This article was originally published in the December 2013 issue of Chartered Accountants Journal, published by the New Zealand Institute of Chartered Accountants.

As the government's lead economic and financial advisor, the Treasury of New Zealand has a particular focus on ensuring state-level public sector performance improves living standards. Setting clear expectations and producing relevant and reliable accountability information is critical to this.

For its work in preparing fiscal forecasts and financial statements, and in assessing departmental performance, the Treasury relies on information provided by other government departments and agencies. In order to evaluate the adequacy of this information, the Treasury performs assessments to ensure that the internal controls used by information providers are operating effectively.

As the Treasury sought to refresh its approach in this area, it chose to embed the International Good Practice Guidance, Evaluating and Improving Internal Control in Organizations, published by the International Federation of Accountants (IFAC), into its internal control and financial management assessment tool, CIPFA TICK.[1] With permission from IFAC, the Treasury adapted the guidance to help departmental and agency risk committees and senior management respond to results that were outside predetermined tolerance levels. That is, the Treasury doesn’t expect perfect results but we do expect results will be within the risk appetite level of senior management.

The IFAC guidance seeks to facilitate the evaluation and improvement of existing internal control systems by highlighting a number of areas where the practical application of existing internal control standards and frameworks often fails in many organizations. Because the Treasury wants to be alert to such issues, this guidance is, therefore, very relevant for public sector organizations in New Zealand.

The Treasury tool is an electronic questionnaire that seeks assessments against each of the nine principles identified in the IFAC guidance. The survey is completed annually by approximately 500 budget holders, internal auditors, finance staff, and senior managers across New Zealand’s public sector. The first year’s results, for the year ending June 30, 2013, are publicly available online.

Although the Treasury and other central agencies have been reassured that internal control systems are currently adequate for reporting objectives, the survey results have also highlighted challenges.

• There is a low level of maturity in integrating objectives, risk management, and internal controls. Work is ongoing to develop and improve expectations and assessments of risk management.
• Updating risk management processes and responsibilities has proved a burden for departments that have been restructured recently. This has reinforced the importance of central agencies paying greater attention to departments undergoing significant change or restructuring until new performance levels are normalized.
• Delivering value for money is a common objective for many public sector organizations, but it is not easily measured. This has undermined accountability, which has led to a widespread lack of meaningful responses to substandard performance in this area. Central agencies currently have several projects in place in the performance reporting and management area. The survey has emphasized the importance of these initiatives.
• Some senior management teams lacked consistent leadership on risk management; internal control was also not always being consistently reinforced. The departmental performance assessments processes are drawing attention to these concerns.

Through this refreshed focus on assessing the effectiveness of internal controls, the Treasury has been able to collect more useful performance information for department management and achieved cost savings in the process. A summary of the survey results, as well as an analysis of the responses, can be found on the Treasury website.

Ken Warren is the chief accounting advisor at the New Zealand Treasury and a member of the International Public Sector Accounting Standards Board (www.ipsasb.org).

This article originally appeared in the China Accounting Journal, published by the Chinese Institute of CPAs.

When asked what accountants do, responses often mention roles such as tax agents and independent auditors. The functions performed by the vast number of professional accountants who work in businesses are often forgotten and not well understood.

What do the independent director, the internal auditor and the chief financial officer of companies all have in common? The individuals in these positions could all be professional accountants working in businesses. Besides these roles, professional accountants take on a vast array of other roles in businesses of all sorts including in the public sector, not-for-profit sector, regulatory or professional bodies, and academia. Their wide ranging work and experience find commonality in one aspect – their knowledge of accounting.

The importance of the role of professional accountants in business in ensuring the quality of financial reporting cannot be overly emphasized. Professional accountants in business often find themselves being at the frontline of safeguarding the integrity of financial reporting. Management is responsible for the financial information produced by the company. As such, professional accountants in businesses therefore have the task of defending the quality of financial reporting right at the source where the numbers and figures are produced!

Like their counterparts in taxation or auditing, professional accountants in business play important roles that contribute to the overall stability and progress of society. Without public understanding of all these diverging roles and responsibilities of different accounting specialists working in business, public perceptions of their value may be misinformed.

