Good morning. It is a privilege to be here today in the People’s Republic of China to speak before your CPA Forum. Thank you for your kind invitation. This is my third trip to China since I became IFAC President and each time I am here I continue to learn more about your culture, your profession and your people. This enhanced understanding most certainly makes our global world seem to be more coherent and enables the International Federation of Accountants better to support your needs and those of the public you serve.

The Chinese Institute of CPAs is one of IFAC’s newer members, having joined IFAC in 1997. The CICPA is also a very important member and will continue to be so as China’s role in the global marketplace continues to expand. IFAC is dedicated to supporting you in developing our profession. This means providing you with the standards and guidance necessary for professional accountants to carry out their work both effectively and responsibly; it means encouraging accountability and transparency in your undertakings; and it means promoting sound practices of corporate governance.

We are very much working with your leadership in these endeavors. Dr. Yugui Chen serves on IFAC’s Board and Mr. Jianhua Tang is his Technical Advisor on the Board. They thus are able to provide direct input and direction as to how IFAC can best support countries with developing economies and a growing accountancy profession. Ms. Xin Ye, another CICPA member, serves on IFAC’s Small and Medium Practices (SMPs) Committee, which is dedicated to addressing the unique needs of SMPs and small and medium entities (SMEs).

I am here, today, to discuss initiatives of the International Federation of Accountants, and, in particular, our support for accountancy firms. My comments will be presented in the context of what I believe is our profession’s most important goal – that is, to improve the standard of living of and to create better environments for the world’s citizens.  A lofty goal, indeed, but also, I believe, an achievable one.

It is important for all of us – whether we are accounting professionals, government ministers, academics, regulators or standard setters – to remember that we are fundamentally engaged in the business of  “people.”  I emphasize this because, as we discuss policies and standards, approaches and infrastructures, we cannot and should not lose sight of those who can and should benefit from what we do: the world’s citizens.

The best way to help the world’s citizens, including the citizens of the People’s Republic of China, is through financial liberalization. Financial liberalization requires putting out a welcome mat for foreign investors. It requires greater openness to international trade and the privatization of state-owned enterprises. It also means making a commitment to good governance, which can do much to root out corruption – conditions which are essential for successful economic development.

Financial liberalization, the development of sound economic policies, and strong corporate governance are critical steps on the path towards a market economy that is the cornerstone of improving living standards. Accountants have a significant role to play in developing and sustaining market economies by providing the information they need to implement their planning processes

I have been asked to speak to you today about how the accountancy profession is a building block of a market economy. An essential element of a market economy is information. It drives the decision-making process for businesses, investors and individual consumers. From a government or management perspective, high quality financial reporting information is essential in order to manage resources, maintain growth and understand the true health of an enterprise, be it a small start-up company or a nation of millions.

The accountancy profession plays a vital role in the collection, retention and dissemination of financial information of businesses, organizations and governments. The International Federation of Accountants is leading the global accountancy profession in its efforts to ensure high-quality financial reporting, helping to fulfill its role as an essential building block of market economies. High-quality financial information should have three characteristics:

• First and foremost, it must be credible.
• Secondly, in order to achieve that credibility, it must be based on strong principles or standards.
• Thirdly, it must be produced by people with integrity – in other words, individuals who act responsibly and ethically. 

IFAC, through the development of standards and guidance, encourages the accountancy profession, indeed all those involved in financial reporting in both the public and private sectors, to develop information that is consistent with these characteristics. IFAC sets international auditing and assurance, ethics, education and public sector accounting standards. Over the past year, we have continued to increase public interest input into these processes in several significant ways. The first was through the creation of the Public Interest Oversight Board, formed in February 2005, and chaired by Professor Stavros Thomadakis. The PIOB was established through the cooperation of international regulators and IFAC and has just completed its first full cycle of operations. The PIOB oversees auditing, education, and ethical standard setting as well as the IFAC Member Body Compliance Program. Its effect on IFAC over the past year has been extremely positive and we will continue to welcome the PIOB’s comments and input. Its activities are highlighted in its first annual report, which can be downloaded from the new PIOB website.

IFAC has also provided for more public interest input through the establishment and expansion of Consultative Advisory Groups (CAGs) to standard-setting boards. For the first time this year, meetings of the CAGs are open to public observers. We have also enhanced the transparency of our standard setting, most notably, by including more information on the IFAC website (www.ifac.org).

Let me turn now for a moment to our standard setting initiatives. Time does not permit me to describe all of the new standards, but I would like to highlight for you now a few of those which are most significant to well informed markets.

In the area of auditing, the International Auditing and Assurance Standards Board (IAASB) sets international standards on auditing and assurance, quality control and related services that are recognized throughout the world. Over 70 countries either use the IAASB’s International Standards on Auditing or rely on them as the basis for national standards.  I congratulate The People’s Republic of China and the CICPA for their leadership in deciding to converge to IFAC’s standards and those of the International Accounting Standards Board.  This decision is indeed monumental, as it will help to strengthen the profession here in China, build confidence in your financial reporting model and also increase the credibility of financial information produced by you, in both domestic and overseas markets.

IFAC is dedicated to supporting you as much as possible in the implementation of these standards.  In order to ensure that its standards are clear and understandable the world over, the IAASB has undertaken a significant project to improve the clarity and structure of its standards. Beginning in October 2005, it issued four exposure drafts of proposed standards re-drafted using its new drafting style. The new style was developed based on input it received at an international Clarity forum last year and through responses to its 2004 Proposed Policy Statement and Consultation Paper on Clarity. It is currently in the process of reaching an agreement on the Clarity style. It will then launch an aggressive program to modify all of its standards based on the new style over the next 18 months or so. We hope that this new style will not only make the standards more understandable, but also make them better capable of being translated.

