STRENGTHENING EMERGING MARKETS THROUGH

HIGH QUALITY INTERNATIONAL STANDARDS

By: Fermín del Valle

President, International Federation of Accountants

IOSCO Emerging Markets Committee Meeting

Paris, France – May 26, 2008

Good morning, ladies and gentlemen. It is a pleasure to be here with you for this meeting of the IOSCO Emerging Markets Committee.

IOSCO and IFAC share many common objectives, including promoting stable global capital markets, ensuring high quality financial reporting and auditing, and helping emerging nations to develop the infrastructures necessary to support sustainable long-term growth.

Today, I would like to discuss how we can continue to collaborate to build a stronger, more stable global economy.

Let me start by pointing out that professional accountants, with their roles in all sectors of the marketplace, from auditing public companies, to working inside business and industry, in government, the not-for-profit sector, and academia, play a fundamental role in the economic growth of countries around the globe, including emerging markets. One significant areain which IFAC hasworked to support professional accountants in fulfilling this role has been in promoting the adoption of a common set of high quality international accounting and auditing standards by all countries around the world.

Certainly, IOSCO hasalso contributed to the development of international standards and to achieving global convergence.

IOSCO has been a supporter of the public interest reforms that IFAC put in place over the past several years to provide confidence to investors and others that IFAC’s activities are properly responsive to the public interest.

IOSCO has also contributed through its participation on the Consultative Advisory Groups(CAGs) to IFAC’s International Auditing and Assurance Standards Board (IAASB) and the International Ethics Standards Board for Accountants (IESBA).

Today, I would like to focus my remarks on the work of the IAASB in developing international standards, the governance arrangements for this standard-setting process, and the benefits of global convergence to developing and developed nations.

One of the key areas of focus for the IAASB over the past two years has been improving the clarity of its international standards to make them easier to translate and to implement. The IAASB has made good progress in the redrafting of International Standards on Auditing (ISAs). Late last year, it completed the first phase of the project with the release of the final exposure drafts of proposed redrafted ISAs. The IAASB is on target to complete the redrafting of all 35 ISAs as final standards by the end of 2008, andthese standards will be effective for financial periods beginning on or after December 15, 2009.

IFAC and the IAASB believe the Clarity Project is crucial to removing barriers to convergence to international auditing standards, and I am convinced that the Clarity Project and its subsequent impact on the formulation of future auditing standards will be recognized as one of the significant milestones in the history of auditing.

Let me comment briefly on the IAASB’s governance and processes.

The development of the Clarity Project and the IAASB’s work program have benefited from input from the IAASB CAG, which comprises organizations that represent users of the standards, as well as international organizations and regulators such as IOSCO. The IAASB also receives input from the national auditing standard setters with whom it maintains strong connections.

Another way that the IAASB can seek input on the development of its standards and guidance is through public consultation. When considering the development of a new project, the IAASB considers whether to seek public input through consultative forums or consultation papers. Also, after a proposed standard is agreed by the IAASB, the document is issued for a public comment period of normally no less than 120 days.

All project proposals, exposure drafts, and final standards are debated and approved at an IAASB meeting, which is open to public observers. In advance of each meeting, the IAASB posts the agenda and background materials publicly on its web page. In addition, the IAASB makes all its exposure drafts, final standards, project histories, and audio recordings of its meetings freely available through the website. If you are interested, you can view these materials on the IFAC website (

Throughout the entire standard-setting process, the IAASB is subject to public interest oversight from the independent Public Interest Oversight Board (PIOB).

The 10 members of the PIOB are nominated by the Monitoring Group of regulators. IOSCO has the right to nominate four of the ten members and other members are appointed by the Basel Committee on Banking Supervision, the International Association of Insurance Supervisors, the World Bank, and the European Commission.

These organizations make up the Monitoring Group, which was created as part of the IFAC Reforms that were unanimously approved by the IFAC Council in November 2003. The Monitoring Group provides a formal linkage between IFAC and international regulators and organizations.

One of the key areas of IAASB governance that the PIOB oversees is the process of nominating IAASB members. The PIOB is involved throughout this process, including having a representative attend all meetings of the IFAC Nominating Committee where candidates for membership on the IAASB, as well as candidates for the Ethics and Education Standards Boardsand the Compliance Advisory Panel, are discussed. The PIOB also has final approval of candidates for these groups.

This year,we achieved our goal of creating a balance of 50 percent practitioners and 50 percent non-practitioners on the IAASB and the Ethics and Education Boards.

This is just a brief description of the main elements of IAASB governance and processes.We consider that the arrangements put in place not only with respect to international standards for auditing and assurance, but also with respect to ethics and accounting education, reflect a combination of public and private sector roles, providing an optimal solution in a context in which there are needs for legitimacy, independence, technical competence, responsiveness, efficiency and accountability in the standard setting process.

Demonstrating our commitment to the public interest is becoming increasingly important as more and more countries are adopting ISAs.

Today, a significant number of countries are using ISAs or are adopting ISAs as national standards or are converging by comparing national standards with ISAs to eliminate differences. And there is something perhapseven more significant:in January, seventeen international networks of accounting firms reached a new milestone in their commitment to audit quality by becoming the first full members of the Forum of Firms. These international networks, whose member firms perform transnational audits, have reported that they have implemented a globally coordinated quality assurance program, committed to the use of ISAs, and met other quality and ethics requirements.

