Good morning everyone. I am truly delighted to be in Cape Town. Before I begin, let me first express my appreciation to CIMA for inviting me to speak here today.

I will be speaking to you this morning about the role of the professional accountant, specifically the professional accountant in business (PAIB) in the context of sustainable organizational success. Worldwide, more than one million professional accountants work in commerce, industry, financial services, education, and the public and private sectors, many in leadership and managerial roles. These professional accountants in business, or management accountants, are in a key position to affect the long-term sustainable value of their organizations.

The International Federation of Accountants (IFAC), the global organization for the accountancy profession with members and associates in 125 countries, applauds Europe’s focus on resolving the current financial crisis. However, IFAC warns that—in addition to addressing the symptoms—the underlying causes must also be addressed, by reforming governments’ substandard financial management practices. 

The situation in Greece is only the tip of the iceberg. Substandard accounting, auditing, and financial management led eventually to financial reporting fraud by the Greek Government, and ultimately triggered a market reaction that revealed much more widespread financial fragility in the European public sector, evidenced by the need for bail-outs and increased debt servicing costs. In Germany, the government recently disclosed an accounting error equivalent to 2.6% of GDP. To put the size of that error in context, the cost of Japan’s earthquake and tsunami in early 2011 was equivalent to approximately 5% of GDP. That this error was not obvious to Germany’s Ministry of Finance is indicative of the general state of government financial management. A similar, though smaller, error reported in the Irish Government’s financial statements this week corroborates this negative assessment of the state of public sector financial management.

Fiscal mismanagement in the public sector is not isolated to Europe; it is a global problem. At the core, it stems from political shortsightedness and the inadequate systems that governments use to manage public finances, in particular the use of cash-based accounts in a highly complex financial world.

“The fact that most governments in the developed world pretend they can manage and control their finances using only cash information tells us that something is seriously wrong,” said Ian Ball, IFAC chief executive officer. "The cash-based information commonly used for budgeting and accounting is both simplistic and anachronistic, and doesn’t come close to accurately describing the complexity of their financial positions. It is a virtual guarantee of financial mismanagement.”

“If we asked a typical household to prepare a balance sheet they would include all of their assets and liabilities—including their house and car, loans, mortgages, etc.—not just their cash. If governments ran their health systems without using available modern medical information and technology, they would be held negligent. Yet, in essence, this is what governments do in their financial management. It is easier for them to operate this way, but it is potentially fatal to economic growth and financial stability,” added Göran Tidström, IFAC president.

As early as 2007, IFAC stated that it “is concerned that the standards and regulations governing sovereign issuers are not of sufficient quality to protect investors and ensure the stability of capital markets.” In 2011, the consequences of poor financial management in the public sector are all too apparent.  Consistent with its recent submission to the G-20, IFAC calls for urgent research and action to address this critical, but neglected, component of the international financial system.

IFAC recommends that work should be conducted or commissioned by the Financial Stability Board (FSB), to consider the nature of institutional changes that are needed in public sector financial management to facilitate greater transparency and accountability and to protect the public and investors in government bonds. IFAC believes the FSB should examine reformed fiscal arrangements which include:

• Audited financial statements within six months of year end;
• Budgeting, appropriations, and reporting on the accrual basis;
• Full transparency in fiscal positions ahead of general elections, ensuring that voting is fully informed;
• Independent, audited projections of fiscal position to accompany budgets; and
• Limitations on deficit spending, or at least full transparency around the reasons for deficit spending and explanations of how, over an economic cycle, fiscal balance will be restored.

In calling for financial management reform in governments, IFAC stands willing to assist the FSB or other relevant authorities in bringing about such change.

About IFAC

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 164 members and associates in 125 countries and jurisdictions, representing approximately 2.5 million accountants in public practice, education, government service, industry, and commerce. 

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The International Public Sector Accounting Standards Board (IPSASB) has approved a landmark new standard, IPSAS 32, Service Concession Arrangements: Grantor (IPSAS 32).

Service concession arrangements provide a way for governments and other public sector entities to build the infrastructure necessary to maintain and improve critical public services. The use of service concession arrangements continues to increase due to the ongoing global financial and economic crises. Until now, public sector entities have had no international guidance on how to report such transactions.

IPSASB Chair Andreas Bergmann explained, “IPSAS 32 helps further the IPSASB’s goal of enhancing the transparency and accountability of public sector entities by ensuring that service concession arrangement assets and their related financing are reported. It also improves consistency in how public sector entities account for and report service concession arrangements, which are significant and often complex transactions.”

IPSAS 32 addresses the grantor’s accounting in such arrangements using an approach that is consistent with that used for the operator’s accounting in Interpretation (IFRIC) 12, Service Concession Arrangements issued by the International Financial Interpretations Committee of the International Accounting Standards Board (IASB). IPSAS 32 is not a convergence project because IFRIC 12 applies only to the operator and not the grantor. However, IPSAS 32 uses the principles in IFRIC 12 for determining which entity—the grantor or the operator—should recognize an asset in a service concession arrangement, in order to ensure that the grantor recognizes a service concession asset it controls.

