Giuseppe Messina
FMC Secretary General
Ladies and gentlemen,
I am absolutely delighted to be one of the speakers at this wonderful, historical conference. We were right to choose Istanbul for the 1st Conference of the Mediterranean Countries. It is a most impressive city.
Special thanks to TUMOB and its president Mustafa Ozyürek for proposing to host this very important event. Equally I thank wholeheartedly Masum Türker for the very great support he provided right from the beginning. He has been and fortunately still is a fundamental pillar of this Federation. Another treasure of this Federation is its President Hazem Hassan. We are very lucky to have him driving us. It would be difficult to imagine someone more dedicated and competent than him as regards the overall business of the Federation. His political sensitivity and acumen are, I believe, a key to the success of the Federation. I also have to thank the Italian profession, CNDC and CNR, and the Deputy president of FCM Francesco Serao. Francesco has been the designer of this Mediterranean initiative and he has provided all the basic means, particularly financial means, for the Federation to start up. We all have to be grateful to him. I thank also all the Council members of FCM, they have all been very supportive and they can be proud to be the Founder members of this new born federation. Last but not least I thank my colleagues Noemi di Segni and Gisella Porath without their constant support and efforts I would not go very far, believe me.
Today we are going to look at major topics for the accountancy profession: Auditing, Liberalisation of professional services and professional independence.
The title of the Conference is "The Mediterranean. A window on the world" the Mediterranean is certainly a very special region. Special from many point of views: geographical (as it is a cross-border between Asia, Africa and Europe) economic (as we have a wide range of different development patterns among the different countries with the European Community - which it must be recalled is the largest economic market in the world - in a rather prominent position). It is in the Mediterranean countries where we have the largest concentration of small and medium sized enterprises. In Italy for instance 95% of the economic force is represented by SMEs. Ethnic as well as religious differences are also - I would say - special features of the Mediterranean areas. This mixture of very different ingredients is adding to the flavour and taste of the so called globalisation process. In the past, the attempt to harmonise the different cultures was called the "mediterraneanisation". Today the attempt to harmonise the different economies is called globalisation. I would say that you cannot go global without going Mediterranean.
In the globalisation process a special emphasis is to be given to professional services. The different markets sectors of the economy are not a close system. What is happening in one market is inevitably going to influence what is happening in another market. The accountancy profession has a very privileged place in the globalisation process. I would say it is in pool position - since it has to adapt constantly to the evolution of the business world. The business world depends on the accountancy profession in terms of quality standards from the attest functions to consultancy services. The dilemma we are faced with is whether we have an active rather than a passive role. Let us imagine the future as a flight on an airplane. The Liberalisation process can be seen and valued from many different positions.
We can decide to be passengers, get on a plane and fly to a new place, a new destination. There we will be a contact with a new culture and a new language. But we all know that if we want to fly - especially nowadays - we have to book in advance and eventually buy the ticket. In other words we have to get organised. Liberalisation as a future destination implies that we have to work on and eventually reshape domestic legislation and basic national regulations. We have of course a price to pay - the ticket - but this may well be compensated by the end result or, in other words, the pleasure and inspiration we get from visiting a new place. . Liberalisation today does not only mean mutual recognition on bilateral basis- the permission to fly and land is guaranteed on a multilateral level. On 17 December 1998 the Council for trade in services adopted the discipline on domestic regulation in the accountancy sector under a recommendation of the Working party on professional services (WPPS). The purpose of that discipline is to facilitate liberalisation in accountancy services by insuring that domestic regulation affecting trade in professional services meet the requirements set by the GATS agreement (art. VI, 4) . to this regard the discipline does not address the measures which restrict the access to domestic market or limit the application of national treatment to foreign suppliers.
These two aspects of the liberalisation process are resolved within the GATS through negotiation and scheduling of specific commitments and not through the WPPS's recommendations. It is therefore the very basic domestic regulation which is asked to be reviewed and not only the rules on professional services provided by migrant professionals. Member of GATS are asked to ensure that measures relating to licensing requirements and procedures as well as to technical standards and professional qualifications are not adopted or applied with a view to or to the effect of creating unnecessary barriers to trade in professional services. By "Unnecessary" barrier we have to understand something which is not touching upon a "legitimate objective". Legitimate objectives are, inter alia, the protection of consumers (including direct users of professional services and stakeholders in general) the quality of the services, professional competence, and the integrity of the profession. In other words, liberalisation as a process is welcomed but there are undoubtedly some principles to safeguard.
The growing pressure of liberalisation, the opportunities offered by internet to provide services with no time and space constraints, call for an in-depth reflection on how the "legitimate objectives" can be defined and a common position or a minimum level of safeguards reached.
To this effect we should be highly appreciative of the efforts of the International Federation of Accountants (IFAC) is performing together with other regional organisations such as FEE, the European Federation of Accountants, to reach a common position or the composition of capital share and the legal form of auditing and accounting firms.
FEE that two basic principles should be the basis of any liberalisation measures for the accountancy profession, namely:
- the obligation to acquire the host country qualification once compliance with the professional rules and regulatory obligations of the host member state i sassured, notably in ethical matters;
- the application of these two principles regardless the way the professional services is rendered whether cross-border or via a permanent establishment.
