IFAC News

IPA joins IFAC

At its’ meeting in November, the IFAC Board agreed to admit three new bodies to full membership: National Chamber of Statutory Auditors of Poland, Institute of Professional Accountants of Russia, and the Slovak Chamber of Auditors. IFAC members now comprise 156 professional accountancy bodies in 114 countries, representing more that 2.4 million accountants.

Five New Accounting standards for the Public Sector

IFAC’s Public Sector Committee (PSC) has made significant headway in developing international accounting standards for governments and their agencies by releasing five new International Public Sector Accounting Standards (IPSASs) and a new exposure draft. This brings the total of accrual-based standards to 17. PSC anticipates completing development of the remaining three core IPSASs by mid-2002.

The new IPSASs are as follows:

IPSAS 13 – Leases. This standard prescribes for both lessees and lessors the appropriate accounting policies and disclosure to apply in relation to finance and operating leases. It includes guidance on the classification of leases, disclosures to be made in the financial statements of lessees and lessors, and accounting for sale and leaseback transactions.

IPSAS 14 – Events after the Reporting Date. This standard prescribes when an entity should adjust its financial statements for events which occur after the reporting date and the disclosures that it should make about other «non-adjusting» events which occur after the reporting date.

IPSAS 15 – Financial Instruments: Disclosure and Presentation. This standard prescribes how financial instruments are to be classified and identifies disclosures to be made in general purpose financial statements.

IPSAS 16 – Investment Property. This standard prescribes requirements for accounting for investment property, including the initial and subsequent measurement and disclosure of such property by governments and their agencies.

IPSAS 17 – Property, Plant and Equipment. This standard prescribes requirements for the initial recognition and measurements of property, plant and equipment. It also deals with subsequent measurements, depreciation and disclosures about these assets. The standard provides a transitional period to support the orderly implementation of its requirements and allows, but does not require, heritage assets to be recognized in general purpose financial statements.

New Audit Guidance on Banking from IFAC

To assist bank auditors IAPC has released two new International Auditing Practice Statements (IAPS): Audits of the Financial Statements of Banks and The Relationship between Banking Supervisors and Banks’ External Auditors.

The new practice statements highlight the tasks, responsibilities, and challenges facing external bank auditors and bank supervisors and consider special reporting relationships between auditors and bank supervisory and other regulatory authorities.

Audits of the Financial Statements of Banks (IAPS 1006), issued after consultation with the Basel Committee on Banking Supervision, focuses on the various stages of the audit of a bank with emphasis on those matters that are either peculiar to or of particular importance in such an audit. Also included are appendices that contain examples of –

• Typical internal control procedures and substantive audit procedures for two of the major operating areas of a bank – lending and treasury operations;
• Financial ratios commonly used in the analysis of a bank’s financial condition and performance
• Risks and issues in securities operations, private banking and asses management; and
• Typical warning signs of fraud.

The Relationship between Banking Supervisors and Banks’ External Auditors (IAPS 1004), which has been developed in conjunction with the Basel Committee, provides information on how the relationship between bank auditors and supervisors can be strengthen to mutual advantage, taking into account the Basel Committee’s Core principles for Effective Banking Supervision. Specifically, this IAPS –

• Describes the primary responsibilities of the board of directors and management;
• Examines the essential features of the role of external auditors;
• Examines the essential features of the role of supervisors;
• Reviews the relationship between the supervisor and the auditor; and
• Describes additional ways in which auditors and the auditing profession can contribute to the supervisory process.

Auditing Fair Value Accounting

To address the increasing number of complex accounting pronouncements containing measurement and disclosure provisions based on fair value, IAPC has developed a proposed International Standards of Auditing (ISA) on fair value measurements and disclosures.

The ED addresses audit considerations relating to the valuation, measurement, presentation and disclosure for material assets, liabilities, and specific components of equity presented or disclosed at fair value in financial statements. The comment period has recently concluded. The US ASB is issuing the IAPC document for public comment and IAPC will be considering comment from both exposure in the development of final guidance which is expected to be issued later this year.

