The IAESB Releases New Guidance on Practical Experience

The International Accounting Education Standards Board (IAESB), an independent standard-setting board within IFAC, has developed guidance to assist its member organisations (such as the MIA) and others in establishing effective practical experience programs to help ensure that prospective accountants have the skills necessary to meet current and future challenges. The new guidance is contained in International Education Practice Statement (IEPS) 3, Practical Experience Requirements - Initial Professional Development for Professional Accountants, which was released only after the consideration and approval of due process by the Public Interest Oversight Board (PIOB). IEPS 3 provides guidance on the period of practical experience, content of practical experience requirements, and the roles and responsibilities of IFAC members as well as mentors and employers.

The practice statement suggests how IFAC members and associates may meet the requirement for a period of practical experience for trainees to qualify as professional accountants. It also explains how workplace output can be used to assess competence developed by trainees during that period. In meeting the requirements of International Education Standard (IES) 5, Practical Experience Requirements, IFAC members should consider adopting a combined approach - requiring a minimum three-year period of practical experience and measuring workplace output to assess competence. The guidance also urges members to consider the requirements of any relevant regulators when choosing their approach to implementing IES 5.

The practice statement can be downloaded free-of-charge from the IFAC website.

IFAC Releases Paper on Professional Regulation; Calls for Accountancy Profession to Be Active in Regulation of Its Members

IFAC has released a policy position on professional regulation of the accountancy profession in which it states that professional accountancy bodies, acting in the public interest, must play an active role in the regulation of the profession. The paper also emphasises that effective regulation is “proportionate, transparent, implemented consistently and fairly, and subject to regular review.”

In announcing the release of the paper at IFAC’s World Accountancy Forum IFAC President Fermín del Valle stated, “Professional accountancy bodies and governments share a common objective of ensuring that professional accountants serve the public interest and meet high standards in the quality of services they provide. It is, therefore, important for professional accountancy bodies and governments to work together to ensure that regulation is both effective and efficient.”

The paper, Regulation of the Accountancy Profession, outlines various types of regulatory models and how they can be implemented and discusses the roles of professional accountancy bodies and governments.

In discussing the need for regulation, the paper points out: “Like other professions, the sustainability of the accountancy profession depends upon the quality of services provided by its members and the profession’s capacity to respond effectively and efficiently to the demands of the economy and society.”

The paper can be downloaded from the IFAC website by going to http://www.ifac.org/store.

IFAC Addresses Developing Nations, Small and Medium Practices and Regulatory Issues

At its December Council and Board meetings in Mexico City, IFAC announced new resources to support professional accountants working in small and medium practices (SMPs) and approved a policy paper outlining its position on professional regulation.

New Guide to Applying International Standards to SME Audits

At the Council meeting, IFAC SMP Committee Chair Sylvie Voghel reported that the committee had completed its review of new guidance to assist SMPs and other practitioners in delivering high quality audits of small and medium entities (SMEs). The new implementation guidance, Guide to Using ISAs in the Audit of Small- and Medium-sized Entities, was developed by the Canadian Institute of Chartered Accountants on IFAC’s behalf and is designed to support SMPs and other practitioners in applying International Standards on Auditing (ISAs) to audits of SMEs. (See also IFRS, IAS, ISA Update on page 49)

Establishing Accountancy Bodies

During the meeting, IFAC also released a 2007 edition of its good practice guidance on establishing and developing professional accountancy organisations. This updated and expanded toolkit, entitled Establishing and Developing a Professional Accountancy Body, addresses the roles and responsibilities of a professional accountancy body, education and examination, and capacity development.

Professional Regulation

The Board approved an IFAC position on professional regulation. The paper formalises its view that professional accountancy bodies and governments share a common objective of ensuring that professional accountants serve the public interest and meet high standards in the quality of the services they provide and that both professional accountancy organisations and governments need to work together to ensure an effective and efficient regulatory mix.

IFAC Announces New Members and Board Members

At its December meeting, IFAC also approved three new associates and a new affiliate and announced the appointment of five new members to its Board.

The Council accepted three new organisations as associates of IFAC:

1. Cayman Islands Society of Professional Accountants;
2. Mauritius Institute of Professional Accountants; and
3. Ordre National des Experts Comptables et Comptables Agréés du Sénégal.

