This is the third installment of a 12-month publication series titled Exploring the IESBA Code.

This third installment highlights key aspects of the Code’s Conceptual Framework which is an approach that all professional accountants are required to apply to comply with the five principles. The installment focuses on evaluating threats and the concept of the reasonable third party test.

IFAC today released the latest installment of its Exploring the IESBA Code educational series: The Conceptual Framework–Step 2, Evaluating Threats.

Exploring the IESBA Code is a twelve-month series providing an in-depth look at the International Code of Ethics for Professional Accountants (including International Independence Standards) (the Code). Each installment focuses on a specific aspect of the Code using real-world situations in a manner that is relatable and practical. Readers will gain a better understanding of the thought process behind important aspects of the Code through storytelling and expert analysis from professionals involved in developing the standards.

The first installment of the Series looked at the Code’s five Fundamental Principles, which establish the standard of behavior expected of all professional accountants. The second installment highlighted the Code’s Conceptual Framework with a focus on identifying threats, while this third installment focuses on how to evaluate those identified threats.

A professional accountant can often come across complex or challenging situations that are not black and white. These challenging situations require ethical considerations, some of which are expressly dealt with in the Code. The unique and informational series was developed by IFAC in collaboration with the International Ethics Standards Board for Accountants (IESBA) to help explain how the Code assists in navigating some of these challenges.

To read and download this and future installments, visit the IFAC website.

The Exploring the IESBA Code was published by IFAC and does not form part of the Code. It is non-authoritative and is not a substitute for reading the Code.

For more information about the Code, please click here.

A report issued jointly by ACCA and IFAC, Is cash still king? Maximising the benefits of accrual information in the public sector, not only confirms that a complete public sector transition to accrual accounting will serve the public interest, but also contains 30 specific recommendations to improve accrual implementation. 

Good decision-making requires the right information. Given that most government decisions have financial implications, understanding the economic reality of a government’s activities improves the quality of decisions made. By 2023, the number of countries reporting their financial position on an accruals basis is expected to increase from 37 to 98, jumping from 25% to 65% among 150 countries surveyed in the International Public Sector Financial Accountability Index.

Cash accounting, which 75 per cent of governments around the world use in some form, does not present the most accurate picture of a government’s financial health, nor does it enable adequately planning for the development, delivery, and maintenance of the services, programmes, and infrastructure on which people rely.  And that, in turn, leads to a breakdown of trust in governments.

The report’s author, ACCA’s Head of Public Sector Policy, Alex Metcalfe, said: ‘Moving to accruals needs to be more than a compliance exercise, it should be about making the best use of financial information.  The range of benefits highlight in this report demonstrates the clear upside to implementing accruals in the public sector.  We need to ask whether cash is still king, when it comes to financial reporting and budgeting.’

‘The accounting profession’s public interest mandate is nowhere more apparent than in the public sector, where high-quality reporting and budgeting is a prerequisite for government transparency and effective delivery of public services,’ said Kevin Dancey, CEO of the International Federation of Accountants (IFAC). ‘To the finance professionals and public sector decision makers who are leading the transition from cash to accrual accounting, we commend you and support you.’

The benefits and complexity arising from accruals varies by types of adoption. The report notes that:

• Cash accounting and budgeting is the simplest basis but provides the least decision-useful information.
• Accrual accounting combined with cash budgeting is the most complex basis, but it generates information that helps achieve value for money, facilitates public scrutiny, and supports sustainable decision-making.
• Accrual accounting and accrual budgeting creates a ‘medium level of complexity’ and creates consistency. In addition to realising the benefits from implementing accrual accounting, this environment also puts finance right at the heart of decision making and allows governments to embed effective performance management.
• New, decision-useful information generated by accrual implementation promotes the achievement of value for money and facilitates effective public scrutiny.
• To produce decision-useful information, governments must set objectives; plan; engage stakeholders; create effective systems; and develop the right skills, including internal training beyond preparers.

This report recommends that governments implementing accruals should be:

• Directing independent fiscal policy institutions to assess contingent liabilities and produce recurring fiscal risk reports.
• Implementing accrual budgeting to put finance at the heart of decision-making, while embedding performance management across government.
• Planning to produce a fully consolidated balance sheet that provides a full financial picture of the resources and risks for the public sector. This must include State-owned Enterprises at the whole-of-government level.
• Building political challenges into the implementation roadmap from the beginning (e.g., through a sunset clause requiring the eventual recognition of employee pension liabilities).
• Including groups that provide a constructive challenge function to the reform, such as auditors and legislative committees (e.g. the UK’s Public Accounts Committee).
• Deploying experts centrally to control consulting costs and support implementation across government.

Kevin Dancey, CEO IFAC, added: ‘IFAC and ACCA are committed to supporting the adoption and implementation of International Public Sector Accounting Standards (IPSAS), which underpin public sector accrual accounting, and to developing a robust profession that implements and manages such systems. With 65 per cent of governments globally set to implement accrual accounting by 2023, we’re encouraged by the positive trend, and strongly support further adoption of accruals and IPSAS.’

- Ends -

For media enquiries, contact:

Nadia Manuelli
E: nadia.manuelli@accaglobal.com
T: +44 (0)20 7059 5661
M: +44 (0)7808 940139
Twitter @ACCANews 
www.accaglobal.com

Geena De Rose
E: geenaderose@ifac.org
T: +1 (646) 277 9390
Twitter @IFAC
www.ifac.org

Notes to editors:

The number of countries reporting on the accruals basis represents 40% of the 150 countries included in the 2018 International Public Sector Financial Accountability Report.  The research evidence was gathered in three ways. Roundtable discussions were held in three countries (UK, Canada and Australia).  Semi-structured expert phone interviews were held with 12 experts in seven countries: Austria, Canada, New Zealand, Slovakia, Switzerland, Tanzania and Zimbabwe.  The face-to-face and telephone evidence was supported by a desk-based literature review.

