Uniting the Global Profession

IFAC president shares vision for the future.

Robert Bunting became president of the International Federation of Accountants (IFAC) in November, beginning a two-year term. Prior to this, he was deputy president of IFAC for two years and has been a member of the IFAC Board since 2005. Bunting is a partner in Seattle-based Moss Adams LLP, where he was chairman and CEO from 1982 to 2004.

From 2004 to 2005, Bunting was chairman of the AICPA. He previously was a member of the AICPA board of directors and is a past chairman or member of several AICPA committees, including the Audit Committee, Board of Examiners and the SEC Practice Section Executive Committee.

Bunting recently answered questions from the JofA.

JofA: Could you briefly describe the relationship between the AICPA and IFAC?

Bunting: IFAC is an organization of what we call “member bodies.” These are the institutes around the world. There are 157 national institutes that are members of IFAC. The AICPA is far and away the largest member. It is our biggest financial supporter, and it supplies us with the largest number of experts and volunteers for technical committees and standard-setting committees. Many of the AICPA’s members come from national and regional U.S. firms, and they also participate in IFAC standardsetting activities through the Forum of Firms, which is an association affiliated with IFAC that is comprised of accounting firms that perform audits of financial statements that are or may be used across national borders.

JofA: How does IFAC work with its member organizations to strengthen the global profession?

Bunting: We only have 55 employees, and yet we have been able to write standards that have been accepted in more than 110 countries around the world. The way we succeed in doing that is that we collaborate deeply with volunteers supplied from member bodies and the Forum of Firms. Those bodies nominate people to serve on standards boards, the Small and Medium Practice Committee, the Compliance Advisory Panel and all the other committees that carry out the work of IFAC. The member bodies and global networks of firms collaborate with us by supporting volunteers to do that work. As a consequence of that they are an integral part of our effort to spread standards around the world, but they also assist us by a mentoring program.

JofA: How significant is the growth of international firm networks and associations to the future of the global profession?

Bunting: A new independence standard developed a few years ago describes the concept of accounting firm networks and relates to the independence standard in the IFAC Code of Conduct. That made firms around the world face the issue of whether or not they were going to be network firms, as defined by the code, or associations. Network firms have to be independent of one another with respect to public company audit clients; associations do not. The network firms, though, have also made a commitment to implement a common approach to quality control around the world using an IFAC standard called ISQC1. Frankly, regulators in the capital markets are relying on global firm associations becoming networks as defined by the IFAC Code. They will start to implement transnational quality control mechanisms and regimes. They will start to do quality inspections of one another, and regulators are counting on that process to improve audit quality especially in developing countries where there is no effective regulatory mechanism to implement quality.

JofA: How do you see the role of the U.S. accounting and auditing profession changing in view of influence from the EU and Asia?

Bunting: Well, the U.S. auditing and accounting profession has actually been influenced by the EU and Asia for a few years now because we are jointly through the International Accounting Standards Board (IASB) developing international reporting standards, and through the International Auditing and Assurance Standards Board (IAASB) we are jointly developing international auditing standards, and through the International Ethics Standards Board for Accountants we are developing ethics standards. The AICPA as a member of IFAC is committed to actively support the implementation of those standards within the United States. The Auditing Standards Board in the United States has been basing its standard building on IAASB standards since 1998, and they have converged considerably to IFAC’s International Standards on Auditing (ISAs). The [AICPA] Professional Ethics Executive Committee has also been focusing on convergence with international standards for more than five years. So as a practical matter the auditing profession in the United States is tracking with the auditing profession around the world. We have our own national bodies as many other countries do, but those bodies are basing their national standards on international standards. I think the U.S. auditing and accounting profession is doing just fine with those global influences.

JofA: Why should local CPA firms be interested in international standards on auditing and accounting?

Bunting: Local accounting firms should be interested in international standard setting for a number of reasons. For one thing it is very important that small and medium practices have input into the process of setting international standards because those standards come into the United States and become part of our national standards for private companies. So if I’m in practice and I’m auditing private companies, or I’m doing accounting work, all of the independence rules I live with, all of the auditing standards I use, even the financial reporting standards I use are influenced either directly or indirectly by global standards, and those global standards permeate the United States in a very, very direct way. So if you’re in a small practice, you need to be concerned about what’s going on at the global level because ultimately that is what you’re going to be dealing with.

JofA: What will be your focus over the next two years as IFAC’s president?

Bunting: Having spent the last two years as chair of the IFAC Planning and Finance Committee, my priorities are those set out in the 2009–2012 IFAC Strategic Plan. First, we intend to continue to strengthen our role as the international standard setter in auditing, ethics, education and public-sector financial reporting. Second, we intend to provide more assistance around the world to our member bodies, governments and firms in implementing those standards. While most of the major capital markets require or permit the use of our auditing and ethics standards, we are still working toward formal European Commission endorsement, and we have some distance to go with the PCAOB. Many less developed countries are happy to “adopt” our standards, but have limited resources and ability to implement them. Standards only have value if they are implemented, hence the increased focus on implementation support.

