The Professional Accountants in Business (PAIB) Committee of the International Federation of Accountants (IFAC) has issued new International Good Practice Guidance (IGPG), Evaluating and Improving Internal Control in Organizations, highlighting areas where the practical application of existing internal control standards and frameworks often fails in many organizations.

This new guidance is important to a professional accountant in business who works with his/her organization to continuously evaluate and improve internal control, and ensure that internal control is an integrated part of the organization’s systems of governance and risk management.

In this guidance, internal control is defined as “an integral part of an organization’s system of governance and ability to manage risk, which is understood, effected, and actively monitored by the governing body, management, and other personnel to take advantage of the opportunities and to counter the threats to achieving the organization’s objectives.” Better integrated internal control can save the organization time and money, and promote the creation and preservation of value.

At the heart of the IGPG are nine key principles for evaluating and improving internal control systems (see Key Principles) complemented by guidance on how to implement them. Questions that the guidance is designed to help answer are:

• What should be the scope of internal control?
• Who should be responsible for internal control?
• How should controls be selected, implemented, and applied?
• How can internal control be better ingrained into the DNA of the organization?
• How should the organization report on internal control performance?

Evaluating and improving internal control are among the core competencies of many professional accountants in business. Therefore, professional accountants can play a leading role in ensuring that internal control forms an integral part of an organization’s governance system and risk management. With an integrated, organization-wide approach to risk management and internal control, professional accountants in business also encourage the practice that risks be viewed and treated in a more holistic way; that is, with improved internal control.

The guidance concludes with a limited list of relevant resources from IFAC, its member bodies, and other relevant organizations. It can be downloaded free of charge from www.ifac.org/paib.

Key Principles of Evaluating and Improving Internal Control

The principles below represent good practice for evaluating and improving systems for internal control.

1. Internal control should be used to support the organization in achieving its objectives by managing its risks, while complying with rules, regulations, and organizational policies. The organization should therefore make internal control part of risk management and integrate both in its overall governance system.
2. The organization should determine the various roles and responsibilities with respect to internal control, including the governing body, management at all levels, employees, and internal and external assurance providers, as well as coordinate the collaboration among participants.
3. The governing body and management should foster an organizational culture that motivates members of the organization to act in line with risk management strategy and policies on internal control set by the governing body to achieve the organization’s objectives. The tone and action at the top are critical in this respect.
4. The governing body and management should link achievement of the organization’s internal control objectives to individual performance objectives. Each person within the organization should be held accountable for the achievement of assigned internal control objectives.
5. The governing body, management, and other participants in the organization’s governance system should be sufficiently competent to fulfill the internal control responsibilities associated with their roles.
6. Controls should always be designed, implemented, and applied as a response to specific risks and their causes and consequences.
7. Management should ensure that regular communication regarding the internal control system, as well as the outcomes, takes place at all levels within the organization to make sure that the internal control principles are fully understood and correctly applied by all.
8. Both individual controls as well as the internal control system as a whole should be regularly monitored and evaluated. Identification of unacceptably high levels of risk, control failures, or events that are outside the limits for risk taking could be a sign that an individual control or the internal control system is ineffective and needs to be improved.
9. The governing body, together with management, should periodically report to stakeholders the organization’s risk profile as well as the structure and factual performance of the organization’s internal control system.

About International Good Practice Guidance

International Good Practice Guidance (IGPG) issued by the PAIB Committee cover areas of international and strategic importance in which professional accountants in business are likely to engage. In issuing principles-based guidance, IFAC seeks to foster a common and consistent approach to those aspects of the work of professional accountants in business not covered by international standards. IFAC seeks to clearly identify principles that are generally accepted internationally and applicable to organizations of all sizes in commerce, industry, education, and the public and not-for-profit sectors. Previously issued IGPG are available on the IFAC website, including Preface to IFAC’s International Good Practice Guidance.

About the PAIB Committee

The PAIB Committee serves IFAC member bodies and professional accountants worldwide who work in commerce, industry, financial services, education, and the public and the not-for-profit sectors. Its aim is to promote and contribute to the value of professional accountants in business by increasing awareness of the important roles professional accountants play, supporting member bodies in enhancing the competence of their members, and facilitating the communication and sharing of good practices and ideas.

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 167 members and associates in 127 countries and jurisdictions, representing approximately 2.5 million accountants in public practice, education, government service, industry, and commerce.

Copyright © July 2012 by the International Federation of Accountants (IFAC). All rights reserved. Contact permissions@ifac.org for permission to reproduce, store, or transmit this document.

The International Accounting Standards Board (IASB) and the IFRS Foundation issued Invitation to Comment (ITC): IASB and IFRS Interpretations Committee Due Process Handbook in May 2012. As an organization that supports four independent, international standard-setting boards, IFAC recognizes the public interest imperative of having in place robust and transparent due process arrangements for standard setting. 

Welcome to IFAC's Translations & Permissions eNews.