According to FEE the rules defined for individual accountants should equally apply to legal entities, the rational is that the objective of protecting the public interest is common in both cases. Any professional firm registered in one EU members state should be able to set up a branch in another members state or to provide cross-border services unrestrictively.
However, in order for the two modes of practise to be effective there is a fundamental condition that should be fulfilled and that is that the accountant be personally responsible for his own work. The accountant to sign the auditing report should have acquired the host country professional qualification and comply with the local professional rules.
On the case of legal entities FEE recommends that any professional firm licensed in one EU member state should be able to open a subsidiary in another member state. In addition to the conditions set for the branches, specific rules on the composition of the firm's management organ must be observed. The legal form of the firm and restrictions relating to the name of professional firms should not be a barrier to access the market.
In recent years, the debate concentrated on the composition of the minority of share capital (49%). Indeed, the real objective is to safeguard the independence of the accountant against the capital effects.
As far as individual accountants are concerned, the major obstacles to practise seem to be the recognition of professional qualifications at international level as well as a regulatory requirements of citizenship and residency. In the European Union a citizenship and residency requirement is applied in some countries in the case of professionals coming from non European Union countries. The rule applied in this case differs from country to country according to the domestic discipline. In the European Union the "professional domicile" is the accepted requirement for the provision of services in a members state territory. But let's go back to the recognition of professional qualifications. This is an area where a number of liberalisation directives have been enacted (EC 89/48, EC 51/92) one of the most recent of which is the so called lawyers directive. It is an important result in relation to the issues we referred to for the free establishment of firms and it is an area where no specific legislation is in place (the EC 8th directive is more an harmonisation directive than a liberalisation one). However, it is my opinion that not enough has been done by the different countries to provide effective opportunities for migrant accountants to practise regulated professional services.
The recognition of professional qualification depends on certain level of harmonisation of regulated activities and the underlying assurance of the public interest and the requirement of an independent and objective provision of professional service. A benchmark standard to enhance a global accounting curriculum and qualification system has come under scrutiny in recent years.
We refer to the UNCTAD initiative which provides a certain interpretation to the rather difficult question of defining the "authority" who should have the competence to overlook or discipline the deregulation process. Given the lack of uniformity in existing international educational guidelines, less developed countries have long asked for a more elaborated scheme for education and qualification. Such reference guidelines could achieve a number of objectives such as:
- helping to bridge the gap between professional accountants form transitional economies countries with those from developed countries;
- converting the voluntary system into a benchmark thus facilitating the implementation of mutual recognition requirements;
and
- obtaining higher professional standards by means of the development of higher professional qualification and access requirements.
IFAC has done a lot of very valuable work on education which we can refer to as a basis for deliberations at national level.
The conclusion I would draw from these brief considerations is that liberalisation as a process does necessarily mean that we have to abolish all existing domestic regulation. It is up to the legislators in the different countries to find a way of harmonising domestic legislation with liberalisation and deregulation trends in a rational and balanced way. Liberalisation should be or perceived to be a colonisation process.
Even independence and objectivity - if we go back to our airplane trip - can easily be imagined as part of the security control system.
The European Federation of Accountants has developed a common core of principles for the statutory auditors Independence and objectivity.
The principles developed by FEE are based on the "framework approach" and both IFAC and the Committee on Auditing of the European Union have been looking at it for their deliberations on the subject.
The FEE principles identify "independence" as the means by which the statutory auditor demonstrates that he can perform his assignments in an objective manner. Two major features of independence need to be addressed:
- independence in mind, i.e. the state of mind, the intellectual condition enabling the professional accountant to act in an unbiased manner;
- independence in appearance, i.e. the avoidance of facts and circumstances which are so significant as for a third party to question the auditor's objectivity.
- The FEE paper is based on the identification of a series of threats to objectivity which may actually arise or may appear to arise because of the expectations and the environment in which the work is to be conducted. For each of the threats the document states the appropriate safeguards to offset the risks and threats.
Where threats exist the auditor will have to adopt internal steps, publicly visible steps or the refusal to act where no appropriate course can abate the perceived problem. The threats we refer to are: self-interest, self-review, advocacy, familiarity, intimidation. A particularly sensitive threat is self-review and advocacy which might be strictly connected to the provision of consultancy services on behalf of the audit client. This is a thorny issue and opinion have often been divergent on this subject in international fora. However there is general recognition that the profession should provide a valid and reliable solution on this problem, and this might well be in hand of IFAC and FEE nowadays.
A number of options is offered to the profession in the future air flight. One can choose to be a passenger and wait to reach the desired destination or to have a more active role and get ready to be a pilot. The profession has the very opportunity to drive the integration process and decide exactly where to land . I say that the profession can decide where to go, so far as we get ready for it. That is exactly what happened with IASC and the endorsement of IASs by IOSCO on 17 May of this year. After 28 years of long and consuming work IOSCO endorsement final lame IOSCO move came as a result of the growth in cross-border capital flows. IOSCO has sought to facilitate cross-border offering and listing by recommending the adoption of IASs. IOSCO assessed 30 IASC standards, including their related interpretations, in terms of their suitability for use in cross-border offering and listing. As a result of the granted recognition IOSCO members allow incoming multinational issuers to use the 30 IASC standards to prepare their financial statements for cross-border offering and listing, and where necessary to address outstanding substantive issues at a national or regional level by adopting supplemental treatments.