There are two other important areas of focus. We are committed to continued enhancement of the relevance of the accounting profession. This goes to increasing the effectiveness and value of the roles professional accountants already fulfill and expanding our role into areas such as enhanced business reporting and sustainable value creation. Finally, we seek to be the voice of the international accountancy profession where our distinct global position makes us uniquely qualified to serve in that role. The current global financial crisis is a good example of a place where a global voice is needed.

JofA: Will the financial crisis impact convergence to international standards?

Bunting: I believe that the rapid spread of the financial crisis and the realization that no one country acting alone could do enough to restore confidence demonstrates how closely linked the major economies have become. As we have seen in the fair value accounting dialogue of the past few months, regulators and governments have come to the logical conclusion that accounting standards should create a level playing field in the capital markets. Any accounting treatment that seems to benefit companies in one country to the detriment of others will not be tolerated. This means that the financial reporting standards need to be substantially the same. I believe that the level playing field argument applies just as much to auditing and ethics standards, and most regulators seem to agree. After the dust settles a bit, I think the forces for international convergence will be stronger than ever.

JofA: What is the IAASB doing from an auditing standards perspective to respond to the current global economic crisis?

Bunting: There is no indication that auditing standards had anything to do with the current financial crisis. However, the IAASB is just as interested as the regulators, governments and other standards setters in identifying anything that might have contributed to the crisis and, to the extent possible, making the necessary changes to prevent this from ever happening again. To date, the IFAC and IAASB leadership have participated in several meetings with regulators and other standard setters as well as the Forum of Firms to discuss the root causes of the crisis and what checks and balances either failed or were not in place to prevent it. It is important that any changes that might be necessary be based on a full understanding of what they are designed to correct and that they follow appropriate due process.

JofA: The globalization of accounting standards is moving full steam ahead as more and more countries adopt IFRS. What are audit standard setters doing to keep pace?

Bunting: International auditing standards are used directly in many countries that use IFRS as well as in many that follow other financial reporting standards. The Auditing Standards Board in the U.S. bases its private company audit standards on ISAs, and private companies in the U.S. currently report under U.S. GAAP. As a consequence there is no direct link between the adoption of IFRS globally and the agenda of the IAASB. I believe that most of the arguments for a single set of financial reporting standards do apply to a single set of auditing standards, but the standards themselves are not tightly linked.

JofA: Will the promulgation of International Standards on Auditing remain under IFAC?

Bunting: IFAC is committed to developing standards in the public interest. As long as we continue to achieve this objective, I see no reason that we would not continue in our current role. The IFAC reforms implemented in 2004 established, among other changes, a system of formal oversight of our standard-setting activities indirectly by the Monitoring Group of regulators and directly by the Public Interest Oversight Board, whose members are appointed by the Monitoring Group. The Monitoring Group will be performing a five-year effectiveness review of the reforms in 2009. We look forward to the results of that review. I note with some interest that the conclusions of the Constitution Committee study by the IASC Foundation included a recommendation to establish an oversight group, similar in composition to the Monitoring Group that oversees IFAC standard- setting activities. I take this as an indirect indication that the IFAC reforms have gained credibility for our standard-setting process.

JofA: Over the last few years, the IAASB has undertaken a massive project to change how the ISAs are presented, commonly referred to as the clarity project. What is the objective of the clarity project, and how do you think it will enhance the audit process?

Bunting: The principal objective of the clarity project was to simplify the language of the standards so that they could be more easily understood, more accurately translated into other languages, and more effectively implemented. This was a condition laid down by the European Commission for adoption of ISAs in the EU, but it was also an important step toward achieving quality convergence around the world. The Auditing Standards Board in the U.S. has recently announced its own clarity project, based in part on the success of the IAASB project.

JofA: What will be the IAASB’s priority going forward now that the clarity project is coming to an end?

Bunting: In order to efficiently complete the clarity project, the IAASB de-emphasized efforts to develop new standards and take on other projects. Coincident with the completion of the clarity project, the current chair of the IAASB, John Kellas, will retire and a new chair, Arnold Schilder, will take up the reins. The new chair will probably want to conduct his own review of the IAASB’s recently published 2009–2012 work program going forward. There is a considerable backlog of projects contemplated in that plan. The IAASB also has an interest in adoption and implementation of its standards, and in 2009–2012 some of its resources will be allocated to supporting efforts by countries and member bodies to adopt the standards, and to respond to concerns and challenges arising out of adoption and implementation activities around the world.

For Web exclusive interview questions, click here.


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