Hans Hoogervorst, International Accounting Standards Board (IASB) Chair said, “The IPSASB’s approval of IPSAS 32 illustrates the close cooperation of the IPSASB and the IASB on issues of mutual concern in the public and private sectors. It closes the gap on significant assets not being recognized by either the grantor or the operator, and is a welcome addition to the body of accounting guidance for the public sector.”

The IPSASB has also published Improvements to IPSASs 2011. The IPSASB’s improvements project is modeled on the IASB’s annual update program. Improvements are made to existing IPSASs to maintain alignment with International Financial Reporting Standards (IFRSs), as well as other general improvements. The 2011 amendments relate primarily to improving consistency between the standards. They do not represent substantive revisions to existing IPSASs.

IPSAS 32 and Improvements to IPSASs 2011 are available to download free of charge from the IPSASB website. The IPSASB encourages IFAC members, associates, regional accountancy bodies, and firms to use these materials and to promote their availability to members and employees.

About the IPSASB
The IPSASB develops accounting standards and guidance for use by public sector entities. The structures and processes that support the operations of the IPSASB are facilitated by IFAC.

About IFAC
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 164 members and associates in 125 countries and jurisdictions, representing approximately 2.5 million accountants in public practice, education, government service, industry, and commerce.

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These Improvements to International Public Sector Accounting Standards were prepared by the International Public Sector Accounting Standards Board (IPSASB).

(New York/October 26, 2011) – Burden of regulation continues to challenge both accountants and their small business clients, according to the small- and medium-sized accountancy practitioners polled by the International Federation of Accountants in August–September. Despite these challenges, overall optimism increased since the last SMP Quick Poll was conducted; nearly 40% of practitioners expect business to be better this year than it was last year, compared to just 23% in April. 

While more small practices are now offering business advisory services, the poll results showed that traditional accountancy-based services continue to generate the largest portion of SMPs’ fee revenue: accounting and compilation averaged 38% of total fee revenue, with audit and assurance close behind with an average of 35%. Accounting and compilation is also the fastest growing source of revenue for the largest group of respondents (34%), followed by audit and assurance (26%).

There are challenges to expanding into business advisory, which may explain why only 23% of respondents indicated that this area is their fastest growing source of revenue. According to respondents, insufficient partner time (30%) and marketing services to clients (29%) are the biggest challenges to expansion in this area. New advisory/consulting clients are driven primarily by existing customer-client relationships (37%), followed by practitioners’ competence and expertise (21%). When asked to indicate how fee revenue is split among the various areas of advisory/consulting, tax consulting came out highest with an average of 45% of consulting fee revenue.

With the aim of taking a snapshot of the key issues confronted by SMPs and their SME clients, the IFAC SMP Quick Poll is being conducted quarterly throughout 2011 with distribution via the SMP eNews, IFAC’s free newsletter for SMPs, and support from our member bodies. The third SMP Quick Poll collected 798 responses from all regions of the world over a 32-day period (August 8, 2011 to September 9, 2011). To subscribe to the SMP eNews, and participate in our next poll, sign up here.

IFAC wishes to thank those member bodies and regional organizations that published the poll in their newsletters, or otherwise helped promote it. The full survey results are available here.

About the SMP Committee
The SMP Committee of the International Federation of Accountants represents the interests of professional accountants operating in small- and medium-sized practices and other professional accountants who provide services to small- and medium-sized entities (SMEs). The committee develops guidance and tools, and works to ensure the needs of the SMP and SME sectors are considered by standard setters, regulators, and policy makers. The committee also speaks out on behalf of SMPs to raise awareness of their role and value, especially in supporting SMEs, and the importance of the small business sector overall.

About IFAC     
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. It is comprised of 164 members and associates in 125 countries and jurisdictions, representing approximately 2.5 million accountants in public practice, education, government service, industry, and commerce.

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The International Auditing and Assurance Standards Board (IAASB) today released its plan for a post-implementation review of the clarified International Standards on Auditing (ISAs). In 2009 the IAASB concluded its five-year Clarity project to redraft and revise the ISAs. The post-implementation review is the second phase of the IAASB’s efforts to monitor the implementation of these standards. The review is focused on whether the clarified ISAs are being consistently understood and implemented in a way that achieves the IAASB’s goals in revising and redrafting them.

“With extensive uptake of the clarified ISAs throughout the world, in already more than seventy-five countries, now is the time to gain a deeper understanding of how the clarified ISAs are being used and implemented,” said Prof. Arnold Schilder, Chairman of the IAASB. “When this review is completed in 2013, the IAASB will be better able to assess whether there is need for further changes to the ISAs. Timely feedback on the clarified ISAs from a variety of stakeholders is therefore essential for this purpose and the IAASB’s objective of ensuring that its standards continue to be of the highest quality.”