In addition to addressing the issue of clarity, in March of this year the IAASB issued a re-exposure draft designed to enhance the quality of audits of group financial statements, entitled “Proposed International Standard on Auditing (ISA) 600 (Revised and Redrafted), The Audit of Group Financial Statements”. Following earlier consultations, the IAASB has modified the proposals and reissued the exposure draft to address issues related to the extent to which the group auditor needs to be involved in the audits of components that are audited by other auditors, whether these auditors are independent of the group auditor (unrelated) or belong to the group auditor's national or international firm or network of firms (related auditors). The exposure draft can be downloaded from the IFAC website. Comments are requested by 31 July, 2006.  I encourage you to review it and to submit your comments.

Another area that the IAASB is addressing is related party transactions. The involvement of related parties, such as directors, owners, and management, in major corporate scandals prompted the IAASB to review its current auditing standard on the subject. As a result of its review, in January the IAASB issued an exposure draft, proposed ISA 550 (Revised), Related Parties. The ED proposed requirements for auditors regarding the audit of related party relationships and transactions. The proposed standard would place new emphasis on evaluating the effects of related party relationships and transactions on the financial statements, even in circumstances where the financial reporting framework does not establish related party accounting or disclosure requirements.

An essential element of credible financial information is a foundation in ethics and integrity. To build credibility in financial systems and to contribute to sound economic systems, we at IFAC promote our values of integrity, transparency and expertise to all professional accountants, both in practice and in business, as well as to all those in the financial reporting supply chain.

IFAC’s International Ethics Standards Board for Accountants develops the international Code of Ethics for Professional Accountants which is applicable to all accountants, including those in business and industry, public practice, the public sector and academia. The Ethics Standards Board recently released an updated Code of Ethics which establishes a conceptual framework for all professional accountants to ensure compliance with the five fundamental principles of professional ethics. These principles are integrity, objectivity, professional competence and due care, confidentiality and professional behavior. Under the framework, professional accountants are required to identify threats to these fundamental principles and, if there are threats, to apply safeguards to ensure that the principles are not compromised. The framework applies to all professional accountants: to those in public practice, as well as to those in business and government.

The Ethics Standards Board is also addressing issues such as audit independence and whistle-blowing and is in the process of developing new guidance for professional accountants in government and in business.

Additionally, IFAC’s International Accounting Education Standards Board is focused on ethics and conduct, among other issues. It plans to issue a tool kit and an International Education Guideline to assist member bodies, academic institutions and others in instilling a strong ethical foundation in the accountants of tomorrow. The guideline will offer recommendations for good practice models of ethics education, while the tool kit will provide practical tools – such as sample course outlines, teaching notes and case studies – to be used by member bodies and educators. The tool kit and proposed guideline are expected to be available in the coming months.

The Education Standards Board is also set to release in June a new International Education Standard 8, Competence Requirements for Audit Professionals, that will require all IFAC member bodies to ensure that professional accountants acquire and maintain the specific capabilities required to work as competent audit professionals. The new standard will also prescribe specific competence requirements for transnational audit professionals. More information on this new standard will be distributed in the coming weeks. 

Another important aspect of IFAC’s work, and one to which I urge you to give note, is its programme to strengthen public sector financial management and accountability. This is accomplished largely through the International Public Sector Accounting Standards Board, known as the IPSASB.  The IPSASB develops International Public Sector Accounting Standards, which are designed to improve public sector financial management and accountability. It is currently addressing key issues for public sector accounting, including accounting for social policy obligations of governments, non-exchange revenue and budget reporting.

The IPSASB recently released a proposed standard on accounting for non-exchange revenue. Many public sector entities derive most of their revenue from non-exchange transactions – including taxes and transfers, such as grants, appropriations, donations, gifts or fines. The exposure draft proposes requirements for the recognition, measurement and disclosure of revenue from non-exchange transactions and contributions from owners and also includes definitions of: taxes, a taxable event, expenses paid through the tax system and tax expenditures.

A new information paper on the United States’ experience in making the transition to the accrual basis of accounting has also been released recently by the IPSASB. The paper identifies the benefits of this and highlights the challenges in developing and implementing an accrual based accounting system. We believe that this paper will be useful for governments considering implementation of the accrual basis.

An important IPSASB objective is facilitating convergence with International Financial Reporting Standards, upon which the IPSASs are based, and with statistical bases of financial reporting. Last year, the IPSASB issued exposure drafts further to converge its standards with International Financial Reporting Standards and with statistical reporting bases. The IPSASB is making great strides in its convergence efforts. An increasing number of entities worldwide, including the World Bank and NATO, are using IPSASs and the United Nations has indicated that it will be proposing to its General Assembly, next month, that these standards be used for its financial statements.

To enhance government’s credibility nationally and overseas, governments need to report their financial position and performance and their cash flows in a transparent and high quality manner. Such information is vital to the efficient operations of government and can assure the public that government resources are managed effectively. It is important to keep in mind that the need for high quality information from governments is as important as it is for business and industry.

It is business and industry, as exemplified here in China, that are the real drivers of economic growth and development, leading to better lives for citizens.  Professional accountants in business play a vital role in supporting global business and contributing to growth and stability. To give you a sense of the size of this constituency, more than 50 percent of the members of IFAC member bodies, or nearly 1.3 million accountants worldwide, are professional accountants in business. IFAC, through its Professional Accountants in Business (PAIB) Committee, provides professional accountants in business and industry with guidance and tools to support high quality information.

In 2004, the PAIB Committee, in conjunction with the Chartered Institute of Management Accountants, issued a report entitled Enterprise Governance – Getting the Balance Right. This report provides recommendations covering the range of enterprise governance, recognizing the interaction between probity and profitability.

The committee is now expanding the guidance it develops, with a focus on supporting professional accountants in business in providing high quality information and in acting ethically. It recently issued an exposure draft, Guidance for the Development of a Code of Corporate Conduct, proposing guidance to assist professional accountants and others in establishing and implementing codes of conduct in their organizations. The goal of this proposed new guidance is to support sound corporate governance policies worldwide. The proposed guidance highlights the benefits of an effective code of conduct and identifies the professional accountant's role in the development, monitoring, reinforcement, and reporting of such codes in their organizations. To assist in the creation of codes of conduct, the guidance includes information on presentation and content, organizational and management challenges and implementing a code of conduct in a global organization.