In addition, the Council accepted the Nederlandse Orde van Register EDP-Auditors as an affiliate.

The IFAC Council also approved the nomination of five new members to the IFAC Board to serve three-year terms. They are Luiz Carlos Vaini of Brazil, Abdeljelil Bouraoui of Tunisia, Japheth Katto of Uganda, Robert Hodgkinson of the United Kingdom, and Olivia Kirtley of the United States. In addition, the IFAC Council approved the reappointment of two IFAC Board members for a second term: Roberto D’Imperio of Italy and Göran Tidström of the Nordic Federation.

IAASB seeks New Chairperson

The International Auditing and Assurance Standards Board (IAASB) is seeking candidates for the position of IAASB Chair for a three-year term commencing 1 January 2009. The chair is appointed by the IFAC Board with the approval of the PIOB.


IFAC Publishes Award-Winning Articles on Key Issues Impacting Professional Accountants in Business

A new publication released by IFAC addresses a wide range of topics that can assist professional accountants in business with their management, strategic and financial decision making. The publication, 2007 Articles of Merit, includes 10 previously published international articles that were selected by IFAC's Professional Accountants in Business (PAIB) Committee as part of its annual Articles of Merit Award Program for Distinguished Contribution to the roles and domain of professional accountants in business.

The winning article for 2007 is "Finding the Right Mix: How to Match Strategy and Management Practices to Enhance Firm Performance" by Kip R. Krumwiede and Shannon L. Charles. It was first published in the Institute of Management Accountants' monthly magazine, Strategic Finance. The authors' investigation into the use and adoption of popular management practices finds that highly rated practices such as target costing, the balanced scorecard, and activity-based costing have had relatively low adoption. However, their research identified that those organisations that did adopt these practices found that they produce valuable results. Using this research as a basis, the article suggests a five-step process to facilitate the matching of management practices to organisational strategy.

The 2007 Articles of Merit, together with past issues, can be downloaded free-of-charge from the IFAC online bookstore (http://www.ifac.org/store). The 10 articles in the 2007 publication can also be downloaded individually from the IFAC bookstore.

IFAC's Education Standards Board Adopts New Strategy

The IAESB has issued its 2007-2009 Strategic and Operational Plan which is designed to advance accounting education worldwide. The IAESB's strategy focuses on the measurable implementation of its International Education Standards (IESs). It also supports IFAC's members and associates in enhancing the level of competence of their members and in promoting a strong ethical culture within the accountancy profession.

The focus of IAESB activities will be on the following:

1. Conducting a fundamental review of the Framework for International Education Statements, which considers recent developments in accounting education and the accountancy profession;
2. Developing guidance to help IFAC members and associates and others achieve the measurable implementation of the IESs; and
3. Reviewing existing IESs to determine areas where the clarity of standards could be improved and/or additional guidance most usefully developed.

The direction of further activities during the period 2007-2009 will be conditional on the outputs from these three high priority projects.

The IAESB's Strategic and Operational Plan, 2007-2009 can be downloaded from the IFAC website.

IAESB Releases New Practice Guidance on Ethics Education and IT Knowledge Requirements

To promote high quality education and training of current and future members of the accountancy profession the IAESB has released two new International Education Practice Statements (IEPSs). The new practice statements assist IFAC members, associates and other educators in developing ethics education programs and in implementing the information technology (IT) knowledge component of a professional accounting education program.

Ethics Education

The first practice statement, IEPS 1, Approaches to Developing and Maintaining Professional Values, Ethics, and Attitudes, provides guidance to IFAC members and associates on how to achieve good practice in developing and maintaining professional values, ethics and attitudes in accordance with the requirements in International Education Standard 4, Professional Values, Ethics and Attitudes. The practice statement identifies a number of methods for the delivery of ethics education, stressing the importance of workplace learning and assessment. It also identifies continuing professional development as the means for member bodies to ensure that professional accountants continue to develop professional values, ethics, and attitudes throughout their careers.

IT Knowledge Requirements

IEPS 2, Information Technology for Professional Accountants, outlines the knowledge and skills necessary to prepare professional accountants to perform competently in the IT environment. All professional accounting candidates are expected to have a knowledge and understanding of at least one of three roles - manager, evaluator or designer of information systems, or a combination of these roles. The practice statement identifies the competency elements that IFAC member bodies can include in the IT knowledge component of prequalification professional accounting education programs. It also provides guidance on teaching and assessing IT at the prequalification stage, as well as implementing post-qualification development of IT knowledge and competences.

