Service to the Public Is Primary
Last October, as they have done almost every five years since the first event in St. Louis in 1904, accountants from all over the globe assembled for the World Congress of Accountantsthis time in Paris. As the 6,000 participants from more than 100 countrieswith sizable contingents from Russia, China and Vietnamconvened for the opening ceremony, a sense of excitement filled the air, a clear indication of the dynamic events to follow. The theme of the conference, sponsored by the International Federation of Accountants (IFAC), was Accountants and SocietyServing the Public Interest. The schedule offered three days of plenary sessions, workshops, speeches from an international roster of business leaders and a rich cultural and social program. The congress also boasted two notable firsts: French President Jacques Chirac, who urged the accounting profession to play a significant role in the development of the worlds economy, became the first president of a country ever to address a world congress, and a group of women in attendance created the first international federation of women accountants.
The U.S. business community was represented in plenary sessions by James Wolfensohn, World Bank president, and John Whitney, executive director of Columbia Universitys Deming Center, and in workshops by business leaders, some of whom wrote the brief synopses of their panels proceedings that follow. The Journal also invited IFACs president, Frank Harding , to speak to the U.S. accounting profession.
Former audit partner in KPMG, London; European Union of Accountancy executive committee member, 1982-85.
In my view, some of the key issues facing accountants today are the following:
- The standing of the profession. In the eyes of the public, the standing of the accounting profession has fallen. We in the worldwide accounting community need to improve that standing, first by arresting any further fall and then by raising the profession back to where it once was. Only in this way will we accountants be able to meet the expectations of, and improve our credibility with, those we serve. If we do not, we will be seen as having fallen further behind and our credibility will be even more widely questioned.
IFAC must provide the lead in ensuring that its member bodies and their members measure up to this challenge. It also must continue to provide quality standards and guidelines on auditing, education and ethics; improve its service to accountants in business and in the public sector; and encourage all members of the profession to provide high-quality advice, opinions and service in compliance with professional ethics.
While recognizing that all members of the profession have responsibilities to clients and employers, we must not forsake our duty to safeguard the public interest. By satisfying that public interest, the interests of the profession itself will be served.
- Impact of change. The profession worldwide must keep up-to-date continually with the astounding changes brought about by technology simply to preserve our roles in the financial community. Otherwise, others will take on those roles. Who else can attest to the credibility of real-time reporting on the Internet, to review and provide opinions on key performance indicators management increasingly will be relying on in their annual reports? Businesses want credibility added to the statements of their boards and management, and accountants have to be able to provide such assurance.
- Developing nations and countries in transition. Clients, employers and the public require historical and prospective financial data objectively prepared and, in many cases, independently audited. Developing countries lacking professional bodies able to produce that level of work need accountants to help develop that data, thus enabling their governments (and those with economies in transition) to be more accountable for the funding they receive from donor organizations. Accountants so involved in the development of the profession, of accounting and audit law, of professional bodies, of education and training should ensure that development is coordinated and sustainable and also should help them build their economies by obtaining domestic and foreign investments.
IFAC accepted the challenge posed in the congresss plenary session by World Bank Chairman Wolfensohn and will continue its efforts to help the accounting profession in developing nations and countries in transition. Early in 1998, IFAC and the regional organizations will meet representatives of the World Bank, the Organization for Economic Cooperation and Development and the European Commission, among others, to harness the professions expertise and the development agencies knowledge and resources. The goal is to decide how best the profession can be developed and enhanced.
- Quality. If the profession does not provide qualityof service, advice and opinionit does not deserve to be a success. We must make sure accountants perform only high-quality work. IFAC will study the extent to which its member bodies meet their commitments to ensure that IFAC and IASC standards are introduced nationally. That should encourage others to bring the international standards and guidelines into their domestic procedures and thus improve the quality as well as the comparability of accounting and auditing.
- Corruption. Governments are increasingly emphasizing the need to fight corruption in its widest sense. Wolfensohn said it was urgent that accountants be in the forefront of that fight. IFAC has accepted that challenge, too; an anticorruption task force is to provide guidance on the responsibilities accountants face vis--vis the publicand thus the authoritieswhen they come across corruption.