Roles of Professional Accountants in Business

A competent professional accountant in business is an invaluable asset to the company. These individuals employ an inquiring mind to their work founded on the basis of their knowledge of the company’s financials. Using their skills and intimate understanding of the company and the environment in which it operates, professional accountants in business ask challenging questions. Their training in accounting enables them to adopt a pragmatic and objective approach to solving issues. This is a valuable asset to management, particularly in small and medium enterprises where the professional accountants are often the only professionally qualified members of staff.

Accountancy professionals in business assist with corporate strategy, provide advice and help businesses to reduce costs, improve their top line and mitigate risks. As board directors, professional accountants in business represent the interest of the owners of the company (i.e., shareholders in a public company). Their roles ordinarily include: governing the organization (such as, approving annual budgets and accounting to the stakeholders for the company’s performance); appointing the chief executive; and determining management’s compensation. As chief financial officers, professional accountants have oversight over all matters relating to the company’s financial health. This includes creating and driving the strategic direction of the business to analyzing, creating and communicating financial information. As internal auditors, professional accountants provide independent assurance to management that the organization’s risk management, governance and internal control processes are operating effectively. They also offer advice on areas for enhancements. In the public sector, professional accountants in government shape fiscal policies that had far-reaching impacts on the lives of many. Accountants in academia are tasked with the important role of imparting the knowledge, skills and ethical underpinnings of the profession to the next generation.

Protectors of Public Interest

A description of the multifaceted role of professional accountants in business is not complete without discussing the duty that the profession owes to the general public. As a profession that has been bestowed a privileged position in society, the accountancy profession as a whole deals with a wide range of issues that has a public interest angle. In the case of professional accountants in business, not only must they maintain high standards but they also have a key role to play in helping organizations to act ethically.

Closely link to the protection of public interest is the notion that public accountants need to be trusted to provide public value. Accountants will lose their legitimacy as protectors of public interest if there is no public trust. The accountancy profession has wide reach in society and in global capital markets. In the most basic way, confidence in the financial data produced by professionals in businesses forms the core of public trust and public value.

Competing Demands

Accountants often times face conflicts between upholding values central to their profession and the demands of the real world. Balancing these competing demands speaks to the very heart of being a professional in contrast to simply having a job or performing a function. Professionals are expected to exercise professional judgment in performing their roles so that when times get challenging, they do not undertake actions that will result in the profession losing the public’s trust as protectors of public interest.

Ethical codes for professional accountants globally compels professional accountants, regardless of the roles that they perform, to uphold values of integrity, objectivity, professional competence and due care, confidentiality and professional behaviour. However, competing pressures can put professional accountants in challenging and often times difficult situations. These conflicts revolve around ethics, commercial pressures and the burden of regulation.

Situations may occur where professional accountants in businesses are expected to help the organization achieve certain financial outcomes. In some of these cases, the required action may risk compromising compliance with accounting and financial reporting rules. Professional accountants in businesses encounter tension in these situations. As an example, accountants in organizations may face pressures to account for inventories at higher values or select alternative accounting methods which are more financially favorable to the company. However, these actions may be contrary to what are allowable in the accounting standards or to what the professional accountant may feel comfortable with.

The Role of Professional Accounting Bodies in Promoting Professional Accountants

Professional accounting bodies globally have the important mandate of representing, promoting and enhancing the global accountancy profession. At the national level, the professional accounting body is the voice for the nation’s professional accountants; this includes all professional accountants both in practice and in business. Because they play different roles in the society, the overall status of the accountancy profession can only be strengthened when both professional accountants in practice and in business are well-perceived by society.

Because professional accountants in business are often the only members of staff who are professionally trained and qualified in accounting in the organization, they are more likely to rely on their professional accounting body for assistance in carrying out their work. They will look to the professional accounting body to provide them with the support and resources they need in doing their daily jobs and to keep their skills up-to-date. For example, professional accountants in business may look to their subject matter experts in the accounting body for advice on how to handle ethical dilemmas. They will also be dependent on their accounting body to provide continuous professional development training initiatives to keep their knowledge and skills current.

Evolving Role in an Evolving Environment

Like other professions, professional accountants are increasingly challenged to demonstrate their relevance in the capital market and their ability to evolve and face new challenges. Public expectations are high. The value of professional accountants will be measured by the extent to which they are perceived to be accountable not only to their own organizations but more importantly to the public.