In addition, to provide professional accountants in business with one-stop access to current information on topics of interest to them, IFAC is preparing to launch, in September, a new web-based global knowledge resource. This resource center will feature a powerful Internet search engine that will enable users to search a key term or phrase to access information on a variety of topics, including budgeting and planning, corporate governance, internal control, and strategic management accounting. In addition, this electronic resource will be expanded early in 2007 to serve the information needs of accountants in small and medium practices. More details on this new resource center will be provided to member bodies in the coming weeks.

Another way that IFAC contributes to the quality of financial reporting and thus to building sound market economies is by facilitating convergence to international standards. Indeed, making best endeavors to converge national and international standards is a requirement for IFAC member bodies as set out in IFAC’s Statements of Membership Obligations (SMOs). The SMOs, which also require member bodies to implement quality assurance and investigation and discipline programs, form the basis of IFAC’s Member Body Compliance Program.

The Compliance Program supports the development of high-quality auditing, accounting, ethical, educational and related quality assurance and disciplinary standards in IFAC member bodies throughout the world. The program is intended to guide accounting institutes in the full spectrum of their professional responsibilities, to demonstrate a shared commitment to our profession’s values of integrity, transparency and expertise. I personally believe that it will play a major role in building credibility in the financial reporting process and in the profession in general. 

Part 1 of the Compliance Program, a fact-based questionnaire to assess the regulatory and standard-setting frameworks in the home countries of each of IFAC’s members and associates, is now complete. Responses from more than 150 members, including the CICPA, have been posted on the IFAC website, and the remaining responses are in the process of being agreed and posted.

Part 2, the SMO Self-Assessment Questionnaire, was launched last December and responses will be posted beginning in the second half of this year. The responses from these questionnaires are important for several reasons: they provide a global snapshot of the accountancy profession from both a regulatory and a standards perspective.

Additionally, they can be used to help IFAC gauge where it needs to focus its efforts to support the development of the profession and to work to achieve convergence. Lastly, but perhaps most importantly, the responses to the questionnaires demonstrate the international accountancy profession’s willingness to be accountable for its actions, to meet high standards, to deliver quality and to protect the public interest – all important responsibilities in the changing and complex environment in which we work.

We are pleased that member body participation in this program is so significant and I thank the CICPA leadership for making the questionnaire a priority.

In addition to the Member Body Compliance Program, IFAC, through the Forum of Firms, is able to promote convergence and adherence to high ethical values. The members of the Forum of Firms, which is comprised of over 20 global networks and associations of public accounting firms, have committed to the use of ISAs and of the IFAC Code of Ethics for transnational audits. Additionally, these firms have committed to use the IAASB’s International Standard on Quality Control (ISQC) 1, which establishes a high quality standard for the quality control systems within the firms. This commitment to IFAC standards and to the promotion of high quality and consistent performance was reinforced in February 2006 with the approval by the IFAC Board of a new constitution for the Forum of Firms. The new constitution updates membership requirements to emphasize the firms’ commitment to audit in accordance with the IAASB’s International Standards on Auditing, and all members of the Forum must show that they meet all the requirements to be deemed to be full members.

Before closing, I would like to comment on one other area that is critical to economic  development – that is, corporate governance. Across the globe, corporate governance has risen to the top of the agenda for corporate executives, investors and regulators. As your country continues to transition from a planned economy to a market-driven economy, it is important to keep in mind the importance of strong corporate governance. We fully recognize that progress in governance reform has occurred in China, but there are still more changes looming on the horizon for you. I urge you to continue to liaise with the China Project Development Facility and to speak up to legislators about their role.

It is important to note that the quality of a nation’s corporate governance system strongly influences the character of its capital market and the availability of external capital. Ronald Gibson, the Meyer Professor of Law and Business at Stanford University, is among those who calls for developing countries to make a full commitment to corporate governance.  Both good corporate growth and good corporate governance requires the capacity to make credible disclosure of financial results. In the absence of effective financial disclosure, a country’s capacity to support equity markets, and in turn, important kinds of industry, is compromised.

China has made significant economic strides and can achieve even more by addressing governance issues. Just this past week the Organization for Economic Co-Operation and Development – OECD -- noted in its semi-annual report that China is one of the few countries enjoying double digit growth. The report also said that it expected China’s robust expansion to continue, forecasting economic growth of 9.7 per cent this year and 9.5 per cent in 2007. These forecasts imply, however, that China can not just simply hold the course. It must continue to enhance its policies to fulfill its potential.

All of us here have a role to play in building confidence in financial information and financial infrastructure.  Yet we also have a role to play in communicating how those infrastructures work to protect the public interest. Clear information about the financial reporting process needs to be presented to those who rely on – or want to rely on – the information that results from it. Additionally, clear information about the economic policy framework, the regulatory environment, and economic developments is essential to sound business decisions. Thus, while I urge you to continue to take actions in this area, it is equally important to communicate those actions to the public who, ultimately, will benefit from them.

As we look to the future, it is evident that the quality of information expected by investors and needed by public and private sector decision makers will become even more critical to the development not only of national market economies, but to the global economy as well. Thus, ensuring high-quality financial reporting is an area where there is no room for compromise. We must all continue to be as proactive as possible and make an ongoing commitment to high-quality financial reporting. Together, we can contribute to stability and prosperity, not only in the People’s Republic of China, not only in the Asia-Pacific region, but worldwide. Together, we can help to grow your economy and together, we will benefit.

Thank you very much for your attention. 

Convergence or equivalence and mutual recognition...? A single set of standards or differential standards for the SMEs...? Although there may be other relevant technical debates, such as the scope and applicability of the use of current market values, these two questions pose possibly the greatest challenges in issuing high-quality international professional standards. These two questions are also interrelated.

