30 years of IFAC
by Roger Adams
08 Jan 2008
Reflections on the global accountancy profession
As the International Federation of Accountants - IFAC
- celebrates its 30th anniversary, ACCA executive
director - policy Roger Adams, explores the
developments in international accounting over this
period, and considers the future challenges.
The pace of progress is faster in our lifetimes than
was ever the case for earlier generations. This is not
just true for accountancy but also for science,
commerce, art, literature, politics, for humans in
general, and for the natural environment. As
accountants, we seem to fit this pattern very well.
Things have changed vastly for the profession in the
past 30 or 40 years, and, on balance, mostly for the
better.
IFAC, founded in 1977, was born out of a realisation
that the global profession would benefit from shared
expertise and common global standards - first in
auditing, then later in education, public sector
accounting, and ethics.
BEFORE IFAC
Of course, accounting and auditing standard setting
pre-dates the foundation of IFAC. The US Accounting
Principles Board (APB) was formed as a Committee of
the American Institute of Certified Public Accountants
(AICPA) in 1959, but even that was pre-dated by the
Committee on Accounting Procedures (CAP), possibly as
a late acknowledgement that an absence of rigour in
financial reporting contributed to the Wall Street
Crash of 1929 and the subsequent depression.
Although US technical thinking on accounting issues
was (and still remains) very influential, other
countries soon began to develop their own
standard-setting mechanisms.
In the UK, the Accounting Standards Steering Committee
(ASSC) was created in 1970, based on an existing
internal committee of the Institute of Chartered
Accountants in England and Wales. The ASSC brought the
whole of the UK accountancy profession together for
the first time as official arbiters of what
constituted UK generally accepted accounting practice
(GAAP). The first standards were issued in 1970. The
UK ASSC left some important legacies, in particular
The Corporate Report (1975) which set out a new vision
for the purpose of financial reporting as well as
identifying how corporate reporting could address
multiple user constituencies.
But developments in the US and the UK do not - however
much we would like to think otherwise - constitute a
global solution to an increasingly global problem: how
to support and maintain robust global financial
markets in an information age powered by new
technology.
INTERNATIONAL ACCOUNTING STANDARDS
The International Accounting Standards Committee was
formed in 1973 and IFAC (with its International
Auditing Practices Committee, or IAPC) was formed
shortly after, in 1977.
In the space of seven years the non-US world had moved
from having no common standard setters at all to
having an agreed global architecture of accounting and
auditing standards. The early creation of the IASC,
with its effective monopoly over the development of
international standards for financial reporting, has
left IFAC with the responsibility of developing the
entire supporting framework.
This covers: auditing standards which can cope with
the increasingly technical and litigious demands of
the financial markets education standards which do not
just promote but also ensure the effective acquisition
of the skills and competences accountants need to
service their national and global markets ethical
standards which protect the public interest but which
do not simultaneously stifle innovation and
entrepreneurial talent best practice guidance on the
topics that comprise the competency set of the
professional accountant in business.
IFAC's first 30 years
The 30-year lifespan of IFAC has witnessed many
profound changes.
The rise (and hopefully fall) of hyperinflation
Inflation destroys confidence in financial statements
and raises serious questions about corporate value. An
important role for IFAC has been to strive to maintain
confidence in the financial reporting supply chain.
The ending of the Cold War
From 1990 onwards we have witnessed the emergence into
the commercial arena of many formerly Communist
countries from both Central and Eastern Europe, and
from the Indo-China region. IFAC has played a major
role in helping to develop the national accountancy
bodies in these countries. China itself has emerged as
a major consumer of accounting and auditing standards
and will no doubt play an increasingly larger role in
the governance and strategy of IFAC in the future.
The Asian financial crisis
Much of the blame for the Asian financial crisis was
laid at the door of the accountancy profession in the
form of two key accusations: that the accounting
standards used were deficient, and that the auditing
of the resulting financial statements was poor. IFAC
responded by creating the Transnational Audit
Committee
and sponsoring the Forum of Firms. Both are designed
to ensure that the services offered by global service
providers are of a consistently high quality and are
subject to consistently applied standards of oversight
anywhere in the world.
