IFAC President Warren Allen provided an overview of key IFAC activities and issues as a featured speaker at the AICPA Fall Council Meeting on Sunday, October 19, at the Westin Copley Plaza in Boston, Mass.
Good afternoon and thank you. It is an honor and a privilege to be joining you at this 2014 Fall Council meeting.
I wish to acknowledge and thank a few people before I begin: to AICPA Chairman Bill Balhoff, Immediate Past Chairman Rich Caturano, Vice Chairman Tommye Barie, and President and CEO Barry Melancon for extending to me the opportunity to talk to you all today.
I’d like to offer my appreciation for the knowledge AICPA has invested to enhance and advance the accountancy profession in the United States and globally, throughout its own, long history.
With more than 400,000 members in 145 nations, AICPA is IFAC’s largest member body. And that, of course, is just the beginning of the ties that unite us. AICPA members continue to make invaluable contributions to IFAC, including former AICPA Chairman Bob Mednick, IFAC Past President Bob Bunting, current IFAC Board Member Bob Harris, and Greg Anton of the Nominating Committee. Additionally, AICPA is well-represented on IFAC’s committees and the independent standard-setting boards, IFAC supports. And let me offer my congratulations to Chuck Horstmann for his recent appointment to the Public Interest Oversight Board, which will benefit by his depth of knowledge in professional and regulatory matters.
Two years ago, my predecessor Goran Tidström stood before this Council in Florida to report that your former Chair, Olivia Kirtley, had been recommended by the IFAC Board as the next Deputy President.
In less than a month, I will hand over the presidency to Olivia, and I know—as you do—that I will be leaving IFAC in the safest of hands. Olivia is the first IFAC President to have held just about every corporate governance position there is. She knows first-hand what business and industry needs and I’m truly delighted that she’s taking the helm. She has been a great support to me during my presidential term and has been responsible for leading several key IFAC projects over the past two years.
And while we’re on the topic of our respective ties, I also want to highlight something really important to me, to you, to our profession—the role played by volunteers. I know I am preaching to the converted in this room, but this profession marches on volunteerism.
I am consistently delighted—and have been throughout my career—to note that accountants and auditors value their profession so much that they serve it willingly and graciously on myriad of boards, committees and councils. We owe all of you and these other outstanding individuals a debt of gratitude. It’s not easy to leave the day job and family life to travel—often great distances—to attend meetings voluntarily, but they do. Olivia, Bob Harris, and Greg Anton, , and I’m sure many others from AICPA’s immediate and extended family do so, and have done, at IFAC. And, Bill, I know you will recognize this same outstanding spirit woven throughout all the AICPA’s activities too.
I wish to share with you today five of IFAC’s current activities that I am sure will be of interest:
Supporting Standards Development
Ladies and gentlemen, as you know, one of the most important roles IFAC plays is supporting the work done by the independent, international standard-setting boards for:
- Auditing and Assurance
- Ethics
- Public Sector Accounting and
- Accounting Education
Our support allows these boards to develop high-quality standards based on input from all interested stakeholders – including the profession – while preserving their independence.
This support is supplemented by active input into standard setting from IFAC’s Small and Medium Practices and Professional Accountants in Business Committees, which strive to represent these two important constituencies and ensure their views are heard.
When I took office in 2012, my top priority was to support these boards and to support IFAC’s mission to contribute to the development, adoption, and implementation of high-quality international standards and guidance.
You don’t need me to remind you of what the world looked like back then, four years into the biggest bank bail-outs the world has ever seen, and with sovereign risk in Europe and the threat of global contagion through the roof.
The urgency of the work of those boards was manifest. And moreover, it seemed like—for the first time—there was political appetite for global standard setting in both the private and public sectors. The G-20 finance ministers, in their communique last year, even went as far as calling for transparency and comparability in public sector reporting, and urging IFAC’s good friends at the IMF and World Bank to further explore the issue.
As we survey the global economic scene right now—with European banks still filing for bankruptcy or failing their current stress tests, and the IMF warning of a triple dip recession in Europe… interesting I read the latest Economist on the plane yesterday and an article is predicting Germany is currently in recession…no sign of Washington doing anything meaningful about US debt…instability in the Middle East and Ukraine… and the lingering effects of the sovereign debt crisis in nations like Argentina—there’s much to keep policymakers awake at night.
So, let’s make no mistake. The urgency for global reform is now arguably more important than it was a couple of years ago.