About ACCA

ACCA (the Association of Chartered Certified Accountants) is the global body for professional accountants, offering business-relevant, first-choice qualifications to people of application, ability and ambition around the world who seek a rewarding career in accountancy, finance and management.

ACCA supports its 219,000 members and 527,000 students (including affiliates) in 179 countries, helping them to develop successful careers in accounting and business, with the skills required by employers. ACCA works through a network of 110 offices and centres and 7,571 Approved Employers worldwide, and 328 approved learning providers who provide high standards of learning and development. Through its public interest remit, ACCA promotes appropriate regulation of accounting and conducts relevant research to ensure accountancy continues to grow in reputation and influence.

ACCA has introduced major innovations to its flagship qualification to ensure its members and future members continue to be the most valued, up to date and sought-after accountancy professionals globally. Founded in 1904, ACCA has consistently held unique core values: opportunity, diversity, innovation, integrity and accountability. More information is here: www.accaglobal.com

About IFAC

The International Federation of Accountants (IFAC) is the global organization for the accountancy profession dedicated to serving the public interest by strengthening the profession and contributing to the development of strong international economies. IFAC is comprised of more than 175 members and associates in more than 130 countries and jurisdictions, representing almost 3 million accountants in public practice, education, government service, industry, and commerce.

The foundation of good decision making is having the right information, especially financial information. There is a global transition underway, where governments are moving from a cash to an accrual basis for their financial reporting. This report offers lessons learned from jurisdictions that have implemented accruals, with the intention that this global transition to accruals creates real value and is more than a compliance exercise.

High-quality audits are the backbone of the global financial system. Each year, thousands of audits – including over 40,000 audits of public listed companies – make organizations more transparent and trustworthy, help attract investor capital, help secure jobs, and help economies thrive.

The International Federation of Accountants (IFAC) and the global accountancy profession are committed to continuous improvement and recognize the negative consequences of any audit failure. As audit reviews unfold in various national jurisdictions, IFAC is setting out its recommendations for achieving high-quality audits.

“Audits contribute meaningfully to the functioning of organizations, financial markets, and economies. While many thousands of audits are conducted each year without any issues, improvements are needed to ensure consistent high quality,” said IFAC CEO Kevin Dancey. “This, however, cannot be achieved in a vacuum – all participants in the audit and assurance ecosystem must work together in striving to achieve high-quality audits 100% of the time. It is a vital part of our profession’s public interest mandate.”

In order to achieve high-quality audits, IFAC identifies five essential factors: the right process, the right people, the right governance, the right regulation, and the right measurement.

IFAC calls on all participants to create an environment that consistently produces high-quality audits. In particular, firms, Professional Accountancy Organizations (PAOs), regulators, audit committees and audit/assurance professionals must work to:

• Approach audits as a value-added service; not as a compliance exercise
• Evolve new assurance services to meet the needs of all stakeholders
• Continue focus on enhancing skills and competencies, adhering to fundamental ethical principles
• Ensure diversity in hiring practices
• Enhance transparency and communication from audit committees, firms, and PAOs
• Adopt a prudential and evidence-based approach to regulation

“As the global voice of the accounting profession, IFAC works in the public interest and focuses on the role of professional accountants in audit and assurance—but always, and necessarily, as partners in a larger ecosystem striving for better outcomes,” said Dancey. “We call on regulators and PAOs to collect, analyze, and publish more and better data—both aggregate and granular—on audit quality with the goal of enhancing transparency and promoting higher audit quality.”

About IFAC
The International Federation of Accountants (IFAC) is the global organization for the accountancy profession dedicated to serving the public interest by strengthening the profession and contributing to the development of strong international economies. IFAC is comprised of more than 175 members and associates in more than 130 countries and jurisdictions, representing almost 3 million accountants in public practice, education, government service, industry, and commerce.

What is joint audit and how is it used globally? This paper explores current research on the use of joint audit globally, and its impact on audit quality, cost and competition. 

IFAC today released the second installment of its Exploring the IESBA Code educational series: The Conceptual Framework – Step 1, Identifying Threats.

Exploring the IESBA Code is a twelve-month series providing an in-depth look at the International Code of Ethics for Professional Accountants (including International Independence Standards) (the Code). Each installment focuses on a specific aspect of the Code using real-world situations in a manner that is relatable and practical. Readers will gain a better understanding of the thought process behind more complicated areas of the Code through storytelling and expert analysis from professionals involved in developing the standards.

The first installment of the Series looked at the five Fundamental Principles of ethics, which establish the standard of behavior expected of all professional accountants. Compliance with these principles enable accountants to meet their responsibility to act in the public interest. This second installment highlights key aspects of the Code’s Conceptual Framework, which is an approach that all professional accountants are required to apply to comply with the five principles. The installment focuses on identifying threats and will be supplemented by two subsequent installments that will deal with evaluating and addressing threats.

A professional accountant can often come across complex or challenging situations that are not black and white. These challenging situations require ethical considerations, some of which are expressly dealt with in the Code. The unique and informational series was developed by IFAC in collaboration with the International Ethics Standards Board for Accountants (IESBA) to help explain how the Code assists in navigating some of these challenges.

To read and download this and future installments, visit the IFAC website.

The Exploring the IESBA Code was published by IFAC and does not form part of the Code. It is non-authoritative and is not a substitute for reading the Code.

For more information about the Code, please click here.