The two practice statements can be freely downloaded from the IFAC website.

IASC Foundation amends Constitution to expand the practical experience of its Interpretations Committee

The Trustees of the IASC Foundation, the oversight body of the IASB, published amendments to the Foundation’s Constitution reflecting their wish that the membership of the International Financial Reporting Interpretations Committee (IFRIC) should have greater diversity of practical experience.

The publication of the amendments to the Constitution follows the Trustees’ approval of proposals that were published for public comment in April 2007.

In summary, the constitutional changes:

1. expand the number of members on IFRIC from 12 to 14;
2. raise the quorum for IFRIC meetings from 9 to 10 members;
3. set out that the voting requirements for approval of draft or final Interpretations should enable approval if no more than four members vote against; and
4. mandate that the membership of the IFRIC should reflect greater diversity of practical experience and expertise in the application of IFRSs and analysis of financial statements using IFRSs. This is particularly important in the light of the expanding adoption of IFRSs throughout the world.

IASB tops global rankings for stakeholder participation – Identified as ‘high performer’ for transparency and evaluation

The IASB has the best developed external stakeholder engagement capabilities amongst 30 of the world’s most powerful global organisations and is a high performer in both transparency and evaluation, according to a report on global accountability recently published by the One World Trust.

The IASB topped global rankings across all assessed organisations for stakeholder participation. Amongst international non-governmental organisations (INGOs) the IASB was ranked first for evaluation and second for transparency, sharing the ‘high performer’ assessment with Christian Aid. ‘High performers’ are identified as those organisations scoring at least 50 per cent in three out of four dimensions used as the basis for assessment: transparency, participation, evaluation, and complaints and response.

The 2007 Global Accountability Report is an annual assessment of the capability of 30 of the world’s most powerful global organisations from the intergovernmental, non-governmental and corporate sectors to be accountable to civil society, affected communities, and the wider public. A copy of the One World Trust 2007 Global Accountability Report can be downloaded from www.oneworldtrust.org

The IASB welcomes SEC vote to remove reconciliation requirement

The IASB welcomed the decision taken by the US Securities and Exchange Commission (SEC) to remove the requirement for non-US companies reporting under IFRSs as issued by the IASB to reconcile their financial statements to US generally accepted accounting principles (GAAP).

The adoption of IFRSs by the European Union with effect from 2005, and similar decisions by Australia, Hong Kong and South Africa, led the way in a process that has resulted in over 100 countries now requiring or permitting the use of IFRSs. The SEC’s decision follows those announced by other leading countries in 2007 to establish time lines for the acceptance of IFRSs in their domestic markets or accelerate convergence of national standards with IFRSs. Among those are Canada, India and Korea, all of which will adopt IFRSs by 2011. In Brazil listed companies will have to comply with IFRSs from 2010, and convergence between Japanese GAAP and IFRSs is expected by 2011. At the beginning of this year China introduced a completely new set of accounting standards that are intended to produce the same results as IFRSs.

Commenting on the SEC’s decision Sir David Tweedie, Chairman of the IASB, said: We are delighted that the US Securities and Exchange Commission has decided to allow non-US issuers to file under IFRSs without the need for reconciliation to US GAAP. The IASB remains strongly committed to its joint work with the US Financial Accounting Standards Board set out in the Memorandum of Understanding in February 2006 in order to achieve our goal of providing the world’s integrating capital markets with a common language for financial reporting.

Trustees announce strategy to enhance governance

The Trustees of the IASC Foundation announced, following a strategy review commenced in 2007, proposals to enhance the organisation’s governance arrangements and reinforce the organisation’s public accountability. The Trustees’ objective in launching the review was to begin considering enhanced ways to strengthen public accountability and to fulfil their commitment to the public interest.

