SRO Development Recommendations

Lew Burnham

Overview

ICAR has developed a comprehensive outline framework for the development of a national professional organization (or, possibly, two national organizations) for qualified accountants and independent auditors. The framework is based on models of similar professional organizations in other countries, with long and successful histories enhancing the status and effectiveness of accountants and auditors. This article summarizes the main features and activities of such organizations, from which the reader can discern the many changes that would be necessary to implement a similar model in Russia.

A self-regulatory organization (SRO) acts as a legally and functionally independent professional association, but with accountability to its stakeholders. These stakeholders include its members, management and employees of the enterprises they serve, as well as investors, creditors, regulatory authorities, and others who rely on their work. Among the many features and activities of an SRO for qualified accountants and independent auditors, these are the most significant:

• Bringing together the many professional organizations (national, regional, and local) that presently exist in Russia.
• Establishing full independence from government regulatory, business, and other activities.
• Establishing the capability and credibility to exercise authority over accounting and auditing standards, ethical norms, professional disciplinary actions, etc.
• Developing comprehensive syllabi for professional training courses, qualifying examinations, certifications, and continuing professional education. Administering and/or overseeing such programs. Acting as a disciplinary body for members.
• Maintaining the credibility and capability to represent the profession(s) in relationships with other regulatory and professional associations, including international bodies.

In addition to the framework and details of implementation, ICAR has outlined a means for international assistance and independent review in the process of designing and developing the Russian national SRO(s) for qualified accountants and/or independent auditors.

Current situation and ICAR recommendations

It has been reported that there are over 90 different professional associations of auditors and/or accountants in Russia, despite some efforts in recent years to combine these associations and rationalize the situation. Therefore, there is a significant question of the amount of progress being made toward unifying the accounting and auditing profession(s) in Russia and bringing its members up to a uniformly high level of competence. Some of these organizations have aspirations to be accounting and/or auditing SROs (national, regional, or for certain segments of the profession), but it is obvious that all of them can not succeed. Without a great deal of cooperation and unification, it is likely that none of them can succeed to the degree that would optimize the great potential of the accounting and auditing profession(s) in Russia.

ICAR believes that the process of professional unification, establishment of independence from government regulators, and assuming all of the functions of a full-fledged SRO, should be accelerated, beginning as soon as possible. ICAR recommends that currently-functioning professional associations should meet for the purpose of outlining the main features of one or two national SROs with which all of them could subsequently associate. In order to move the process along more rapidly, ICAR recommends that already-functioning models should be followed, insofar as they can be made to fit Russian needs and requirements.

The prospective Russian SROs should obtain a rigorous, comprehensive, independent evaluation of its current status, programs in progress, and plans for the near future. For this purpose, it can be compared to the ICAR-drafted «Framework and Statement of Tasks/Functions» for the «Russian SRO for Qualified Accountants and Independent Auditors». This evaluation could be a «peer review» undertaken by experts with a strong background and experience in SROs in major market economies. It would be based on documentation and other objective evidence of progress to date, programs demonstrated to be underway, and specific, approved, written plans to be implemented in the near term (say, next six months). It would also result in recommendations for additional steps to be taken and enhancements to current efforts.

Comprehensive SRO Framework

The following is a brief outline of the authorities, capabilities, and activities of a typical SRO for qualified accountants and/or independent auditors in a fully-developed economic environment (and a target for a developing SRO). The SRO:

• Acts as a legally and functionally independent professional association, but with accountability to its stakeholders, including its members and those it serves, such as enterprise management and employees, investors, creditors, regulatory authorities, etc.
• Exercises authority over accounting and/or auditing standards and guidelines, both for initial adoption and ongoing management of the standards processes.
• Develops professional practice guidelines, including a code of ethics; implements educational and compliance processes for the code of ethics; deals with disciplinary matters for the profession, and/or coordinates with regulatory and judicial authorities on such matters.
• Administers the relevant qualifying examination(s) and the evaluations of education and experience, leading to certification of accountants and auditors. Acts as, or coordinates with, the licensing authority, to issue practice permits to accountants and auditors.
• Establishes requirements for, and monitors reporting of, continuing professional education.
• Establishes the standards and processes for «peer» or other quality-assurance reviews; coordinates/oversees performance of the reviews; deals with remedial and disciplinary actions resulting from such reviews.
• Provides the sponsorship, direction, coordination, and/or encouragement of projects to research accounting and auditing topics, as well as for the development of related educational and training materials.
• Publishes professional journal(s), member newsletters, and other publications useful for informing and educating accountants and auditors.
• Is available for consultation by members and others on accounting and auditing issues; is the clearinghouse for gathering and dissemination of innovative ideas and «best practices» of the profession.
• Represents, promotes, and defends the profession in regulatory, legislative, law enforcement and similar matters affecting accountants and auditors, including appropriate lobbying and public-relations activities.
• Establishes and maintains the accounting and auditing profession’s relations with other professional associations, such as those of financial executives, enterprise directors, internal auditors, etc., as well as with the academic community, on matters of mutual interest.
• Participates in international organizations, representing the national profession and national business community, in the development and promotion of accounting and auditing standards, study of emerging issues, and other matters within its competence and authority.

Conclusion

The establishment and effective functioning of one or several national SROs for qualified accountants and independent auditors in Russia, as described in this article, is fundamental to accomplishment of economic reform. It impacts not only the adoption and effective implementation of international accounting and auditing standards, but also other important aspects of reform, most important of which are corporate governance, investor confidence in financial markets and enterprises, and the general reliability and credibility of economic information.

ICAR has done some of the seminar work in the area of SRO design and development, and is prepared to assist in furthering this important effort. Readers of Accounting Report who would like to have copies of detailed documents, such as SRO structure and functions, the «peer review» program to evaluate and assist in SRO implementation and enhancement, or other related information, can access them on the ICAR web site http://www.icar.ru or contact ICAR by phone (095) 937 5417, fax (095) 937 5416.

Lew Burnham is a volunteer Advisor to ICAR. He can be contacted at ICAR or by e-mail leb25@email.byu.edu.