Professional accountants in business are a key pillar in organizations helping to create and sustain value and growth. Their ability to continue to fulfill these roles in the face of constant environmental changes is vital to their continued relevance. Professional accountants in business are also the front runners when it comes to upholding the quality of financial reporting and providing the broader public with reliable financial information.

Professional accountants in business are an important critical mass in the global accountancy profession. The same applies at the national level. Public education on the diverse roles of professional accountants in business needs to be stepped up so as to increase the visibility of these roles. Professional accounting bodies also need to pay attention to their members in business and provide them with the support they need in order to succeed in their roles. Their voices also need to be represented. Achieving success on all these fronts will drive continued recognition by society of the value of professional accountants in business. This shapes the continued success of the accountancy profession as a whole.

About the authors:

• Len Jui CPA MBA, is KPMG Huazhen’s Partner – Head of Public Policy and Regulatory Affairs, Quality and Risk Management. He was formerly Associate Chief Accountant of the US Securities and Exchange Commission. Jui is a member of the China Auditing Standards Board and Technical Adviser to China’s Member of the Board of the International Federation of Accountants.
• Jessie Wong CPA PhD, is KPMG Huazhen’s Director – Public Policy and Regulatory Affairs, Quality and Risk Management. She was formerly Senior Technical Manager of the International Auditing and Assurance Standards Board and was also Policy Adviser of CPA Australia. Wong is a member of the Chinese Institute of Certified Public Accountants International Standards Taskforce.

My fellow board members and I are here for a meeting of the International Ethics Standards Board for Accountants, the Ethics Board for short. It is great to be in Sydney, for many of us for the first time.

The Ethics Board is an independent board that sets the ethical standards for all accountants who are affiliated with the International Federation of Accountants, or IFAC. That is 2.5 million accountants in 129 countries around the world and in different lines of work. Virtually all auditors are covered by our ethics standards, but also many other accountants in public practices—such as tax advisors, corporate finance specialists, and IT systems advisors—and many accountants in business.

Twenty-three of the largest international accounting networks, including the Big 4, have also committed to following our ethics standards on transnational audits. This means that virtually all listed companies around the world are audited by a firm that has made the commitment to follow our ethics standards with respect to such audits.

The very first sentence in our Ethics code is: “A distinguishing mark of the accountancy profession is its acceptance of the responsibility to act in the public interest.” This is not a new idea. When a number of men got together in Edinburgh in 1864 to create the world’s first institute of professional accountants, they had the same idea.

They phrased it slightly differently:

…the Petitioners were induced to form themselves into a Society called the Institute of Accountants in Edinburgh, with a view to unite into one body those at present practicing the profession and to promote the objects which they entertain in common; and that the Petitioners conceive that it would tend to secure in the members of the profession the qualifications which are essential to the proper performance of its duties, and would consequently conduce much to the benefit of the public….. [1]

Their brethren in England were a little bit behind, but in the Charter of the Institute of Chartered Accountants in England and Wales, it was stated that:

That the said societies were not established for the purposes of gain nor do the members thereof derive or seek any pecuniary profit from their membership but the societies aim at the elevation of the profession of public accountants as a whole and the promotion of their efficiency and usefulness by compelling the observance of strict rules of conduct as a condition of membership and by setting up a high standard of professional and general education and knowledge … [and it] would be for the public benefit if the members thereof were incorporated as one body… [which] would … tend to gradually raise [the profession’s] character and thus to secure for the community the existence of a class of persons well qualified to be employed in the responsible and difficult duties often devolving on Public Accountants. [2]

This commitment to serve the public interest is like a strong red thread, running throughout the profession’s history and connecting the past to the present. The public interest is as important today as it was 160 years ago in Edinburgh. Today, it is of course phrased slightly differently.

The Institute of Certified Public Accountants of Rwanda became as associate member of IFAC last year. And the institute’s mission statement starts: “To empower our members and partner with stakeholders to serve the public interest….”

Few other professions have voluntarily and formally taken on such a strong commitment to serve the public interest. Physicians have, obviously, but no other professions really, at least not to the same degree.