To demonstrate clearer public accountability, the Trustees have now adopted the following proposals as a result of their strategy review:

1. Establish a formal reporting link to official organisations: The Trustees should establish a link to a representative group of official organisations, including securities regulators. This body would approve Trustee appointments and review Trustee oversight activities, including the adequacy of the annual funding arrangements as well as the overall budget.
2. Develop a multi-layered, multi-faceted approach to accountability beyond the formal link to official organisations: The Trustees should intensify and deepen their engagement with key stakeholder groups and develop mechanisms for the Trustees to receive input outside formalised procedures. This would necessarily include mechanisms for meeting with official organisations and policymakers and private sector institutions. Furthermore, such accountability would require consideration of the role and structure of the Standards Advisory Council in the organisation’s accountability.
3. Create a mechanism for public input to the Trustees outside regularly scheduled meetings with specific stakeholder groups: The Trustees should establish enhanced mechanisms for input from interested parties who wish to comment on the IASC Foundation’s and the IASB’s policies, processes, and procedures.
4. Continue efforts towards a sustained, broad-based funding regime: Having already significantly broadened the funding base through the new approach adopted in 2006, the Trustees should continue their work to broaden the funding base further.

The Trustees will begin a series of consultations with key stakeholders on these proposals in the build up to the Constitution Review, which is scheduled to start in 2008.

Gerrit Zalm appointed Chairman of the Trustees

The IASC Foundation announced that Gerrit Zalm, the former Deputy Prime Minister (2003─2007) and Finance Minister (1994─2002, 2003─2007) of the Netherlands, has accepted the Trustees’ invitation to become the next Chairman of the Trustees.

The appointment follows an international search in which candidates and nominations were sought from a wide range of interested parties. Mr Zalm’s appointment carries the strong support of the Trustee Appointments Advisory Group, a group comprising leaders of major international organisations.

IASB publishes proposals for minor amendments under the first annual improvements project

The IASB published for public comment an exposure draft of proposed miscellaneous amendments to 25 IFRSs under its first annual improvements project. The IASB has adopted an annual process to deal with non-urgent, minor amendments to IFRSs (the ‘annual improvements process’). Issues dealt with in this process arise from matters raised by the International Financial Reporting Interpretations Committee (IFRIC) and suggestions from staff or practitioners, and focus on areas of inconsistency in IFRSs or where clarification of wording is required.

The proposals range from a restructuring of IFRS 1 First-time Adoption of International Financial Reporting Standards, mainly to remove redundant transitional provisions, to minor changes of wording to clarify the meaning and remove unintended inconsistencies between IFRSs. The IASB discussed the individual proposals during the past year and posted near-final drafts of them on the Website when it had reached decisions on them. The collective publication of the proposals in a single exposure draft is intended to streamline the standard-setting process, with benefits both for interested parties and for the IASB.

The proposed effective date for the proposed amendments, if confirmed, is 1 January 2009.

FEE Paper on selected issues relating to Financial Statement Audits

FEE recently published a paper on “Selected issues in relation to financial statement audits – Inherent Limitations, Reasonable Assurance, Professional Judgement and its Documentation, and Enforceability of Auditing Standards.”

In the Paper, FEE responds to a request by European Commission Services (DG MARKT) for more information about the inherent limitations of an audit and the relationship between inherent limitations of an audit and reasonable assurance (and its relationship to absolute assurance), professional judgment and the enforceability of auditing standards. The Paper applies a technical approach to analyse these issues.

The Paper addresses a number of contextual issues around the foundations of audits to enable further analysis of the issues, and then addresses the inherent limitations of an audit and their relationship to the other concepts. In particular, it is useful to examine the financial reporting process in which an audit is embedded as a process flow, which can be described as the information supply chain that delivers financial reporting to the market, or the “financial reporting supply chain”. The Paper applies the concept of the financial reporting supply chain in its further analysis of the inherent limitations of an audit and develops a categorisation of sources of inherent limitations based upon this perspective.

Top regulators engage on global audit regulation at FEE high-level conference

On 27 November 2007FEE hosted its second high-level audit conference attended by more than 250 leaders and interested parties from the regulatory and business communities and from the accountancy profession covering over 50 countries worldwide.

Charlie McCreevy, European Commissioner for Internal Market and Services, Mark Olson, Chairman of the US Public Company Accounting Oversight Board (PCAOB) and Michel Prada, President of the French securities regulator (AMF) and Chairman of the Technical Committee of International Organisation of Securities Commissions (IOSCO) as well as many other thought leaders gathered in Brussels to discuss recent developments and announce future initiatives.