Features of the post-implementation review, which involves gathering information about the use of the clarified ISAs during 2012, are set out in the IAASB’s Plan for a Post-Implementation Review of the Clarified International Standards on Auditing.

Recognizing the broad range of stakeholders that may be interested in providing feedback to the IAASB about the clarified ISAs and their implementation, the IAASB encourages and welcomes input from all interested parties for the purpose of the review.

How to Comment

To access the plan and details on how to provide input, visit the IAASB’s website. Input for the purpose of the review is requested by no later than October 31, 2012.

About the IAASB
The IAASB develops auditing and assurance standards and guidance for use by all professional accountants under a shared standard-setting process involving the Public Interest Oversight Board, which oversees the activities of the IAASB, and the IAASB Consultative Advisory Group, which provides public interest input into the development of the standards and guidance. The structures and processes that support the operations of the IAASB are facilitated by IFAC.

About IFAC
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 164 members and associates in 125 countries and jurisdictions, representing approximately 2.5 million accountants in public practice, education, government service, industry, and commerce.

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This plan is the second phase of the IAASB’s efforts to monitor the implementation of clarified ISAs. The review is focused on whether these standards are being consistently understood and implemented in a way that achieves the IAASB’s goals in revising and redrafting them. Recognizing the broad range of stakeholders that may be interested in providing feedback to the IAASB about the clarified ISAs and their implementation, the IAASB encourages and welcomes input from all interested parties for the purpose of the review.

The International Ethics Standards Board for Accountants (IESBA) today released for exposure  Proposed Changes to the Code of Ethics for Professional Accountants Related to Provisions Addressing a Breach of a Requirement of the Code. The IESBA believes that any breach of a provision of the Code of Ethics for Professional Accountants (IESBA Code) should be treated as a matter of utmost importance. Therefore, the IESBA has proposed changes to the IESBA Code that will provide guidance to a professional accountant on the action to be taken in such situations. This includes a robust framework for addressing a breach of an independence requirement that will result in greater transparency. This Exposure Draft is the result of a project that commenced in 2010.*

The proposed changes to the IESBA Code include a requirement that a professional accountant take whatever actions that might be available as soon as possible to satisfactorily address the consequences of a breach of a provision of the Code.  For a breach of an independence requirement in the IESBA Code, a detailed framework is provided setting out the action to be taken. Specifically, the proposed changes would require a firm to:

• terminate, suspend, or eliminate the interest or relationship that caused the breach;
• evaluate the significance of the breach and determine whether action can be taken to satisfactorily address the consequences of the breach;
• communicate all breaches with those charged with governance and obtain their agreement with the proposed course of action; and
• document the actions taken and all the matters discussed with those charged with governance and, if applicable, any relevant regulators.

“The proposed changes to the IESBA Code should help to ensure that the significance of any breach of an independence requirement is discussed with those charged with governance, and that professional judgment is taken into account when taking action,” stated Ken Dakdduk, IESBA Chair. “An auditor resignation due to an independence violation—regardless of the magnitude of the violation—has potential consequences to the company, its investors, and the capital markets.  The proposed framework will guide accountants, and those charged with governance, in determining whether resignation is an appropriate outcome or whether a different outcome can be supported. In addition, disclosure will enhance transparency, and the proposed documentation requirement adds a degree of rigor to the process that will be very useful.”

How to Comment
The IESBA invites all stakeholders to comment on its proposals. To access the exposure draft and submit a comment, visit the IESBA’s website at www.ifac.org/Ethics/publications-resources. Comments on the exposure draft are requested by January 23, 2012.

*Note to Editors:
In 2010, the IESBA assessed the provisions in the IESBA Code that address a breach of an independence requirement, and concluded that a project should be undertaken to reconsider those provisions, including determining whether the provisions are needed and, if so, how the guidance can be enhanced with regard to scope and application. As a result of this project, the IESBA concluded that it is in the public interest to have an appropriate mechanism that can be consistently applied across all jurisdictions in order to provide companies, auditors, regulators, and similar authorities with a framework to evaluate the impact of an independence violation and determine whether the auditor's resignation is the only appropriate outcome.

About the IESBA
The International Ethics Standards Board for Accountants (IESBA) is an independent standard-setting board that develops and issues, in the public interest, high-quality ethical standards and other pronouncements for professional accountants worldwide. Through its activities, the IESBA develops the Code of Ethics for Professional Accountants, which establishes ethical requirements for professional accountants. The structures and processes that support the operations of the IESBA are facilitated by IFAC.

About IFAC
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. It is comprised of 164 members and associates in 125 countries and jurisdictions, representing approximately 2.5 million accountants in public practice, education, government service, industry, and commerce.

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