The position adopted with respect to SMEs affects the overall process of convergence. Here, I would like to emphasize what I consider a key point: convergence gives standards an authority and credibility that cannot be equaled by any other set of standards, be the issuer a national or regional organization. Even if a globally accepted set of standards does not include the "best possible" standards, assuming it is possible to define and identify the "best possible" standards, if the standards included are high-quality and accepted globally, they will have a force and an authority that would more than compensate for the cost of not adopting "the best". And, most importantly, they would still contribute substantially to enhancing the performance of accountants worldwide.

I am delighted to be here in Malta and to have the privilege to speak to you this evening. I especially want to thank Mario Galea, President of the Malta Institute of Accountants, and MIA Secretary General Noel Zerafa for their kind invitation. I also want to thank you. Each and every one of you who is a member of the Malta Institute of Accountants plays a vital role in our global profession.

Thank you for your commitment to quality and to serving the public interest. Malta is a beautiful island at the crossroads of the world. A bridge between Southern Europe and North Africa and between Western Europe and the Middle East, by virtue of your location alone, you are truly at the center of the marketplace.

While seas or oceans may separate your country from others, your challenges and opportunities are similar to those of other countries - large and small - on other continents all around the world - to provide an economically sound and stable environment that ensures a good quality of life for your citizens.

The International Federation of Accountants (IFAC) is committed to this same goal. Our mission is to serve the public interest by establishing and promoting adherence to high-quality professional standards as an underpinning to developing strong international economies.

The International Federation of Accountants' (IFAC's) Professional Accountants in Business (PAIB) Committee has released a new information paper that provides guidance on developing a business plan for small and medium entities (SMEs), including how to develop a corporate values statement and manage business risks. The principles and practices in the paper, entitled Business Planning Guide: Practical Application for SMEs, were designed primarily, but not exclusively, for management operating in SMEs and for the small- and medium-sized accounting practices (SMPs) that service them. It was prepared in collaboration with the Malaysian Institute of Accountants (MIA).

"The publication provides comprehensive guidance to assist SMEs and their SMP advisors in the business planning processes and features critical success factors to help them effectively manage their technological, human and financial resources. We would like to thank the MIA for their contribution to the development of the document," states PAIB Committee Chair Bill Connell.

The paper describes how the business plan may serve as a performance tool on an ongoing basis and support a business in obtaining external funding. It also includes a checklist and a practical example of the structure of a business plan. The information paper can be downloaded from the IFAC online bookstore at https://www.ifac.org/store.

IFAC is the worldwide organization for the accountancy profession dedicated to serving the public interest by strengthening the profession and contributing to the development of strong international economies. IFAC's current membership consists of over 160 professional accountancy bodies in 120 countries, representing more than 2.5 million accountants in public practice, education, government service, industry and commerce. IFAC, through its independent standard-setting boards, sets international standards on ethics, auditing and assurance, education, and public sector accounting. It also issues guidance to encourage high-quality performance by professional accountants in business.

The International Federation of Accountants (IFAC), the worldwide organization for the accountancy profession, has issued its 2005 annual report. The report highlights the work of IFAC and its independent standard-setting boards in building an investment climate of trust and details the standards, guidance and other services delivered over the past year to protect the public interest.

"Our most notable accomplishments in 2005 included the strengthening of our standard-setting processes; the development of good practice guidance to help developing nations build accounting capacity; and the release of an updated international Code of Ethics for Professional Accountants," states IFAC President Graham Ward. "The Code, which becomes effective June 30, 2006, applies to all professional accountants, including those in public practice, business, industry, and the public sector."

One of the most significant events of 2005 was the formal establishment of the Public Interest Oversight Board (PIOB). The work of the PIOB is detailed in its first public report, which may be downloaded from https://www.ipiob.org. Other significant IFAC achievements included the establishment and expansion of Consultative Advisory Groups for IFAC standard-setting boards to ensure that there is sufficient public interest input; progress on the development of a global electronic knowledge resource for professional accountants in business; and the successful implementation of Part 1 of the IFAC Member Body Compliance Program, which provides comprehensive information about the regulatory and standard-setting frameworks in countries around the world.

The report also highlights IFAC activities to support the work of small- and medium-sized accounting practices as well as the increased recognition by governments and international organizations of the benefits of International Public Sector Accounting Standards in enhancing the accountability of government financial reporting. The report, which includes messages from the IFAC President, IFAC Chief Executive and the Chair of the PIOB, can be downloaded at https://www.ifac.org/about. Print copies can be obtained by sending an email with your postal address to pr@ifac.org.

IFAC is dedicated to serving the public interest by strengthening the profession and contributing to the development of strong international economies. IFAC's current membership consists of over 160 professional accountancy bodies in 120 countries, representing more than 2.5 million accountants in public practice, education, government service, industry and commerce. IFAC, through its independent standard-setting boards, sets international standards on ethics, auditing and assurance, education, and public sector accounting. It also issues guidance to encourage high-quality performance by professional accountants in business.

Thank you very much for inviting me to speak to you today. It is a great pleasure to have the opportunity to be back here in Dubai for this conference. A significant proportion – well over 50 percent – of the members of IFAC’s 160 member organizations is employed in business. The more I meet with groups like this one, the more aware I am of the fundamental, but diverse, support our profession provides to thousands, actually millions, of businesses of every size, in every country around the world.

The Institute of Management Accountants (IMA) has long been a leader of and champion for professional accountants in business and industry. The IMA also has a long history of support of and participation in the international profession. It has been an active member of IFAC since 1980, and its representatives have served on the IFAC Professional Accountants in Business (PAIB) Committee, which is dedicated to supporting and raising awareness of the vital role that you play. Specifically, I would like to recognize Bradley Kaplan, who joined the IFAC PAIB Committee in January 2006, and William Brower, who served on the committee from 2001 to 2005. The service of these and of other volunteer members of IFAC boards and committees is vital to achieving our objectives and to supporting professional accountants in all sectors of the economy worldwide.

