovations will result in more intense communication with management and those charged with governance, such as audit committees. The public interest benefit hopefully will be better understanding of companies and their audits, and higher perceptions of the relevance of these audits. Finally, you may organize international conferences and roundtables to discuss the newer topics on our agenda. These may bring to the table a variety of stakeholders who can share many perspectives. This may assist the IAASB with achieving balance and proportionality in dealing with these important issues.

Ladies and gentlemen, let me close by congratulating you cordially with the official adoption of the ISAs. I recall that the profession’s title of “auditor” has originated in ancient Rome. An auditor is a listener first, and then shall speak where necessary and useful. Thank you for being my “auditors” today!

IFAC Senior Technical Manager Vincent Tophoff was the keynote speaker at the seminar Municipal Control: A Different Contribution to Governance in Santiago, Chile, organized by the Comptroller General of Chile. The seminar was attended by government official and other professionals from the internal control units of the central and local public sector in Chile.

The presentation, “Risk Management and Control in the Public Sector,” describes the most internationally renowned standards for international control, some of the key flaws in risk management and internal control, and the International Framework: Good Governance in the Public Sector, released in 2014 by IFAC and the Chartered Institute of Public Finance and Accountancy.

IFAC Senior Technical Manager Vincent Tophoff was the keynote speaker at the seminar Municipal Control: A Different Contribution to Governance in Santiago, Chile, organized by the Comptroller General of Chile. The seminar was attended by government official and other professionals from the internal control units of the central and local public sector in Chile.

The presentation, “Risk Management and Control in the Public Sector,” describes the most internationally renowned standards for international control, some of the key flaws in risk management and internal control, and the International Framework: Good Governance in the Public Sector, released in 2014 by IFAC and the Chartered Institute of Public Finance and Accountancy.

IFAC Senior Technical Manager Vincent Tophoff recently addressed good governance in the public sector at a breakfast panel in Chile held by the Comptroller General of Chile. The event was attended by governmental officials and other professionals working in governance and the public sector.

The presentation, “Good Governance in the Public Sector,” addressed the key challenges for governance in the public sector and how methods to avoid and solve them. Mr. Tophoff also discussed the IFAC-CIPFA publication, International Framework: Good Governance in the Public Sector.