IFAC’S RESPONSE TO GLOBALIZATION
By: Graham Ward, CBE MA FCA
President, International Federation of Accountants
ECSAFA 7th Congress: Africa’s Response to Globalization – Declarations from the Warm Heart of Africa
Mangochi, Malawi – September 21, 2006
Chairman, Presidents, fellow accountants, ladies and gentlemen. Good afternoon. It is a great pleasure to be here in Mangochi in the Warm Heart of Africa to address the 7th Congress of the Eastern Central and Southern African Federation of Accountants. Thank you for your kind invitation
Africa has a special place in my heart, because my wife, Ann, was born in Africa and spent her childhood in Africa: Egypt, Ethiopia, Kenya, Morocco and Nigeria. I myself lived in South Africa on an international secondment with my firm and have visited eight other African countries.
The theme for this Congress – Africa’s response to globalization – is especially relevant; it keeps us focused on understanding the challenges resulting from globalization, the opportunities presented to Africa for increased economic development and growth and the role of the accountancy profession in that process. My comments today are focused, therefore, not simply on IFAC’s response to globalization, but more specifically, on IFAC’s role in assisting African countries – and indeed all developing countries – in addressing the challenges of globalization in order to create a better world for their citizens.
I would like to thank the Society of Accountants in Malawi, its President, Mr Jimmy Lipunga, its Council and its Executive Director, Mr. Hennox Mazengera, for hosting this Congress and for inviting me to speak with you today.
In addition, I would like to recognize ECSAFA President, Mr. Butler Phirie, and ECSAFA Chief Executive, Mr. Ndung’u Gathinji, who is also a long-standing and highly respected member of the IFAC Board. Their dedication and service to ECSAFA and to our international profession as a whole is to be commended.
Regional accountancy organizations, such as ECSAFA, often serve as a vital link between international standard setters and regulators; and members of our profession. As exemplified by ECSAFA, they promote international standards; provide training, education and networking resources; and support development efforts. ECSAFA has been especially supportive of the IFAC Member Body Compliance Program, a landmark program initiated in 2004 to provide comprehensive and measurable information on the progress made by IFAC members and associates in adopting international standards. I will speak more about the Member Body Compliance Program in a few minutes.
ECSAFA has a long history of working closely with IFAC and for this I am very grateful. Since its founding in 1989, ECSAFA has worked at a regional level to support the development of a high quality accountancy profession and to promote convergence to international standards. Thank you.
It is through the commitment of the volunteer members of IFAC boards and committees, the support of our 163 member bodies in 120 countries, such as the Society of Accountants in Malawi, and of regional accountancy organizations, such as ECSAFA, that IFAC is able to achieve its mission, which I will state for you now:
To serve the public interest, IFAC will continue to strengthen the worldwide accountancy profession and contribute to the development of strong international economies by establishing and promoting adherence to high-quality professional standards, furthering the international convergence of such standards and speaking out on public interest issues where the profession's expertise is most relevant.
IFAC’s mission is to strengthen the accountancy profession in all sectors and all nations worldwide. To accomplish this, IFAC is focused on five key areas:
· Strengthening national accountancy bodies in countries around the world;
· Developing an internationally recognized single set of standards and promoting convergence to those standards;
· Focusing on ethics and ethical conduct;
· Supporting all sectors of the profession, including professional accountants in business, in government, and small and medium practices; and
· In all things we do, protecting the public interest.
IFAC has as a primary goal to strengthen the accountancy profession in both developed and developing countries worldwide and to contribute to the growth and development of strong economies. Because IFAC is a global organization, and because it is predicted that 95 percent of the world’s population growth will occur in developing nations, we have made strengthening the profession in these nations a key objective. Our position is this: we have a fundamental role and responsibility to play in fostering progress in the developing world, in eradicating poverty and in building prosperity. Establishing a sound and viable accountancy profession is a critical step in building a sound financial infrastructure and addressing these issues; it is a critical step in providing the people with access to food, healthcare, education, energy and water.
IFAC’s goal is to have a member body, with an established accountancy profession, in every country around the globe. This includes all African nations. There is no doubt that this is a lofty goal, but as we look ahead and see that the growth of the world’s population will largely be in developing economies, I am more and more certain that this goal is one that we cannot compromise or forsake. Without an established accountancy profession, I believe that we cannot succeed in helping African countries, or any others, in reaping the benefits of globalization. IFAC is engaged in a number of initiatives to achieve this goal.
Next week, together with the Fédération Internationale des Experts-Comptables Francophones and the United Nations Conference on Trade and Development, IFAC and ECSAFA are organizing an Africa Region Learning Workshop, on the accountancy profession’s role in economic development, in Nairobi, Kenya. This Learning Workshop, which is sponsored by the African Development Bank and co-sponsored by the World Bank and IFAC, will bring together representatives of nearly all 53 African nations; donor agencies; national, regional and international accountancy bodies; the private sector; and other interested parties to discuss how to address the challenges and opportunities facing the accountancy profession in Africa. At this important conference, in which some of you here today will participate, we will discuss critical issues such as sustaining good corporate governance; strengthening public sector accounting and auditing; meeting the needs of growing small and medium practices; and developing and promoting ethical conduct. Most importantly, we will have the opportunity to build and to strengthen partnerships, in other words, determining how we can work together, effectively and efficiently, to achieve sustainable economic development in African countries. Globalization has, I believe, made this goal attainable.