The diversity of our profession is, I believe, one of our unrecognized strengths. Because professional accountants in business work in a wide variety of roles, at every level of organizations across all industry sectors, we collectively have a perspective that extends well beyond “the numbers.” Professional accountants in business – or PAIBs as we call them at IFAC – understand the drivers behind a business, and therefore play a fundamental role in contributing to the creation of shareholder value. Few other professionals have such a diverse and significant role in the day-to-day operations of businesses and other organizations.

So what then are the challenges that PAIBs face and how can we best meet them to enhance our effectiveness?

The first is mastering change.

Whether we are management accountants or accountants in public practice or any other field, our value to society and our effectiveness is determined in great part by our ability to address the changing environment in which we operate. The last twenty years have witnessed a massive transformation in business organizations, driven by intense competition, the globalization of markets, and the continual need to redefine strategies, structures and processes. Changes in political regimes, new conceptions of management controls, the impact of globalizing forces on commercial affairs, shifts in notions of effective knowledge management, of governance and of ethics, and technological advances have affected all areas of the profession and, notably, management accounting.

Let’s consider for a moment the changing nature of the finance function and the impact on professional accountants in business. In efficiently providing the goods and services that society wants, high performing organizations competing globally demand a unified service delivery model based on achieving a common technology platform, common business processes and common data. To deliver this, finance function initiatives include global strategies for centralizing process-based activities under the shared services and/or outsourcing umbrellas. This involves dealing with challenges such as process improvement and possible relocation to lower cost regions.

The trend calls for smaller finance functions, but more effective PAIBs. “World-class” organizations have a finance cost well below one percent of revenue. On the supply-side, firms such as IBM and Accenture have expanded their business process outsourcing up the value chain to include more strategic activities, and there is ongoing high demand from companies for outsourcing their routine accounting services to external, and often overseas, service providers. As well as achieving greater process quality and efficiency, and cost reduction, reorientation of the finance organization has the potential also to support value creation in organizations. A key objective is to deliver enhanced analysis, insight, and involvement in decision making. To be successful, to remain relevant and to be considered vital in the value creation of organizations, PAIBs need to challenge their roles and participation in organizations and be prepared to review and change structures, accountabilities and incentives. Above all, we may need to dig deeper to understand what customers of finance require from the finance organization and how business partnering can be most effective in a variety of contexts. This is true whether we work in a large corporation or a small or medium enterprise. 

Another major challenge that PAIBs must address is globalization and its impact on organizations.

A number of well-documented and profound shifts affect organizations and the accountants they employ – from economic liberalization, relocating of economic activity to other geographies such as China and India, and within geographies, to technological advances and significant demographic changes. To make any business a global business means more than finding new customers or suppliers in other countries. It requires an openness to change among the owners and the management team. This change requires taking well-informed risks, opening up the firm or company’s culture and making a serious commitment to ongoing learning. It is for this latter reason that IFAC’s International Accounting Education Standards Board has mandated a requirement for all professional accountants, including obviously those in business, to undertake continuing professional development. None of this change happens spontaneously, but requires planning and clear leadership. Hence, the planning of these internal changes should be part of the planning for international activities.

This is especially true for small and medium enterprises. Compared to larger firms, small and medium enterprises are generally less well-equipped to face increases in international trade. As a result of their lower average productivity, many SMEs have found it difficult to compete. Also, given their limited resources, they have found it more difficult to take advantage of the removal of tariff barriers. This does not mean, however, that it is impossible for SMEs to enter the international market place and to do so effectively. They must be prepared to look for new partners, to identify and focus on their market strengths, and to acquire information and expertise about overseas’ markets and cultures.

Recognizing the extent to which SMEs contribute to economic growth and stability around the world, IFAC has focused particular attention on this area. Through the establishments of a Small and Medium Practices Committee last year, we are considering how our organization can best meet the needs of SMPs and SMEs. One of the primary areas we are addressing is international standards and their impact on SMEs. The SMP Committee has provided input to the International Accounting Standards Board SME project, expressing our support for standards that are relevant, simple, and appropriate to the work of SMPs and SMEs. We have also been on the public record recently emphasizing the urgency and importance of financial reporting standards that fit this description. The SMP Committee also works closely with the International Auditing and Assurance Standards Board to ensure that the views of SMPs and SMEs are considered as auditing standards are developed, to ensure that auditing standards too avoid the imposition of requirements that have unwarranted compliance costs. At our upcoming IFAC Board meeting on June 1-2, we will be asking the Board to give the “go-ahead” for a new SME implementation guide to International Standards on Auditing. We view this as a significant project designed to help SMPs and SMEs address the growing challenges of globalization.

In addition, this month the IFAC PAIB Committee will issue an information paper on business planning for SMEs. Many business failures can be attributed to the lack of a sound business plan. The publication is designed to assist SMEs and their SMP advisors in understanding their own businesses, enabling them to evaluate both the potential of the business and the associated risks. The document will include the principles of business planning, a checklist and a sample business plan. It will be available for download free-of-charge from the IFAC website: www.ifac.org.

A third major challenge for professional accountants in business is building trust.

As organizations expand their global activities to exploit competitive opportunities, businesses large and small are coming under increasing scrutiny. Organizations will only be able to build the trust of a range of stakeholders through greater openness, transparency and accountability. The challenge then for professional accountants in business is to serve as an ethical gatekeeper – to be a champion of integrity, transparency, and objectivity – the three core values of IFAC. IFAC’s Code of Ethics for Professional Accountants, which is applicable to all accountants, including those in business, industry, government, academia, and public practice, embraces these core values.

The IFAC Board has recognized that PAIBs are the front-line professionals who could and should be a brake on inappropriate actions taken by their organizations, with that break extending, in some situations, to whistleblowing. Acknowledging that is it often extremely difficult for a PAIB, in isolation, to know what is the appropriate action in a particular situation, the International Ethics Standards Board for Accountants has begun a project to provide greater guidance for accountants in business and in practice with respect to whistleblowing. You can expect to see more guidance in this general area in 2007.