For the first time since the launch of roadmap discussions on EU-US cooperation on audit regulation in March 2007, the EU Commission and the PCAOB took stock of progress towards reliance on each others' oversight systems.

The conference also took place at a time where the European Commission is on the verge of proposing new initiatives on audit quality assurance systems and regulation of non-EU audit firms in the context of the run up to the June 2008 deadline for the implementation of the EU Directive reshaping Statutory Audit in Europe and these matters were also subject to panel discussion and debate.

FEE calls for a consistent implementation of the three directives framing an effective internal market for accountancy services

FEE released a Study on “Internal Market for Services and the Accountancy Profession: Qualifications and Recognition”. This paper provides an analysis of the application to the accountancy profession of new EU legislation adopted since 2000 relating to freedom of movement, and specifically the recognition of qualifications and related matters. Overall, the main objective of the paper is to clarify, to the extent possible, how the new legislation should operate in practice.

The paper examines the relation and the interactions between the EU Statutory Audit Directive, the Directive on the Recognition of Professional Qualifications and the Services Directive. It studies the manner in which these Directives modify existing recognition regimes at EU level and highlights important pending questions where there is a need for further legal clarification, for instance the scope of the aptitude tests for statutory auditors, the practical interpretation of temporary and occasional provision of services and the requirement to have a stable infrastructure in cases of establishment.

The paper can be downloaded from www.fee.be.

Commission’s simplification approach might jeopardise the Single Market, say European SMEs and accountants

Some recent suggestions made by the European Commission on simplification in the areas of company law, accounting and auditing are based on wrong assumptions and could actually worsen the business environment for European companies, warned representative organisations for European crafts, SMEs and the accountancy profession. While agreeing that simplifying legislation and reducing useless and excessive administrative requirements is vital for the European economy, FEE and UEAPME and its member EFAA urged the European Commission to re-think its approach to make it deliver the expected results. Senior representatives from the three organisations called on the EC to promote, not demote the Single Market, and stressed the need for an objective survey of users' needs and thorough, scientific and neutral impact assessments before proposals are made.

FEE, UEAPME and EFAA reached a series of common conclusions based on the analysis and experience of entrepreneurs and accountants on the ground that should contribute to informing the Commission's consultation. The three bodies expressed concerns regarding the quality and independence of certain impact assessments, and stressed that robust methodology and data were essential and that both costs and benefits should be taken into account. They also said that, in the daily experience of entrepreneurs and accountants, the majority of administrative burdens, and the most cumbersome, originates from the Member States. They therefore urged the Commission to stand up for the Single Market and ensure that excessive national requirements do not exclude SMEs from the benefits of the Single Market.

Finally, FEE, UEAPME and EFAA put forward a series of priority for action on areas which, after proper ex-ante evaluation, have the potential to deliver tangible results:

1. Reducing multiple filings and useless redundant reporting requirements (only-once one-stop-shop approach) and implementing simple e-government solutions;
2. Investigating the many opportunities for simplification of requirements in the areas of incorporation of new companies, tax reporting (corporate and indirect tax, as well as local taxes), employment law, environmental regulation, health and safety legislation and statistical reporting;
3. Ensuring legal certainty and stability, as constant regulatory or administrative change is perceived as a significant burden;
4. Analysing in more details the potential to reduce certain notes to the financial statements taking into account the benefits of transparency and the interests of all stakeholders

Lifelong learning: a top priority of European accountants

FEE published a survey of the current practices of 39 Accountancy Professional Bodies in 30 European Countries regarding continuous professional development (CPD). The findings show that all these accounting bodies are investing significantly in lifelong learning: 37 maintain a system of continuing professional education and 2 are in the process of developing one with a view to making it mandatory.

A large majority of these accounting bodies already complies with the new EU Directive on Statutory Audit (to be implemented by Member States before June 2008) and with IFAC’s International Standards on Education (IES) 7.

The survey demonstrates also that in some areas further work should be carried out. In some cases the monitoring of compliance with CPD requirements could be improved. Guidance is desirable with regard to the requirements for retired members. FEE also recommends developing appropriate and practical methods requiring the member to demonstrate the maintenance and development of relevant competence.