Globalisation and convergence
The globalisation of business has brought with it the
need for common standards of reporting, auditing,
ethics, and education. Although the focus of the
globalisation/
financial reporting, and in particular on the
international GAAP vs US GAAP debate, IFAC has been
vigorous in its support for and pursuit of convergence
across the suite of standards.
Corporate scandals
The collapse of Enron in 2001 was an illustration of
what can happen when poor governance, ambitious
management, overly complex accounting, and poor
auditing occur together. As the global representative
body for the accountancy profession, IFAC's authority
was severely threatened. This crisis was averted
through the development of stronger
oversight/partnersh
global financial market regulators, and through the
introduction of stiffer ethical guidelines designed to
make a rerun of the Enron/Andersen scenario an
impossibility.
The needs of developing nations
IFAC has always acted as the representative body for
the main developed nations. The formation of the
Developing Nations Task Force in 2005 was designed to
focus attention on the support needs - regulatory,
technical, educational, and ethical - of the
developing world. IFAC, in partnership with member
bodies from developed countries and a range of
multilateral funding bodies, now has a coherent agenda
for developing country infrastructure development.
Small to medium-sized enterprises
The political agenda in Europe and elsewhere has long
recognised the economic importance of the small and
medium-sized enterprise (SME) sector. Since 99% of
private sector enterprises can be classified as 'small
or medium-sized'
an SME/SMP Task Force was timely, if somewhat overdue.
A parallel focus on the practitioners who provide
services to the SME sector - the so-called small and
medium-sized practitioners (SMPs) - was also a
necessary innovation. Changes in regulatory attitudes
as to the ongoing need to mandate SME audits means
there is an urgent need to 're-tool' SMPs. This means
a de-emphasis on audit and an increased focus on other
advisory skills and competences.
The changing role of the public sector
IFAC has also taken on the burden of developing public
sector reporting standards - a hugely important task
in a world where public/private partnerships are
commonplace, and public sector specific methodologies
are now more the exception than the rule. The
International Public Sector Accounting Standards Board
(originally established in 1986) is expected to grow
in influence and importance in coming years.
The growing importance of the professional accountant
in business
The vast majority of the 2.5 million accountants
represented by IFAC's members work either in industry
and commerce or in the public or not for profit
sectors, including education. The agenda of the IFAC
Professional Accountants in Business Committee
(thePAIBC) is designed to recognise the importance of
this community and to research and address its needs.
In the past few years the PAIBC work programme has
included issues such as governance, corporate codes of
conduct, internal control, and management accounting
guidance. The introduction in 2005/2006 of the IFACNet
web tool, which enables users to search IFAC member
bodies' websites for relevant guidance material, was
simultaneously a major innovation for IFAC and a major
investment of member body development time.
Sustainable development, climate change, and
non-financial reporting
The global accountancy profession has always struggled
to cope with the implications of the climate change
debate. Since 2000, however, it has become harder and
harder for it to ignore the development of new
'sustainability reporting' techniques, the issue of
alternative assurance tools by non-accountancy bodies,
and the emergence of climate change (with its
associated risk, governance, and carbon trading
issues) as a major driver of mainstream corporate
strategy.
IFAC made some early attempts to look at issues
relating to environmental management accounting but
now, via the PAIBC, it has developed a fully-fledged
sustainability strategy which should result in the
issue of best practice guidance material designed to
bring the global profession up to speed. Following
this, it can
be said that non-financial reporting has become an
expected part of the accountant's role. The Management
Discussion and Analysis, and the Operating and
Financial Review, have both become primary tools for
extending the financial commentary in the annual
report and accounts by creating a readable, discursive
overview of
performance against strategy, and of market conditions
and context.
Education, education, education
Underpinning all of the above is the need for IFAC to
be seen to be engaged in the 'continual improvement'
of global accounting education. The IFAC International
Accounting Education Standards Board develops the
International Education Standards with which all IFAC
member bodies must comply. To ensure the long-term
health of the accounting profession, the core syllabus
must be able to demonstrate its relevance to
employers, and its attractiveness to member bodies in
the face of many competing business education
qualifications.
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