This new guidance will also help professional accountants in business carry out one of your most important responsibilities: setting the tone at the top in your organization. Earlier this year the PAIB Committee issued an exposure draft, Guidance for the Development of a Code of Corporate Conduct, proposing guidance to assist professional accountants and others in establishing and implementing codes of conduct in their organizations. The publication draws greater attention to the need for corporate codes of conduct and provides practical guidance on the scope and implementation of such codes. The goal of the proposed new guidance is to support sound corporate governance policies worldwide. The proposed guidance highlights the benefits of an effective code of conduct and identifies the professional accountant’s role in the development, monitoring, reinforcement, and reporting of such codes in their organizations. To assist in the creation of codes of conduct, the guidance includes information on presentation and content, on organizational and management challenges, and on implementing a code of conduct in a global organization.

Effective codes of conduct are a vital component of an organization’s control system. This new publication will enable professional accountants, who are largely responsible for internal control and risk management, to work with senior management to develop such codes, which, in turn, will support the control, direction and evaluation of their organizations’ performance. 

This leads me to a fourth area of challenge for PAIBs: decision making in their organizations.

The scope of the role of PAIBs in supporting and enabling better decision making is driven by a recurring issue in all organizations: that of ensuring decision making is not too heavily based on heuristics – “instinct,” “common sense,” “rules of thumb” and “gut feeling.”

Bad decisions are usually traceable to the way the decisions were made. Management accounting may be seen as a counter to what has been described as “bounded management rationality,” as an antidote to excessive confidence, as it enables decisions to be based on more than instinct. Research over the past few decades has helped us to understand better the manner in which humans make decisions. This can assist in determining how to present information in a manner that is easier to process and understand – for example, it is clear that size ordering, as opposed, say, to alphabetic ordering, of a set of numbers enables the reader to see and recall patterns very much more readily. Similarly, this research also helps us to understand the systematic ways in which we make inappropriate decisions, though mis-weighting recent events or low frequency, high impact events, or through myopia, to give some examples.

PAIBs can support managers in achieving better outcomes in relation to organization objectives. They assist to define alternatives, collect appropriate information and evaluate cost versus benefit. Numerous tools and techniques are at the PAIB’s disposal to support decisions – such as a range of investment appraisal techniques, net present value, business forecasting, performance management, competitive analysis and performance information. A number of mistakes are made time and time again in organizations, such as the sunk cost trap where sunk costs, although irrelevant to a present decision, have nonetheless been shown in research to be given undue weight in decision making. Another is the oversight of opportunity cost – the next best alternative that is forgone when a decision is made.

In order to make the right decisions, management needs to treat decision making as a distinguishing competence, which is supported by high quality, timely and multi-dimensional information about a company’s business model and performance drivers, and which focuses on the big issues and opportunities, as well as an awareness, not yet adequately accommodated within management accounting, of the realities of human decision-making processes.

Frequent roadblocks to robust strategic decision making include:

• Boards lacking a clear grasp of their organizations’ business model and key performance drivers, or pursuing an inherently flawed business model. People might see accounting profits in the short-term, but nevertheless be destroying value in everyday decision making.
• Decision making not being underpinned by rigorous value and risk analysis. Finance staff and others within management too often get distracted by the natural bias towards the financial reporting cycle and external compliance requirements and expectations, a factor that has become a greater concern as regulatory regimes demand increasing compliance activity.
• For all the talk of strategic management accounting, many accountants in industry have not been able to give sufficient attention to value precursors, the prerequisites for value creation, which are mainly non-financial, such as market sector dynamics and brand health indicators.
• Culture and communication: Let’s not forget that employees play the biggest part in generating shareholder value but, so often, the focus on adding value is blurred and diluted when you get a few levels down in the organizational hierarchy.

To provide guidance on governance issues from both a conformance and performance perspective, the PAIB Committee, in conjunction with the Chartered Institute of Management Accountants in the United Kingdom, published a report, Enterprise Governance – Getting the Balance Right. It explores the emerging concept of enterprise governance, which incorporates organizational performance into a business governance framework, especially in terms of decision making, strategy formulation and execution. The report, which is available on the IFAC website, argues how both perspectives must be in place in order to support high performance in organizations. This publication highlights the role of PAIBs in these processes.

To help professional accountants worldwide meet these and other challenges, IFAC’s PAIB Committee has this year begun developing a series of principles-based good practice guidance statements. This development is one that is happening through the leadership and support of the IMA. The guidance will promote and support consistent and high quality practice across the global community of PAIBs. Covering topics in the areas of management control, costing and corporate finance and financial management, this IFAC guidance will raise understanding of the role of the PAIB. It will recommend objectives in relation to the role of the PAIB, and define key principles, which are widely accepted features of good practice and which support the achievement of the objectives of the PAIB, and will provide practical guidance to support application of the principles.

This leads me to the fifth and final challenge that I will comment on today with respect to professional accountants in business – that is, learning how to manage knowledge.

Managing change means managing knowledge. For professional accountants in business, this may require a fundamental change in how we process and convey information. For example, we must develop a mindset that is open to new ideas, receptive to challenges, and capable of insightful analysis. We should and can, I believe, apply the principles of human information processing to our management and recruitment techniques to strengthen our organizations. This means enabling professional accountants to process information differently and more independently, and to help remove organizational bottlenecks that prevent them from making the types of contributions that can best add value to an organization.

Ours is a profession that is responsible for far more than historical compliance related activities. We cannot forget this. We must focus on building organizational capacity and performance, and on developing a new generation of PAIBs who can not only embrace change but thrive in a world in which it is inevitable.

In conclusion, it is important to recognize that business has a central role in driving economic and social welfare but that it requires high quality information for the effective management of resources and sound corporate governance to achieve these objectives. PAIBs, as the primary providers of business information and reporting, play a crucial role in contributing to the growth and development of business.