As IFAC’s latest G-20 submission issued last week, highlights, there is a fundamental need to reignite that flame called reform. Momentum seems to be stalled. And—perhaps worse—as some governments have dragged their heels, others have decided not to wait and have acted unilaterally with extraterritorial impact. Instead of smoothing the playing field, it’s becoming more—not less—uneven. This will make it harder to coordinate a global response when the next crisis blows up.
Now, more than ever, we need consistency and comparability, we need global will and no small measure of passion to see the job through.
In my role as IFAC President, I have got to know the heads of the four independent standard-setting boards and many of the people who sit on them. They are passionate. They are committed.
These boards are intrinsic to the global public interest. In a world beset with uncertainty, some of which I just outlined, they develop high-quality standards that enhance reliability, consistency, and comparability. The standards they create are a vital part of what we know as the “financial reporting supply chain,” which powers the capital markets, as well as foreign direct investment. They instill ethical behavior. They help small- and medium-sized companies—the engine-room of economic growth—access finance to help them grow. And, they provide an avenue for enhanced government transparency and accountability.
And in terms of our profession, they support high-quality, consistent practice and mobility.
This hive of activity dedicated to the public interest is an outstanding model, into which the profession has poured extraordinary resources, thought, time, energy and a passion for excellence.
The model has utilized the profession’s essential technical expertise to create high-quality standards that really matter, that can be adopted and used in a practical and cost effective manner, that can be implemented within the regulatory and legislative requirements imposed on the corporate sector, and that are broadly accepted and recognized globally.
It’s actually—I think—an extraordinary achievement, so naturally I’ve been delighted to see that the several reviews of the model, by the Public Interest Oversight Board and the Monitoring Group, have found it is robust and working effectively, sure with a few suggestions for improvement.
Yet, we continue to face challenges. Some regulators and other organizations continue to criticize the model and perpetuate the notion that the “profession is setting its own standards” and that the standard-setting boards are not sufficiently independent of the profession. These criticisms are unfounded and often based on a lack of understanding of the model—which provides for a balance of practitioners, non-practitioners and public members on each board, extensive opportunities for public and regulatory input into the standard-setting process, and involvement, via advice and oversight at the level of the PIOB and Monitoring Group. Frankly, criticizing a model in which the regulators themselves actively participate, without articulating specific concerns or proposing any alternatives just doesn’t make sense.
We know that the standard-setting arrangements are robust… that there are strong safeguards that protect the independence of the boards… and that the accountancy profession must remain involved in standard-setting so that the standards are practical and can be implemented globally. IFAC will continue to work to improve understanding of the standard-setting process and mitigate any misperceptions, so that this shared standard-setting model can continue to operate in the public interest.
Global Representation and Advocacy
Speaking on behalf of the profession’s involvement in standard setting is just one area of IFAC advocacy. One of our essential roles is to convene topical debates and sustain discussions on trends and emerging issues.
IFAC has a unique and influential voice. We promote the views of our profession, doing so with care and judgment—and always in the public interest. Sometimes, we use our global voice to highlight issues and ask questions. We often strive to leverage our position and our convening power to join with like-minded stakeholders to take part in a common initiative, and we leverage our connectivity across countries, governments, businesses, and markets.
Globalization has transformed the accountancy profession and the world, and we must engage in debate and dialogue with global policymakers and regulators.
One of the items high on IFAC’s agenda is global regulatory convergence.
About a year ago during a presentation I gave in Singapore, I quoted Patricia Cochran, the former CFO and VP of Vision Service Plan, and a former AICPA Board member, who said, “Further convergence of corporate governance and other regulations between states and countries would take most of the complexity and costs out of compliance.”
Patricia had been interviewed as part of a global survey conducted among IFAC Member Bodies and what she said illustrates why IFAC and its members must continue to press for global regulatory convergence. It’s a key element of our G-20 submission this year, in which we called for a re-ignition of the momentum and goodwill that surrounded convergence discussions immediately after the global financial crisis.
Regulatory convergence holds the potential to remediate problems highlighted by the global financial crisis and the potential to create stability and prosperity far beyond it.
Without the support of politicians, governments, regulatory bodies, and professional accounting organizations at the national and international levels, we are left with a patchwork of different regulatory arrangements in different jurisdictions, creating unnecessary costs and uncertainty for Patricia and Vision Service Plan, not to mention the rest of us.