This is a very big strength for the accountancy profession, its most important attribute for building goodwill. The general public has the sense—probably very vague and unarticulated—that accountants, and especially auditors, act in the public interest.

This, in my view, helps to explain in large part why auditors and accountants have fared much better than bankers, rating agencies, corporate CEOs, or politicians during and after the financial crisis of the last six years.

Our Code of Ethics is a very robust code:

• It covers all the main ethics issues.
• It is demanding.
• It is regularly updated to address new concerns.
• It is enforced.
• And accountants abide by it—at least the vast majority of them.

But can it really be true that almost all accountants abide by our Code? If so, why didn’t the auditors and the accountants warn about the impending financial crisis? The answer, I believe, is that many people were caught flat-footed—bankers, regulators, policy-makers, and also auditors and accountants.

They were not skeptical enough. They hadn’t experienced anything like it before. They were swept away by the euphoria of the pre-2007 boom. They were in the same situation as most everyone else.

When you informally talk to audit regulators about why auditors failed to see and warn about the financial crisis, these are the kind of explanations they often put forward. The view is that cases of unethical behavior were very few. The failings were of a different kind.

Still there is a problem. The goodwill created by the profession’s commitment to act in the public interest has to be continually reinforced. My personal view is that the profession is currently slowly depleting its long-standing goodwill, not by design but by not forcefully and publicly enough making the case that it is committed to acting in the public interest.

The accountancy profession should much more actively make the case that:

• it has a strict Code of Ethics;
• it is adhering to it;
• this code is set by an independent body; and
• it welcomes that those accountants who do not comply with the Code are disciplined.

Surely, this is not an easy road to take. On the other hand, not making the case that the profession is committed to acting in the public interest will most likely slowly reduce the public trust in the profession and thus the profession’s standing. It will be weaker when facing problems and criticism.

So I believe that the Ethics Board and the profession should make the case more strongly than we do today that:

• the profession’s Ethics Code is strong; and
• the profession does act in the public interest.

IFAC, along with the World Bank, the Inter-American Development Bank, and the Global Public Policy Committee, held the seventh Conference for Accounting and Accountability for Regional Economic Growth, or CReCER (Contabilidad y Responsabilidad para el Crecimiento Económico Regional) in Cartagena, Colombia, in August 2013,  hosted by IFAC member body the Instituto Nacional de Contadores Públicos de Colombia.

Themed Integrating Approaches to Financial Reporting to Advance Regional Economic Growth: An Exchange between Public and Private Sector, the conference drew more than 350 attendees and speakers and covered important topics, such as national and regional initiatives to advance adoption and implementation of international standards; global perspectives on the evolving role of auditors and accountants; recent capital market developments to support investment; and the future of business reporting, including integrated reporting.

CReCER from LCSFM on Vimeo.

The public sector, including national, regional, and local governments and related governmental entities, plays a major role in society. In most economies, public expenditure forms a significant part of gross domestic product (GDP) and public sector entities are substantial employers and major capital market participants. The public sector determines, usually through a political process, the outcomes it wants to achieve and how it wants to achieve them. These include enacting legislation or regulations; delivering goods and services; redistributing income through mechanisms, such as taxation or social security payments; and the ownership of assets or entities, such as state-owned enterprises. Governments also play a role in promoting fairness, peace and order, and sound international relations.

Effective governance in the public sector leads to better decision making and the efficient use of resources, and strengthens accountability for the stewardship of those resources. Effective governance is characterized by robust scrutiny, which provides important pressures for improving public sector performance and tackling corruption. Effective governance can improve management, leading to more effective implementation of the chosen interventions, better service delivery, and, ultimately, better outcomes. People’s lives are thereby improved.

The International Federation of Accountants (IFAC) and the Chartered Institute of Public Finance and Accountancy (CIPFA) recently issued a Consultation Draft for an International Framework on good governance in the public sector. Good Governance in the Public Sector follows an initial review of relevant governance literature and includes input from public sector governance experts.1

This proposed Framework will be important to public sector entities, and their stakeholders, who want to improve their governance at all levels across the globe. It offers a set of core principles for good governance in public sector entities, supplemented by practical implementation guidance.