Our recent publication, The Roles and Domain of the Professional Accountant in Business, was developed to build understanding of the diverse roles, competencies and value PAIBs contribute to organizations. Pointers from this document include:

• As managers of value, PAIBs should understand that delivering sustained shareholder and stakeholder value (or “best value” as it has sometimes been described in the public sector) is the main goal when assessing alternative options. PAIBs have a key role in developing strategies for managing value and growth, and in moving other functions towards these goals;
• PAIBs have a responsibility to ensure that the organization understands fully its key performance drivers and that these are communicated in internal and external reporting; and
• PAIBs should ensure there is a relentless pursuit of efficiency and effectiveness from the investment base, particularly in areas such as capital expenditure, working capital management, brand management and R&D.

Specifically, the IFAC PAIB Committee’s role is to enhance the role of PAIBs by helping them to think and to act strategically and globally, and to develop the necessary knowledge and competencies to deliver sound decision making in organizations. PAIBs need to be in a position to deal with the increasing complexity of managing business. For example, the move to modular design and platform development to enable organizations to deal with considerably shorter product and service life cycles requires a more sophisticated approach to planning, costing, risk and control.

To help PAIBs obtain access to information that can help them meet these challenges, the PAIB Committee has spearheaded the development of an electronic knowledge resource center. It is a unique web project that aims to publicize and consolidate the valuable information produced by IFAC member bodies for the benefits of professional accountants worldwide. It will enable member bodies to offer their professional accountants access to increased, relevant and high quality information resources, including helping them to deal with ethical leadership and public interest challenges such as corporate responsibility.

The challenges for both IFAC and its member bodies, such as the IMA, are to sustain the relevance of professional accountants in business, to continually investigate and adopt new concepts and new learning models, and to increase awareness of the PAIB’s capabilities. There are awareness gaps in which IFAC is making a significant impact, for example, in improving accounting information in the public sector, and highlighting the role of PAIBs in driving economic activity and their contribution to the governance agenda. This is coupled with IFAC’s role in supporting trust and credibility in both the wider accounting profession and in capital markets, which is central to its mission of protecting the public interest.

Over the past few years, IFAC has stressed its public interest objective. While some might think that objective is confined to public practice and auditing, that is a very narrow conception of what is in the public interest. The public interest is served when organizations produce products and services that have a value greater than the resources consumed in production. Economic growth and development is in the public interest. So when we talk about the public interest, PAIBs are included in that. 

IFAC’s leadership, its Board and the members of the IFAC PAIB Committee all recognize the role of PAIBs in protecting the public interest and in contributing to economic growth and stability. Through their daily work in organizations around the world, PAIBs contribute to the growth of their businesses and organizations and to greater economic prosperity for all. This must be why the late management guru, Peter Drucker, declared in the Harvard Business Review, that “The most exciting and innovative work in management today is found in accounting.” I believe that assertion still holds true, as I am sure do all of you.

Thank you for your attention. This speech will be posted on your website and on IFAC’s within 24 hours if you would like to read it, and I would welcome any comments you may have.

Alta Prinsloo and James Gunn have been named Deputy Directors of the International Auditing and Assurance Standards Board (IAASB) of the International Federation of Accountants (IFAC). In announcing the appointments, IFAC Chief Executive Ian Ball said the promotion of Ms. Prinsloo and Mr. Gunn, both of whom currently serve as senior technical managers to the IAASB, recognizes the high level of expertise, broad-based experience, and depth of knowledge that they bring to the newly created positions. Both individuals assumed their new positions on May 1, 2006 and continue to report to James Sylph, IFAC Technical Director.

Ms. Prinsloo joined the IAASB staff team in September 2002 from the South African Institute of Chartered Accountants. As IAASB Deputy Director, she will provide technical direction on the development of the Board's standards. In addition, she will oversee the publication of IAASB pronouncements in electronic and print formats and ensure that IAASB initiatives and related information are appropriately communicated through the Board's website (www.iaasb.org) and other outlets. She will also provide administrative support to the IAASB Consultative Advisory Group and act as point of contact between the IAASB and the International Organization of Supreme Audit Institutions.

Mr. Gunn was seconded from his firm, KPMG, to assist the IAASB between November 2000 and May 2001. He joined the IAASB on a permanent basis in September 2002. As Deputy Director, he will oversee and coordinate all IAASB standard-setting projects, including the Clarity project, which is designed to enhance the readability and understandability of IAASB pronouncements. He will also monitor auditing standard activities of key national standard setters and administer the annual meeting that the IAASB hosts with those bodies.

About the IAASB

The objective of the IAASB, an independent standard-setting Board within IFAC, is to serve the public interest by setting high quality auditing and assurance standards and by facilitating the convergence of international and national standards, thereby enhancing the quality and uniformity of practice throughout the world and strengthening public confidence in the global auditing and assurance profession. The Public Interest Oversight Board* oversees the activities of the IAASB and, as one element of that oversight, establishes the criteria for its due process and working procedures.

* Note to Editors The Public Interest Oversight Board was formally established in February 2005 to oversee IFAC's auditing and assurance, ethics, and education standard-setting activities as well as the IFAC Member Body Compliance Program. The objective of the PIOB is to increase confidence of investors and others that such activities, including the setting of standards by the IAASB, are properly responsive to the public interest. PIOB members are nominated by international institutions and regulatory bodies.

The International Federation of Accountants (IFAC) has appointed Richard Fleck as the independent Chair of the Consultative Advisory Group (CAG) to the International Ethics Standards Board for Accountants (IESBA). Mr. Fleck was elected by members of the CAG and his appointment, which is for a three-year term, beginning May 2006, was approved by the Public Interest Oversight Board (PIOB).*

"We are delighted by Mr. Fleck's appointment to this very significant role. His experience and leadership will be invaluable to the CAG as it provides public interest input to the IESBA," states IFAC President Graham Ward.