New Independence Rules from IFAC

IFAC has updated its Code of Ethics for Professional Accountants to include new rules on independence. The Code states the fundamental principles that should be observed by professional accountants to meet their responsibility to protect the public interest. It includes principles that are applicable to all professional accountants, and distinguishes between those that affect professional accountants in public practice and those that are applicable to other accountants employed in business and industry.

The new rules of independence set out a conceptual framework that focuses on the factors that pose a threat to independence for all assurance engagements and the safeguards that auditors should put in place to preserve their independence. In addition, the updated Code provides examples of situations on how the conceptual approach to independence is to be applied to specific circumstances and relationships. The Code may be downloaded from the IFAC website at http://www/ifac.org.

The Role of the Chief Financial Officer in the Year 2010 Focus of New International Publication

Ten chief financial officers from leading companies throughout the world speak out on issues impacting businesses and the role of the CFO in The Chief Financial Officer in the Year 2010, a new publication released by the International Federation of Accountants (IFAC). The publication features interviews conducted by Robert Bruce, accountancy editor of The Times, London, with CFOs from North and South America, Europe, and Asia. The CFOs represent diverse fields including telecommunications, electronics, retail, financial services, industrial gases, and consumer products and provide candid comments on what lies ahead for their profession and the businesses they serve.

«The CFOs consistently cited the interpretation and delivery of complex information as the greatest challenges facing them and their employers both today and in the future and see these challenges as shaping the future role of the CFO», points out Bill Connell, director of Risk Management for the BOC Group and chairman of IFAC’s Financial and Management Accounting Committee (FMAC).

«As a result of the demands placed on companies by shareholders, regulators and the public at large for increasing financial information, the CFO’s role is shifting dramatically from one of transaction manager to communicator and strategist», adds Mr Connell.

Other areas in which the CFOs see their roles expanding include the following:

• Investor relations and reputation management
• Risk management
• Corporate governance
• Global marketing
• Remuneration policies, especially for senior management
• Treasury functions

The interviewees also stressed that as the stewards of corporate financial information, CFOs will increasingly become the «guardians of the corporate conscience».

New International Guidance Helps Auditors Address E-Commerce Risks

Increasing use of the Internet for business-to-consumer, business-to-business, business-to-government and business-to-employee e-commerce is introducing new elements of risk that need to be considered by accountants when planning and performing the audit of financial statements. To assist auditors in identifying and assessing these risks, the International Federation of Accountants (IFAC’s) International Auditing Practices Committee (now International Auditing and Assurance Standards Board – IAASB) has issued a new practice statement, Electronic Commerce – Effect on the Audit of Financial Statements.

«Growth of Internet activity without due attention by the entity to those risks may affect the auditor’s assessments of those risks», points out Dietz Mertin, IAASB Chairman. «For example, an entity’s e-commerce strategy may affect the security of the financial records and the completeness and reliability of the financial information produced».

This new International Auditing Practice Statement (IAPS) helps auditors address e-commerce issues by focusing on the following:

• The level of skills and knowledge required to understand the effect of e-commerce on the audit;
• The extent of knowledge the auditor should have about the entity’s business environment, activities and industries;
• Business, legal, regulatory and other risks faced by entities engaged in e-commerce activities;
• Internal control considerations, such as an entity’s security infrastructure and transaction integrity; and
• The effect of electronic records on audit evidence.

The guidance in this statement is particularly relevant to the application of three International Standards on Auditing (ISAs): ISA 300, Planning, ISA 310, Knowledge of the Business and ISA 400, Risk Assessments and Internal Controls.

«While this statement has been written for situations where an organization engages in commercial activity over a public network such as the Internet, much of the guidance it contains can also be applied when the entity uses a private network,» states Mr. Mertin. «Similarly, while much of the guidance will be helpful to accountants engaged in auditing entities organized primarily for e-commerce activities (often called «dot.coms»), it is not intended to deal with all audit issues that would be addressed in the audit of such entities.»

Electronic Commerce – Effect on the Audit of Financial Statements may be downloaded from the IFAC website http://www.ifac.org/store for a fee of US$22; print copies may be purchased for US$25 plus shipping by calling 1-212-286-9344 or placing an order through the online bookstore.