In sum, IFAC is in excellent shapewhich it needs to be if it is to achieve this agenda. The items above require strong support from our members to deal with the issues before us.Panel Proceedings
C. S. Kulesza
Senior vice-presidentfinance, ITT Automotive, Inc., Auburn Hills, Michigan
President-elect-nominee of the Institute of Management Accountants
Member of the panel: The Accountant in the 21st CenturyChanges in Educational Trends
The World Congress considered it essential for the program to include changes in education trends because those changes are affecting accountants everywherein both developed and emerging countries. As trusted professional advisers whose advice is sought on a wide range of business issues, an accountant to be successful now needs a different preparationone, both before and after qualification, focusing on technical knowledge, communication and interpersonal, organizational and behavioral skills and requiring a balance between formal instruction and practical experience. Therefore, accountants need both technical skills and the people skills essential for success in a dynamic environment.
As globalization leads to a smaller world, an important issue to multinational companies of all sizes is consistency in financial reporting. Fortunately, IFAC and IASC continue to focus on harmonized accounting standards that will provide this much-needed consistency. There remains, however, a worldwide concern that an accountant cannot obtain all of the knowledge, skills and abilities needed.
The United States has contributed significantly to identify the competencies required by accountants in this new environment. Both the Institute of Management Accountants in Practice Analysis of Management Accounting and the AICPA in its upcoming competency model for the New Finance professional are offering the worldwide accounting community an excellent database and models. Additionally, while we Americans may have embraced the learning to learn concept suggested by the U.S. Accounting Education Change Commission, it is by implementing this concept globally that we will ultimately benefit from our international business dealings. Lifelong learning combined with international standard setting will encourage the up-to-date, consistent application of accounting standards and lead to new world-class standards of excellence in our profession.
President of the Financial Executives Institute
Member of the panel: The Financial Statement AuditHow Useful Is the Traditional Model?
The current audit model has stood the test of time over the last half century. It has provided a basis of credibility to financial statements for domestic financial markets, multinational and global organizations and cross-border financing. Today, the audit report provides credibility in the global markets for approximately $19 trillion in market capitalization. However, information needs are changing and the audit is viewed in some ways as a commodity, with significant downward pressure on audit fees. The panelists addressed issues such as the limits of the traditional model; the changes needed to ensure the continuing credibility of financial information in domestic and international markets; the new demands of investors and regulators for disclosure of risks, compliance with laws and regulations, internal controls and corporate governance; and how preparers and auditors are responding to these needs.
Information is essential for the effective operation of capital markets. Financial reporting provides relevant and reliable information about transactions and events, thereby reducing risks and uncertainties that stakeholders must deal with. At issue is how successful the current model is in reporting future risks and uncertainties. Historical statements are an essential element in communicating managements financial stewardship but are primarily backward-looking. While preparers today are providing more forward-looking information, they are opposed to any regulatory or legislative changes that would mandate an independent report on such information. Nevertheless, some have suggested that auditors provide, with appropriate legal protection, unbiased commentary on a companys future prospects. As is true of any new disclosure, any perceived benefit should outweigh the costs.
Despite its perceived shortcomings, however, there will always be a need for the financial statement audit as long as companies continue to seek investor capital. Yet the question remains whether new assurance services beyond the traditional audit should be mandated or simply voluntary offerings provided by audit firms. In addition, preparers have serious concerns over whether accounting firms are truly qualified in all circumstances to provide an outside assessment of different aspects of corporate performance. As calls for changes in the traditional financial statement increase, it will become increasingly important to ensure that investors are given truly useful information presented in a readily understandable fashion. Many also believe that financial reporting can be made more relevant, if, insofar as possible, we can achieve consistent and understandable financial accounting and reporting on a global basisa yardstick against which businesses in all countries could be measured as they compete for investor resources.
A. A. Sommer
Chairman of the U.S. Public Oversight Board
Member of the panel: Corporate GovernanceThe Roles of and Interplay Between the Auditor, Management and Board of Directors
Peter Dey, who has served as chairman of both the Ontario Securities Commission and the Toronto Stock Exchange Committee on Corporate Governance in Canada, opened the discussion by emphasizing that corporate governance was not intended to be an end in itself but, rather, to foster better corporate performance.
What is of most importance to the worlds capital markets is that competent people who are independent and objective conduct audits, remarked Professor Ian Percy, chairman of the Accounts Commission for Scotland and of the International Capital Markets Group Task Force. He said the commonly accepted meaning of audit was dated and, because of the developing needs of users, the audit will require to be defined both in terms of financial reporting and corporate governance.