The CAG, which includes representatives of organizations** that have an interest in international ethics issues, provides technical advice and input on the strategic direction of the IESBA. The IESBA establishes, independently and under its own authority, the IFAC Code of Ethics for Professional Accountants and other ethical standards and guidance for use by professional accountants around the world. The PIOB oversees the standard-setting activities of the IESBA to ensure that they are properly responsive to the public interest.

Commenting on the appointment, Professor Stavros Thomadakis, Chair of the PIOB, stated: "We welcome Mr. Fleck's appointment as the first independent chair of the IESBA CAG. This major step completes the CAG structure contemplated for this important element of IFAC reform. It will also further strengthen the due process applied to setting international ethical standards and guidance."

Mr. Fleck is a partner with Herbert Smith, an international legal practice with 1,100 lawyers in Europe and Asia. His practice experience includes mergers and acquisitions, competition and regulation, insolvency, dispute resolution, and accountancy work. Mr. Fleck is a member of the United Kingdom Financial Reporting Council and Chairman of the UK Auditing Practices Board.

The Chair of the CAG acts as the primary representative of those who use or rely on IESBA standards and guidance and encourages a deeper understanding by the IESBA of the public's needs and expectations. The Chair provides leadership direction to the CAG, overseeing the achievement of the CAG's goals and objectives. As the CAG's liaison with the PIOB, the IESBA and identified key stakeholders, the Chair is also responsible for communicating the views of the CAG to these bodies and conveying the views of these bodies to the CAG.

IFAC is the worldwide organization for the accountancy profession dedicated to serving the public interest by strengthening the profession and contributing to the development of strong international economies. Its current membership consists of over 160 professional accountancy bodies in 120 countries, representing more than 2.5 million accountants in public practice, education, government service, industry and commerce. IFAC, through its independent standard-setting boards, sets international standards on auditing and assurance, ethics, education, and public sector accounting. It also issues guidance to encourage high-quality performance by professional accountants in business.

* Note to Editors

The Public Interest Oversight Board (PIOB), established in 2005, oversees IFAC's public interest activities with the objective of increasing the confidence of investors and others that such activities, including the setting of standards, are properly responsive to the public interest. The PIOB oversees the activities of the IESBA and of the CAG and, as one element of this oversight, establishes the criteria for their due processes and working procedures. PIOB members are nominated by international institutions and regulatory bodies.

** IESBA Consultative Advisory Group Members (As of April 30, 2006)
Auditing Practices Board (United Kingdom)
Basel Committee on Banking Supervision
CFA Institute
Eastern Central and Southern African Federation of Accountants
European Federation of Accountants and Auditors for SMEs
European Federation of Financial Executives' Institutes
Fédération des Experts Comptables Européens
Institute of Internal Auditors
International Auditing and Assurance Standards Board Consultative Advisory Group
International Corporate Governance Network
International Organization of Securities Commissions
International Organization of Supreme Audit Institutions
Public Company Accounting Oversight Board (United States)
World Bank

The Professional Accountants in Business Committee identified a practical business planning guide as a very useful tool for management, principally but not exclusively, operating in the small and medium entities (SMEs) area of the market. This information paper provides practical guidance that will help SMEs to understand their own business and industry, enabling them to better evaluate the business potentials and their associated risks. It will also be useful to small and medium-sized practitioners that are providing professional accounting services to SMEs.

The International Federation of Accountants' (IFAC's) 2006 Handbook of International Auditing, Assurance, and Ethics Pronouncementsis now available in print and in several electronic formats. It includes all pronouncements issued by the International Auditing and Assurance Standards Board (IAASB) and the International Ethics Standards Board for Accountants through December 31, 2005. The handbook includes the following IAASB pronouncements:

• International Standards on Auditing (ISAs);
• International Standards on Review Engagements (ISRE);
• International Standards on Assurance Engagements; and
• International Standards on Related Services.

The 2006 handbook features the following new standards issued by the IAASB in 2005:

• ISA 230 (Revised), Audit Documentation; and
• ISRE 2410, Review of Interim Financial Information Performed by the Independent Auditor of the Entity.

In addition, the handbook contains the revised Code of Ethics for Professional Accountants, issued by the International Ethics Standards Board for Accountants in June 2005. The updated Code establishes a conceptual framework for all professional accountants to ensure compliance with the five fundamental principles of professional ethics. These are integrity, objectivity, professional competence and due care, confidentiality, and professional behavior. The Code, which becomes effective June 30, 2006, applies to all professional accountants, including those in business and industry, public practice, the public sector, and academia. Two electronic versions of the 2006 handbook are available: a free PDF downloadable version and an online eComPress version. The eComPress version has features designed to make accessing the pronouncements more user-friendly.

• It is fully searchable, so users can readily find the specific guidance they need.
• Its easy-to-use navigation enables users to minimize the time necessary to find relevant information.
• The handbook can be annotated by the user with a unique "Notes" feature, with all the annotations being transcribed automatically to newer editions.
• The publication is compressed and stays compressed, saving disk space and download time.

Used offline, the eComPress version of the handbook is not reliant on the Web and requires no additional software as it comes complete with its own viewer and index. The eComPress version of the handbook can be securely purchased and is immediately downloadable from the IFAC website. Prices for the 2006 Handbook of International Auditing, Assurance, and Ethics Pronouncements are as follows: print - US $100 and eComPress download - US$50. A package discount of US$130 is available when you purchase both the print and eComPress download versions. Downloadable networked versions are also available. Shipping charges apply for printed materials. Visit the IFAC online bookstore at https://www.ifac.org/Store for more information or to place an order. You can also contact IFAC at +1 (212) 471-8722.

IFAC is the worldwide organization for the accountancy profession dedicated to serving the public interest by strengthening the profession and contributing to the development of strong international economies. IFAC's current membership consists of over 160 professional accountancy bodies in 120 countries, representing more than 2.5 million accountants in public practice, education, government service, industry and commerce. IFAC, through its independent standard-setting boards, sets international standards on ethics, auditing and assurance, education, and public sector accounting. It also issues guidance to encourage high-quality performance by professional accountants in business.