The proposed Framework is not intended to replace national and sectoral public sector governance codes. Instead, it was designed as a reference for those who develop and set national governance codes for the public sector when updating and reviewing their own codes. Where codes and guidance do not exist, the Framework provides a shared understanding of what constitutes good governance in the public sector and a powerful stimulus for positive action.

Definition and Key Principles

In the Framework, governance is defined as the arrangements, including political, economic, social, environmental, administrative, legal, and other arrangements, put in place to ensure that the intended outcomes for stakeholders are defined and achieved.

The Framework says the function of good governance in the public sector is to ensure that entities act in the public interest at all times, which requires:

A.     Strong commitment to integrity, ethical values, and the rule of law; and

B.     Openness and comprehensive stakeholder engagement.

 In addition to the requirements for acting in the public interest, achieving good governance in the public sector also requires:

C.     Defining outcomes in terms of sustainable economic, social, and environmental benefits;

D.     Determining the interventions necessary to optimize the achievement of intended outcomes;

E.     Developing the capacity of the entity, including the capability of its leadership and the individuals within it;

F.     Managing risks and performance through robust internal control and strong public financial management; and

G.    Implementing good practices in transparency and reporting to deliver effective accountability.

These core principles for good governance in the public sector are high level and bring together a number of concepts.

Presentation given by Stathis Gould, IFAC senior technical manager and head of Professional Accountants in Business (PAIB), on the roles and expectations on professional accountants in business during an Association of Chartered Certified Accountants (ACCA) USA chapter meeting that featured delegates from the Shanghai National Accounting Initiative (SNAI). The presentation includes how IFAC supports the significant PAIB sector of the accountancy profession, areas of focus for the IFAC PAIB Committee, and specific initiatives.

IFAC recently convened the first-ever meeting between the issuers and users of risk management and internal control guidelines, including representatives from the Committee of Sponsoring Organizations of the Treadway Commission (COSO), CPA Canada’s Risk Oversight and Governance Board (RGOB), Federation of European Risk Management Associations (FERMA), International Federation of Risk and Insurance Management Associations (IFRIMA), International Organization for Standardization, and Risk Management Society (RIMS).

During the event, Alignment of International Risk Management Guidelines, representatives from participating organizations presented their latest work and future plans, including: 

• Dave Landsittel, COSO
• Gigi Dawe, CPA Canada’s ROGB
• Julia Graham, FERMA and IFRIMA
• Vincent Tophoff, IFAC
• Jan Mattingly, International Organization for Standardization’s TC262 on Risk Management
• Carol Fox, RIMS

The presentations were followed by a panel discussion that reinforced the need for further international collaboration and alignment in the area of risk management and internal control. Participants decided to use the momentum from this meeting to initiate a series of collaboration projects.

The BCBS and IAASB share a common interest in recognizing the importance of banks’ external audits to financial stability. Accordingly, we commend the BCBS on its commitment to help improve audit quality at banks, and we fully support the BCBS’ initiative to develop the Document to enhance and replace the BCBS’ 2002 and 2008 related publications.

The International Federation of Accountants (IFAC), the global organization for the accountancy profession, today issued Policy Position Paper 8, Enhancing Organizational Reporting, to emphasize the importance and usefulness of reporting broad-based information beyond that which is provided in traditional financial reporting.

Enhanced organizational reporting provides a more complete view of an organization’s position, performance, and longer term potential and sustainability, and is in the public interest. It provides important information for both internal and external stakeholders to support managing and directing operations, decision making, promoting transparency, and the discharge of accountability.

“Given the high volume of responses to the recently-issued Framework from the International Integrating Reporting Council, we feel this is an important and timely topic,” said Fayez Choudhury, IFAC CEO. “We recognize that there are many organizational reporting frameworks and regulations available and being developed, and it is important to examine the relationships between these frameworks and promote global consistency and convergence.”

The accountancy profession has a history of involvement in developing and improving reporting processes and controls, and identifying and reporting key financial and other information. IFAC believes that the accountancy profession has a key role to play in enhancing organizational reporting.

About IFAC
IFAC is the global 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 is comprised of 173 members and associates in 129 countries and jurisdictions, representing approximately 2.5 million accountants in public practice, education, government service, industry, and commerce.

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