These differences limit the type and effectiveness of responses that governments, central banks, and regulators could take to address the problems created by the crisis. But more importantly, it creates uncertainty that erodes business confidence, chips away at economic stability, and corrodes ambitions for a sustainable recovery.
Another area where we’re seeing this patchwork of different regulatory arrangements is the push for mandatory firm rotation in Europe, India and other jurisdictions.
While some argue this is a potential solution to breaking what one Indian business publication called the “auditor-client nexus,” we are worried about the potential impact mandatory firm rotation may have on US and other non-European based companies with subsidiaries in these jurisdictions. This has the potential to give rise to significant practical issues.
IFAC believes that regulatory convergence is critical for the evolution of a sound, global economic system in the 21st Century. It’s clear that the AICPA shares this belief, evidenced by its advocacy on legislative matters that affect the accounting profession and its work with regulatory agencies to help promote sound policymaking.
IFAC will continue to urge the G-20, IFIAR – the group of global audit regulators – IOSCO – the group of global securities regulators – and the Financial Stability Board, to fully commit to promoting and enacting global regulatory consistency and evidence-based regulatory reform.
Regulations are an important part of the “financial reporting supply chain”—but each element of the chain is vital, and each must examine its role and responsibilities and strive for continuous improvement.
On a trip to China one year ago, I met with the Minister of Finance, who expressed his government’s concerns about the quality of the preparer community and the Chinese profession’s effort to bring an estimated 1,000,000 accountants under the auspices of a professional accountancy body.
This challenge to increase quality and capacity will only intensify in China and elsewhere, and ensure that preparers are competent and qualified.
More recently, in Japan, Hong Kong and Singapore, we consistently heard from securities regulators and other stakeholders about the need to improve corporate governance and strengthen the roles of Audit Committees. The US profession has been most effective in these areas and I am sure your experiences will be of huge benefit to many jurisdictions.
All of these aforementioned areas contribute to high-quality financial reporting, which in turn contribute to the health and stability of the global financial system. I know that Olivia with her experience and background in corporate governance will also be making these topics a key focus area for her Presidency.
Enhancing Organizational Reporting
High-quality financial reporting is of course vitally important. But investors and other stakeholders are telling us the current model is not fit for purpose. This is a telling commentary on the principal output of our labors. They now are looking beyond the balance sheet as integrated reporting emerges as a major initiative to promote transparency and accountability and enhance investor and stakeholder confidence.
Your President and CEO Barry serves on the International Integrated Reporting Council.
As your IFAC President, I have also served on the IIRC.
I know you joined us in applauding the December 2013 release of the IIRC Framework, which represented a major advancement, laying the foundation for enhanced corporate reporting and enabling companies to better communicate how they create value over time.
While integrated reporting can have a transformative effect on corporate performance, any transformation will require a continued commitment and a long-term view of success. With the release of the framework, it is up to us as professional accountants to move the process forward, by being active in encouraging implementation. I know the AICPA is committed to this in many ways, including developing important resources like “Integrated Reporting: The Next Step in Corporate Reporting,” a video webcast.
There is, and will continue to be, a real need to communicate this new approach to business reporting on a global level. The accountancy profession has an amazing opportunity to rise to this challenge. If we do not, “someone else will eat our lunch”. This involves IFAC, regional, and national professional accountancy organizations, accounting firms, and professional accountants.
Recruiting the Best and Brightest
As your IFAC President, I have given many presentations and speeches. In nearly every one, I take a minute or two to discuss an issue that is, as they say, near and dear to my heart, and I know yours as well. That issue is the continuing need to recruit and retain the best and brightest in our profession.
In nations large and small, developed and emerging, demand outstrips supply. This was the subject of a recent CGMA Magazine article, “On the Road,” which addressed the issue and asked the question: “As organizations look to expand in emerging markets, they are increasingly faced with a dilemma. Should they compete for finance managers from the local talent pool? Or should they send somebody from the home office to work abroad?"
One nation where organizations face this question is China. During one of my visits there last year, I had the privilege of meeting with accounting students and I conveyed to them the opportunities that lay ahead in this global economy and how the accountancy profession offers global mobility, particularly with the adoption and implementation of international accounting standards.
Diversity and inclusion is an important part of attracting and retaining the best and brightest. The AICPA has done a masterful job in this area, and I know that the global profession can learn from the example you have set—including your recent partnership with Howard University to educate African-American and Latino students about the important role accountants play in society as well as the opportunities available within the accountancy profession.
