CHINESE INSTITUTE OF CERTIFIED PUBLIC ACCOUNTANTS

RELEASE CEREMONY FOR CHINESE ACCOUNTING STANDARDS SYSTEM FOR BUSINESS ENTERPRISES AND CHINESE AUDITING STANDARDS SYSTEM

Remarks by IAN BALL

CHIEF EXECUTIVE, International Federation of Accountants

Beijing, China – February 15, 2006

Thank you very much, Dr Chen, for that kind introduction.

As the IFAC President, Graham Ward,said earlier, we are both pleased and greatly honored to be here today as the Ministry of Finance of the People’s Republic of China and the Chinese Institute of Certified Public Accountants announce their intention to converge Chinese auditing standards with International Standards on Auditing.

Your enormous achievements to date in strengthening the Chinese accountancy profession through convergence towards international standards should not be viewed as an isolated event. It is significant and fundamental to the further development of your country’s capital markets and is, I believe, fully consistent with the reforms the People’s Republic of China has advanced in the last decade.

The reforms, including opening your door to increased trade, authorizing the private ownership of business entities, and encouraging foreign direct investment by the establishment of free enterprise zones in coastal regions, have enhanced your country’s role and reputation in the global markets.Adhering to high-quality auditing standards is another way to strengthen your financial architecture and confidence in your capital markets.

International Auditing and Assurance Standards Board Chairman John Kellas will address you in a few moments on the work of the IAASB and on International Standards on Auditing. The focus of my comments today is on IFAC, on our initiatives to strengthen our standard-setting processes, and on the significance of your most recent actions.

Let me first turn to IFAC, for those of you who may have limited knowledge about our organization. IFAC is comprised of 160 member organizations in 120 countries, most of which are national professional accountancy institutes, such as the CICPA. These member bodies represent more than 2.5 million accountants worldwide in business, industry, public practice, government, and academia. IFAC’s mission is, in brief, to protect the public interest in order to contribute to economic growth and social stability worldwide. The primary means by which we accomplish this is through our international standard-setting activities.

In addition to setting International Standards on Auditing, IFAC, through its independent standard-setting boards, also establishes ethical, education and public sector accounting standards. Our ethical and education standards also support high-quality performance by auditors. TheIFAC Code of Ethics for Professional Accountants is frequently updated to ensure that all professional accountants – whether in public practice, business or government – have clear, relevant and high-quality ethical guidance. The Code specifically addresses those areas where the public interest is most significant, for example, matters relating to auditor independence. The International Accounting Education Standards Board establishes the standards necessary to ensure that professional accountants are properly trained, both prior to their professional certification and throughout their careers. Most recently, guidance on audit competence has been developed.

IFAC standard setters well recognize that use of our guidance is dependent on its quality, which, in turn is dependent on our due process. John Kellaswill be discussing this in greater detail, but I think it is important to emphasize three characteristics of our standard-setting processes:

1)The processes are highly transparent;

2) The individuals who have been selected to serve on our standard-setting boards have been selected because they are the best person for the job, meaning they have the necessary skills and expertise; and

3)Projects are prioritized based on their contribution to the public interest.

Over the last year, all of IFAC’s independent standard-setting boards – the IAASB, the International Ethics Standards Board for Accountants, the International Accounting Education Standards Board and the International Public Sector Accounting Standards Board – have enhanced the transparency of their operations, increased input from stakeholders and the public, and strengthened their consultative processes.All of these boards have public members serving on them.They have consultative advisory groups comprised of relevant stakeholders who can provide meaningful input on the work programs of each group from a public interest perspective.And each makes publicly available on the IFAC website agenda items and background materials for its meetings, as well as exposure drafts of proposed standards. These initiatives make these standard-setting groups among the most transparent in the world, and their due process, with significant public input, demonstrates that these boards are looking outward to the needs of investors and others who rely on the work of accountants and auditors.

I believe that the CICPA and its standard setters, like all standard setters worldwide, should continue to look outward, as it is doing, to consider the needs and expectations of both domestic and foreign investors. As you respond to those needs, you will continue to build confidence in your accountancy profession and in your markets.

Public interest oversight is another means of enhancing credibility. As IFAC President Graham Ward pointed out, in February 2005, an independent international Public Interest Oversight Board, comprised of members nominated by international organizations and regulators, was formally established to provide public interest oversight of the IAASB, Ethics and Education Standards Boards and the IFAC Member Body Compliance Program. This oversight will give the public greater confidence both in the standard-setting process and in the work output itself – the standards.

Before I close, I would like to comment on the work of IFAC’s International Public Sector Accounting Standards Board, which develops International Public Sector Accounting Standards (IPSASs) and whose work is closely related to that of the International Accounting Standards Board. These IPSASsare designed to improve public sector financial management and accountability. This is an increasingly important area of IFAC activity. Public sector financial reporting is an activity which can contribute much to global economic management, when upwards of 30 percent of resources in most economies are consumed by the public sector. Ultimately, the consequences of poor financial reporting and poor financial management within governments are arguably even more serious than a loss of confidence in securities markets.

An important IPSASB objective is facilitating convergence with International Financial Reporting Standards, upon which the IPSASs are based. Our aim is that governmental reporting and private sector reporting should be as comparable as possible. We look forward to continuing to work with the Ministry of Finance and the CICPA in this area, and we value very much your interest and your contribution in this area.

In closing, I would like to emphasize that China’s commitment to high-quality, internationally respected, accounting and auditing standards that are consistent with those developed by the IAASB and IASB, provides inspiration to those countries who also aspire to strengthen their financial systems and build investor confidence.

There are numerous benefits to the actions you are taking today –

  • Investors will have better information for decision making.
  • Companies too, will have improved management information for decision making.
  • In addition, Chinese companies are likely to have better access to capital, particularly from foreign sources; the cost of capital may be reduced as well.
  • Your country will have increased access to international capital markets.
  • There will also be greater credibility and improved economic prospects for the accountancy profession.
  • Lastly, your country canfurther enhance its competitiveness, which, in turn, can lead to greater prosperity for all citizens.

I would like to conclude by saying that, with your release today on the new standards of accounting and auditing, you are positioning China to have an even better future.

I congratulate the Ministry of Finance and the CICPA for their leadership, fortheir foresight, and for the very great achievements that today’s ceremony celebrates.

Thank you.

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