Frank Harding
The IFAC and the IASC are looking for ways to address the growing demands of the capital markets, while maintaining the profession’s self-regulatory role.
During the 1990s, the global equity market value of all publicly traded securities virtually tripled in value from US$9.7 trillion at the start of the decade to more than US$26 trillion towards the turn of the century. This unprecedented rate of growth has created an explosion of information needs. Investors, governments, financial institutions, business and commercial interests and others require an ever-broadening range of information, including financial forecasts, performance indicators, environmental reports, corporate governance, national deficits, rates of inflation, business loan levels and other factors impacting on the future viability of an enterprise.
The increased demand for high quality and reliable information has put the services of the accountancy profession under the regulator’s spotlight. The financial crisis that hit the world money markets two years ago highlighted the importance of ensuring financial information is comprehensive, transparent and comparable across national boundaries.
The regulators do not want a repeat of the Asian experience and the profession is now under pressure to prove that it can meet the expanded demands of the capital markets and that it is competent to fulfil its traditional self-regulatory role. This affects both practising firms and those members of the profession engaged within commerce and industry.
For more than 20 years, the IFAC and the International Accounting Standards Committee (IASC) have developed and promoted international standards and guidance for an ever-widening range of professional activities. They are now taking steps to respond to the new demands of the capital markets, the concerns of the regulators and the international financial institutions, and the need for adequate accounting capacities and capabilities world-wide.
The major practising firms acknowledge the importance of strong leadership within the international profession. Recognising the IFAC’s role, they have collaborated in creating an IFAC Forum of Firms which encourages firms with international interests to participate in and strengthen IFAC’s standard-setting work.
Member firms will have to comply with admission requirements, including an obligation to undergo quality assurance reviews throughout their networks. A new independent Public Oversight Board will ensure that the activities of the IFAC and the IFAC Forum of Firms are conducted in the public interest. The major firms have at the same time committed to improving education and training in international standards and ensuring compliance with the IFAC’s International Standards on Auditing and the ethical code throughout their networks.
Meanwhile, the IASC is concentrating on its major restructuring which will make its standard-setting process more responsive to the interests of those who rely on financial reports.
A strong global financial architecture is essential for economic progress and stability. The IFAC, along with the support of major firms, launched an International Forum for Accountancy Development (IFAD) last year as a means of allowing regulators, international financial institutions and representatives of the accountancy and auditing profession to work together towards this goal.
At a recent meeting, the IFAD confirmed proposals for undertaking country-by-country reviews of the adequacy of national accounting and auditing standards, ethics and disciplinary procedures, corporate governance, banking and company law.
The IFAD, through individual country review groups, will benchmark this information against international standards and will assist in overcoming any shortfalls.
Further, the meeting agreed to continue development of the IFAD website to cover «the accountancy profession and the international financial framework» to provide information relevant to those seeking to strengthen a national framework. The web site will describe key elements of a domestic financial architecture (structure, processes and behaviour) and put the role of the accountancy profession in both the private and public sectors into context.
The IFAC, in co-operation with the firms and others, can take steps at the «macro» level to help create a global environment in the best interests of both the accountancy profession and the public interest
It must be up to individual members of the profession to take steps to ensure their continuing relevance within the rapidly changing economy.
Reproduced with permission of the IFAC.
Frank Harding is the recently retired Chairman of IFAC.