In addition, the ISAs are receiving greater support from international organizations, including:

  • The World Federation of Exchanges, which has endorsed the IAASB’s processes for standard setting and recognizes the importance of ISAs;
  • The Financial Stability Forum, which has identified ISAs as one of the 12 key standards for sound financial systems and deserving of propriety implementation depending on country circumstances; and
  • The World Bank, which uses ISAs as the benchmarks for its ROSCs (Reports on the Observance of Standards and Codes) for assessing the quality of national auditing and accounting standards.

Last November, IOSCO issued a statement expressing its support for the work of the IAASB and the PIOB, and indicating that it continues to consider endorsement of the ISAs.The statement emphasized the benefit to global capital markets of adoption of a common set of audit standards, a position strongly supported by IFAC. We appreciate this statement.

We would like to continue to work with the appropriate IOSCO representatives toward an endorsement statement.

IOSCO representatives on the PIOB have expressed satisfaction regardingthe transparency and due process with which ISAs are set, and IOSCO representatives have commented positively at the March 2008 CAG meeting on how their comments had been addressed on two particular projects, namely the proposed ISAs on audit quality and related parties. These are all positive signals. So IFAC will continue working to facilitate the endorsement of ISAs by IOSCO and we are, of course, available to support and help IOSCO in any way necessary to produce this endorsement as soon as possible after the Clarity Project is finished.

It is particularly important that we address this issue in the short-term since the new set of standards, revised and redrafted under the Clarity Project, will be effective for financial periods beginning on December 15, 2009 and, therefore, to achieve or maintain convergence, it will be necessary to adopt this new version of the standards, even in those countries where ISAs have already been adopted.

In addition, we all know the situation in Europe, and an endorsement by IOSCO will,I believe, positively influence the decision regarding the endorsement by the European Commission.

One way in which we at IFAC support the adoption and implementation of international standards is through the IFAC Member Body Compliance Program.

Ian Ball, IFAC Chief Executive Officer, provided you with an overview of the Compliance Program in April 2007, and Russell Guthrie, Director of Quality Assurance and Member Body Relations, updated you on the program’s status at your meeting in Dubai last December. I have a few additional comments to add.

The Compliance Program is now in a very important phase that involves the development of action plans by members and associates. The IFAC staff is in the process of preparing policy recommendations based on members’ responses to the self-assessment questionnaire regarding compliance with the Statements of Membership Obligations.On the basis of these recommendations, members and associates will develop action plans to resolve those issues and close the gaps between the present situation and complete adoption.

Policy recommendations have now been provided to IFAC members and associates in substantially all the countries represented by your Emerging Markets Committee. If you are interested, you can obtain a copy of the recommendations for your country from your national professional accountancy body. Two common elements of the policy recommendations provided to emerging markets related to quality assurance and to education. For example, more than 60 percent of emerging markets that participated in the Compliance Program do not have a quality assurance program in place for members of the profession, and 40 percent of emerging markets are missing one or more elements of a professional education scheme required by the International Education Standards, such as requirements for a final assessment, for continued professional education or for practical experience.

Another area of focus is small and medium enterprises (SMEs).

To support small and medium accounting practices and others in applying ISAs to the audit of SMEs, last December IFAC released new implementation guidance entitled Guide to Using ISAs in the Audit of Small- and Medium-sized Entities.

This new guide, which is available free-of-charge on our website, provides an analysis of all ISAs issued as of December 31, 2006, and their requirements in the context of an SME audit. In just the first five months since the guide was issued, nearly 10,000 copies of the guide were downloaded from our website, showing the clear interest in, and need, for such guidance.

IFAC is already planning an update to the guide once the IAASB’s Clarity project has been completed, to include the newly redrafted ISAs. We are also developing similar types of implementation support on quality control and other topics.

To conclude, I would like to mention two projects IFAC is currently working on and which will be presented to the Monitoring Group at our next meeting. The first one focuses on the importance of achieving convergence of independence rules. At IFAC, we believe that convergence of independence rules is as important as convergence of accounting and auditing standards. This convergence will facilitate the consistent application of independence rules around the world, it will contribute to a greater understandingof the rules, and it will increase the ability of those rules to draw greater credibility from audit reports. IFAC will work strongly to promote and facilitate this convergence process.

The second project relates to the importance of having professional accountants responsible for the preparation of financial information. It is a globally acknowledged principle that the auditor should be a professional accountant.

However, there are very few jurisdictions where there are clear rules setting out the competency requirements forthose that preparethe information that will later be audited.

This imbalanceprobably originates in themistaken idea that the auditor is the only one issuing information for the public. This concept seems to ignore the fact that those who prepare the information, particularly as part of the management of a public interest entity, have a responsibility to the public which is every bit as critical as that of the auditor. IFAC believes that it is very important that similar education and ethics requirements be required of those who preparefinancial information as those who audit them. Both activities are equally important to achieving the objective of producing high quality information.

As we look to the future, I believe that developing and emerging countries will play an even more prominent role in our global economy.

IFAC is committed to working with IOSCO and other international organizations to further support emerging nations as they take their place on the world stage. And we want to work closely with you to bring about meaningful change where it is most needed. IFAC will continue to support emerging economies in adopting and implementing international standards and best practices, and we will continue to provide resources and guidance to help build permanent, strong national infrastructures that support high quality financial reporting and sound corporate governance. Over the coming years, I believe the relationship between IFAC and IOSCO will continue to strengthen as we work together to nurture the growth of developing nations, support strong and vibrant markets, and protect the public interest.

Thank you very much for your attention.

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