Building Capacity
In parallel to the AICPA’s good work, IFAC is also working to educate people all over the world about the important role accountants play.
Collectively, we must do a better job of explaining how the accounting profession contributes to the global economic infrastructure—by producing high-quality financial information that governments, investors, businesses, and the development community need to make sound financial, management, and policy decisions.
In some countries, we need to go further. Through our Professional Accountancy Organization (PAO) Development Committee, IFAC assists emerging and developing PAOs, helping them to become “centers of excellence,” ready and able to assist governments, regulators, and other stakeholders, with sound public policy guidance and advice on accountancy-related topics. And I am pleased to note that AICPA is well represented on this committee. For many years AICPA’s Gary Scopes played a pivotal role on this committee.
Strong PAOs set the bar for the behavior and practice of accountancy professionals and enhance quality assurance, investigation and discipline. They also work with regional organizations and regulators to enhance the implementation of international accounting standards.
Let me give you just one example of success in this area.
In 2007, the World Bank estimated that Rwanda had less than 50 accountants in the entire country. The profession was functionally non-existent after years of civil war. After years of work and partnership, in 2012 IFAC admitted the Institute of Chartered Practicing Accountants of Rwanda (ICPAR) as an Associate member.
Today there are almost 300 accountants in Rwanda and they’re helping support civil society, providing assurance on the financials of public and private institutions that are essential to the nation’s growth and attracting foreign direct investment.
Rwanda today has: Rule of law, Economic growth rates we can only dream of, actively engaged citizens, and, an accountancy profession growing in skill and professionalism, supporting transparency and good governance.
You might ask: Why on Earth should an accountant in Wellington, New Zealand, or indeed, Columbus, Ohio, care whether there’s an accountancy profession in Rwanda? It’s really simple.
Leaving aside the obvious point about a strong desire to help a fellow human help themselves, instability is the enemy of progress and growth. Failed or failing states anywhere in the world today are a direct threat to economic and social stability in the developed world. Turn on CNBC and you’ll watch in real-time as the US stock market prices-in risk and failure when shots are fired in far-flung places. And, take a look at the Middle East and West Africa right now. And now imagine what a prosperous, stable, outward looking Middle East and Africa could do to support global economic growth.
Whether it’s this hemisphere or beyond, we all have a role in helping nations build strong accountancy professions. The anecdotal evidence is compelling in this regard. Strong accountancy professions support strong economies.
IFAC recently received some £4.9 million in funding from the UK Department for International Development to help strengthen PAOs in Asia, the Caribbean, the Middle East, and North Africa. We’re very excited about this ground-breaking agreement, and we are encouraging all our member bodies to help and support us in this vital work.
And while IFAC is dedicated to building capacity at the global level, we recognize that growth must also take place at personal level.
Today, professional accountants navigate through an increasingly complex international landscape, where computing power grows exponentially every year, an iPhone holds more memory than the guidance computer used on the Apollo missions, and the Internet connects people around the world. I am particularly looking forward to this afternoon’s session on Big Data.
In this environment, I am grateful that ours is a profession that has long-embraced the concept of life-long learning and I’m delighted to see the emergence of innovative professional designations, recognized worldwide, such as the Chartered Global Management Accountant (CGMA).
The CGMA designation provides the tools and resources that support competency and drive success, and holds the promise of changing the market for accountants working in business and government.
Ladies and gentlemen,
I have enjoyed enormously my time as your IFAC President. It’s been an extraordinary privilege to serve this profession, it is a great profession and I have made some strong friendships here at the AICPA over the years.
Helen and I are now grandparents, and one of the things we are looking forward to most is spending time with our active and globally-aware grandchildren.
In future years, those little bundles of energy might ask their Poppa what they should be when they grow up. Perhaps the highest compliment I can pay is that, without hesitation, I’d encourage them to be accountants. I trust I have greater success with my grandchildren than I did with my three daughters. Whilst they all have significant careers they are far removed from accounting.
As I prepare to handover this role to Olivia and as we talk about any legacy I may leave to my grandchildren, I encourage all of you to think about the legacy we’ll leave to the next generation of accountants.
They must inherit an active and vocal profession; one that is a credible contributor to global and national policy debates. We must leave to them a profession that contributes to organizational sustainability and economic growth. And this legacy is endowed by a profession that others look to as a model of inclusion, diversity, and integrity.
Thank you for listening. And thank you AICPA for your outstanding contribution to the global profession.