IFAC’s Developing Nations Committee, which Mr. Gathinji has led excellently since its creation, is leading our efforts to represent the interests of developing nations and to seek resources and development assistance. The committee is involved in extensive outreach to developing countries and has prepared guidance entitled Establishing and Developing a Professional Accountancy Body. This publication covers the roles and responsibilities of a professional body, education and examination and capacity development. The guide addresses a variety of situations, including where a formal accountancy profession does not exist in a country, where the profession exists and there is a desire to establish a professional accountancy body and where an existing professional body requires further development and enhancement. It also includes suggested areas for priority action based on short-, medium- and long-term goals and projects. The guide is available electronically, along with all other IFAC standards and guidance, free-of-charge from the IFAC website: www.ifac.org.
The Developing Nations Committee is now in the process of preparing a country-specific approach to supporting developing nations, helping both those countries where there is no established profession and those that have only begun to build the professional, financial and regulatory architecture necessary to support economic growth.
In addition, further to support and provide resources to developing countries, the Developing Nations Committee works closely with the IFAC Member Body Compliance Program.
The Member Body Compliance Program was established to help support and encourage IFAC members and associates, throughout the world, in their best endeavors to meet the requirements for membership in IFAC. These include promoting and incorporating international standards issued by IFAC and by the International Accounting Standards Board into national standards; and implementing quality assurance and investigation and discipline programs to monitor compliance with applicable professional standards.
Part 1 of the Compliance Program, a fact-based questionnaire to assess the regulatory and standard-setting frameworks of IFAC member bodies, is now complete. Responses have been submitted by all active IFAC members and associates – including all 23 IFAC member bodies in Africa. These responses are now posted on the IFAC website and I encourage you to review them. I would like to thank ECSAFA very much indeed for its support of the Member Body Compliance Program.
Part 2, the SMO Self-Assessment Questionnaire, was launched last December and member and associate responses have begun to be posted on the IFAC website. The responses provide a valuable global snapshot of the accountancy profession from a standards perspective. Additionally, they help IFAC to gauge where it needs to focus its development work. Lastly, but perhaps most importantly, the responses to the questionnaires demonstrate the global profession’s willingness to be accountable for its actions to meet high standards, to deliver quality and to protect the public interest – all important responsibilities in this era of globalization and in this complex environment in which we all work.
Responses to the Compliance program will also assist IFAC in understanding where further assistance or development is needed. Action plans will be developed by IFAC members and associates, with assistance from the Compliance staff. During this phase of the program, the Compliance Advisory Panel, which oversees the Compliance Program, will provide feedback to the IFAC standard-setting boards and to the Developing Nations Committee to enable them to develop necessary tools, guidance and resources to assist members and associates in successfully completing the required actions.
The Member Body Compliance Program has as a primary objective to encourage and support member bodies in convergence to international standards set by IFAC’s independent standard-setting boards and by the International Accounting Standards Board.
It is important, I believe, to recognize that, as globalization takes hold, markets have the potential of becoming more integrated and developing countries have greater potential to increase investment and, thereby, to raise the quality of life of their citizens. To achieve these potentials, it is vital that the accountancy profession adheres to high quality standards. It is only through adherence to such standards that accountants can build confidence in the financial reporting process and create an investment climate of trust.
I would like to comment for just a few minutes on IFAC’s standard-setting activities and to emphasize that these activities are conducted by independent standard-setting boards with substantial public interest input.
The International Auditing and Assurance Standards Board (IAASB) sets international standards on auditing and assurance, quality control and related services. To ensure that its standards are clear and understandable the world over, the IAASB has undertaken a significant project to improve the clarity and structure of its standards. Beginning in October 2005, it issued four exposure drafts of proposed standards re-drafted using its new drafting style. It plans to have an aggressive timetable for updating all its standards in this new clarity style. The new style was developed based on input it received at an international Clarity forum last year and through responses to its 2004 Proposed Policy Statement and Consultation Paper on Clarity. We hope that this new style will not only make the standards more understandable, but also make them better capable of being translated and used in countries throughout the world.
In developing its international standards, the IAASB works with national auditing standard setters, from around the globe, that share the common goals of: promulgating high quality standards and reaching consensus at an early stage in their development. In July, the IAASB issued new guidance for national auditing standard setters that adopt its international standards with limited modifications. While not intended to be a definitive statement on convergence, the document provides guidance on the extent to which modifications to adopted international standards are permitted, while still allowing the national standard setter to assert that the national standards conform to the international standards. I urge all of you who hold a leadership position in an accountancy institute, or with a standard setter, to review this document, which is available in the IAASB homepage at www.ifac.org/IAASB.
The IAASB is also addressing critical issues in auditing and assurance. In March 2006, it issued a re-exposure draft designed to enhance the quality of audits of group financial statements, entitled Proposed International Standard on Auditing (ISA) 600 (Revised and Redrafted), The Audit of Group Financial Statements. Following earlier consultations, the IAASB has modified the proposals and reissued the exposure draft to address issues related to the extent to which the group auditor needs to be involved in the audits of components that are audited by other auditors, whether these auditors are independent of the group auditor or belong to the group auditor's national or international firm or network of firms.
Another area that the IAASB is addressing is related party transactions. The involvement of related parties, such as directors, owners, and management, in major corporate scandals has prompted the IAASB to review its current auditing standard on the subject. As a result of its review, in January the IAASB issued an exposure draft, proposed ISA 550 (Revised), Related Parties. The exposure draft proposed requirements for auditors regarding the audit of related party relationships and transactions. The proposed standard would place new emphasis on evaluating the effects of related party relationships and transactions on the financial statements, even in circumstances where the financial reporting framework does not establish related party accounting or disclosure requirements.
An essential element of credible financial information is a foundation in ethics and integrity. To build credibility in financial systems and to contribute to sound economic systems, we at IFAC promote our values of integrity, transparency and expertise to all professional accountants around the globe.