IFAC, Firms to Apply International Standards Consistently

The International Federation of Accountants and seven major transnational accounting firms together are planning a global initiative to strengthen international accounting and auditing practices. IFAC hopes firms in the alliance, by uniformly applying standards developed by the International Accounting Standards Committee (IASC), and its own international auditing practices committee (IAPC), will help the world’s nations increase the transparency, reliability and consistency of their financial statements. And that, IFAC thinks, will encourage investors to move more public and private capital across international borders.

The IFAC alliance, known as the Forum of Firms, so far consists of the Big Five firms plus Grant Thornton LLP and BDO Seidman, LLP, but IFAC said firms of any size can apply for membership. In order to qualify, applicants must have, or anticipate working with, clients that conduct business in two or more international jurisdictions. “The classic example of such a client is Coca-Cola, which operates all around the world, but, of course, there are smaller ones,” said Peter Johnston, IFAC’s director.

Member firms also are required to establish, and train their staffs to observe, internal policies and practices that comply with international accounting standards (IASs), international standards on auditing (ISAs) and the IFAC code of ethics.

“It’s possible, at first, that few transnational firms will qualify for membership,” Johnston acknowledged to the JofA . Firms that gain admission to the group must submit to quality control and monitoring and ensure that all their offices—domestic and international—consistently use adequate standards. Other requirements include supporting the establishment of professional bodies and international standards in developing countries.

T he initiative also calls for independent oversight of IFAC’s public interest activities, although it is not yet clear who would perform that function. “It would have to be a group of people who are independent of the profession, but interested in and knowledgeable about it,” Johnston said, adding that the oversight board clearly must draw some of its members from jurisdictions other than the United States and western Europe.

Due to existing relationships—the IAPC is an IFAC committee and IASC Chief Executive Officer Sir Bryan Carsberg sits on the IFAC council—the IASC and IAPC have participated with IFAC in this initiative from the outset.

Johnston explained how, in countries that insist on the primacy of their standards, auditors would determine whether to follow local or international standards. In some of those countries, such as the United States and the United Kingdom, requirements generally are more rigorous than for their counterparts elsewhere and therefore are sufficient to satisfy the auditors. But when a country’s standards are judged to be inadequate, he said, the IFAC practice code will mandate use of international standards.

Further, Johnston said he foresees the adoption, by member firms, of common ethical standards, based on the IFAC code, with additional provisions as necessary to meet the demands of the transnational market. “For example,” he said, “there might be specific requirements to ensure independence in a country where business relationships and customs differ from those in the home jurisdiction.”

I n May, when the IFAC council meets in Edinburgh, Scotland, Johnston and his colleagues will formally request approval for their proposed alliance. As the date nears, Johnston is guardedly optimistic about winning support for the plan. “There is a very great determination to make it work, and that’s always a good start,” he said.

IFAC’s membership includes 143 bodies in 104 nations, some of which are developing countries with economies in transition and cultures quite different from those of the West. The alliance aims to identify any deficiencies in member nations’ public interest activities and help them build the infrastructure necessary to address such weaknesses. IFAC said that most of the project’s funding would come from participating firms.

IFAC represents two million accountants in public practice, education, government and services, industry and commerce around the world. In the United States, its member bodies include the AICPA, the Institute of Management Accountants and the National Association of State Boards of Accountancy.


How well do you know small business?

There are over 30 million small businesses in the U.S., and many of them are optimistic in their outlook. Are you familiar with the obstacles and opportunities they are facing? Test your small business acumen with this quiz sponsored by Chase Ink®.


In focus: Payroll

Providing payroll services that comply with ever-changing regulations and meet evolving employee and employer demands is no easy task. Paychex's Tom Hammond discusses common payroll considerations for CPA firms.