Changes in corporate governance are taking place in Francein some measure inspired by the 1995 Vienot report on the topic, said Gerard Riviere, a partner of KPMG France. Boards of directors increasingly are organizing audit, salary review and management selection committees and placing nonmanagement directors on them. However, in view of the number of large companies that have not followed the Vienot recommendations, he speculated on whether governance legislation might be forthcoming.
Professor Etsuo Sawa of Keio University, Tokyo, described corporate governance practices in Japan. Boards of directors typically are large and made up almost entirely of senior employees of companies and their affiliates. Their meetings generally are brief and routine (as are shareholder meetings) and the agendas consist largely of ratifying decisions taken by operating management. Some hope of progress is seen in the development of boards of statutory auditors. Among other things, these boards, which do not audit in the conventional sense, are to monitor directors conduct.
A. A. Sommer , Jr., spoke of the need for closer collaboration and better communication between auditors and boards and their audit committees. Auditors must view the boards, not management, as their clients. They should inform the boards of their opinions about the appropriateness and the acceptability of the statements they audit and indicate whether managements choices of accounting principles are conservative, moderate or extreme. He urged auditors to educate audit committees about the best practices for audit committees.
James P. Wesberry
Casals & Associates, Washington, D.C. Director of the USAID-financed Regional Accountability/Anti-Corruption Project for Latin America and the Caribbean; former chairman of the AICPA Inter-American accounting delegation.
Moderator of the panel: Regional Economic GroupsA Bridge Between the Global and National Public Interest.
The two principal Western Hemisphere regional trade agreements (RTA)the North American Free Trade Agreement (NAFTA) and the Southern Cone Common Market (MERCOSUR)and other RTAs among the countries of the Americas culminated in a proposal for creating a Free Trade Area of the Americas (FTAA) within the next eight years, said James Wesberry. MERCOSUR comprises Argentina, Brazil, Paraguay, Uruguay and Chile, covers 12 million square miles, has 190 million inhabitants and accounts for over one-third of all Latin American trade while also absorbing one-third of direct foreign investment in the region. A 1994 protocol set up a customs union, giving it legal status comparable to that of the European Union. However, a decision on moving to a full common market was deferred until the turn of the century. Bolivia and other Andean Pact nations are seeking affiliation with MERCOSUR. For many years, the accounting organizations of the Southern Cone collaborated through joint meetings and research; thus, harmonization of the profession within MERCOSUR does not pose a major problem.
NAFTA is the first RTA between a developing country (Mexico) and highly industrialized neighbors (the United States and Canada). Begun in 1994, NAFTA encompasses 360 million people and accounts for 7.9% of all world trade. In NAFTAs first three years, U.S. exports to Mexico increased by 36% and imports from Mexico increased by 83%. Chile has been invited to join NAFTA, and negotiations are under way to complete its membership. The U.S. Congress currently is debating enlargement of NAFTA in the context of President Clintons more ambitious FTAA proposal, which now has a timetable of 2005 for completed negotiations. Wesberry said NAFTAs professional practice provisions contemplate the eventual unrestricted practice of accounting, or any other profession, in accordance with mutually acceptable standards and criteria, across the borders of the three member countries. Such standards and criteria may cover education, qualifying examinations, experience, conduct and ethics, professional development and recertification, scope of practice, local knowledge and consumer protection. Temporary licensing is encouraged while the necessary harmonization is carried out.
The first step in the United States is to unify professional criteria across state lines, which underlines the importance of passing model accountancy legislation at the state level. Internationally, the three nations accounting institutes are working closely toward eventual harmonization, which is hardest vis--vis Mexico, as practices between the United States and Canada are already fairly well harmonized.
The European Unions model might be imitated by other regions as they implement RTAs, offered John Hegarty, secretary general of the European Federation of Accountants. He said the concept evolved from emphasis on total harmonizationa very difficult task over the short termto the present acceptance of the work of nonnational accountants who follow the standards of their countries of origin that are accepted in countries where the work is performed. However, the intention is eventual full harmonization of all accounting requirements.
Dr. Pakorn Vichyanond, senior research fellow at the Thailand Development Research Institute Foundation, said problems such as bureaucratic friction, diversities among members and different underlying interests affect evolving RTAs. Because RTAs reduce the tariffs of member countries, the winners in an RTA are countries with low tariffs before the RTAs, according to Vichyanond, but RTAs also can help speed nondiscriminatory trade liberalization.