In This Issue:

1. Member Body Teamwork Leads to Single, Spanish Translations of the Handbook of International Standards on Auditing and Quality Control and the Code of Ethics for Professional Accountants
2. Spanish Translations of Key Small- and Medium-Sized Practices Publications
3. Handbook of International Public Sector Accounting Pronouncements Now Available in Spanish
4. IFAC, CNOCP Reach Agreement on French Translation of IPSASB Handbook
5. Russian Translation of IAASB Handbook Completed and Undergoing Final Review
6. IPSASB 2010 Handbook Available in Russian
7. PAO Development Committee Toolkit, IPSASB 2011 Handbook Available in Arabic
8. Chinese Translation of Key Publications in Progress
9. What to Watch for in 2012

1. Member Body Teamwork Leads to Single, Spanish Translations of the Handbook of International Standards on Auditing and Quality Control and the Code of Ethics for Professional Accountants

After more than two years of collaboration, a group of IFAC member bodies has produced a single, Spanish translation of the Handbook of International Standards on Auditing and Quality Control of the International Auditing and Assurance Standards Board (IAASB).

The Instituto de Censores Jurados de Cuentas de España (ICJCE) and Instituto de Contabilidad y Auditoría de Cuentas translated the handbook, which was reviewed by a Latin American committee led by Federación Argentina de Consejos Profesionales de Ciencias Económicas (FACPCE), with IFAC member bodies in Bolivia, Chile, Colombia, Costa Rica, Mexico, Panama, Paraguay, and Uruguay, and other key stakeholders. The Directorate General of Translations (DGT) of the European Commission also reviewed it for its European Union acceptability.

The Code of Ethics for Professional Accountants of the International Ethics Standards Board for Accountants was translated by ICJCE and reviewed by Instituto Mexicano de Contadores Públicos (IMCP), together with FACPCE and the above-mentioned Latin American review committee.

Both include an unofficial Table of Equivalencies, showing the differences between Spanish and Latin American terminologies.

More information can be found in the April 18, 2012 and May 11, 2012 press releases.

2. Spanish Translations of Key Small- and Medium-Sized Practices Publications

The Guide to Quality Control for Small- and Medium-Sized Practices, Third Edition, was published in May by IMCP after being reviewed by ICJCE.

The Guide to Using International Standards on Auditing in the Audits of Small- and Medium-Sized Entities, Second Edition (“ISA Guide”) has been translated by IMCP and is presently undergoing final review by ICJCE. Publication of the translated ISA Guide, as well as the Guide to Practice Management for Small- and Medium-Sized Practices, Second Edition is expected later in 2012.

3. Handbook of International Public Sector Accounting Pronouncements Now Available in Spanish

Members of the Department of Accounting and Finance, Faculty of Economics and Business Administration, at the University of Zaragoza, Spain, have produced a Spanish-language version of the Handbook of International Public Sector Accounting Pronouncements – 2011 Edition.

An international committee consisting of public sector experts from Argentina, Chile, Mexico, Spain, and Uruguay also reviewed the translated handbook.

A Spanish translation of International Public Sector Accounting Standards Board’s (IPSASB’s) Study 14 - Transition to the Accrual Basis of Accounting: Guidance for Governments and Government Entities was also recently published.

International Public Sector Accounting Standards (IPSAS) 32 Service Concession Arrangements: Grantor and the 2011 Annual Improvements document are translated and undergoing final review to be published later this year.

These projects were made possible with assistance from the World Bank and contributions from the Spanish Fund for Latin America and the Caribbean.

4. IFAC, CNOCP Reach Agreement on French Translation of IPSASB Handbook

France’s Public Sector Accounting Standards Council (Conseil de normalisation des comptes publics -CNOCP) and IFAC recently signed an agreement to translate the IPSASB’s Handbook of International Public Sector Accounting Pronouncements into French in 2012. Efforts are currently under way to complete the translation.

5. Russian Translation of IAASB Handbook Completed and Undergoing Final Review

Following discussions originating at the 2010 World Congress of Accountants, as well as a recent Translations Roundtable hosted by the Russian Collegium of Auditors on April 23 in Moscow and attended by IFAC’s Daria Koukhar, technical manager, Member Body Development, a Russian translation of Part 1 of the 2010 edition of the Handbook of International Quality Control, Auditing, Review, Other Assurance, and Related Services Pronouncements has been completed and is undergoing final review by a committee of Russian and Commonwealth of Independent States stakeholders. Publication is expected in early September 2012. The Chamber of Auditors of the Republic of Kazakhstan is currently translating Part 2.

6. IPSASB 2010 Handbook Available in Russian

The Handbook of International Public Sector Accounting Pronouncements (May 2010) has been translated into Russian by the Consortium of ZAO BDO and LLC “Institute for Budget Decisions” and was recently published. Please see Translations Database for more information.

7. PAO Development Committee Toolkit, IPSASB 2011 Handbook Available in Arabic

The Professional Accountancy Organization Development Committee’s Establishing and Developing a Professional Accountancy Body and the 2011 version of the Handbook of International Public Sector Accounting Pronouncements are now available in Arabic.

The PAO Development Committee Toolkit, translated by the Saudi Organization for Certified Public Accountants, is also available.

The IPSASB 2011 Handbook was translated by the Arab Society of Certified Accountants (Jordan) and is currently available.

8. Chinese Translation of Key Publications in Progress

The Chinese Institute of Certified Public Accountants is currently completing Chinese translations of the 2010 editions of the Handbook of International Quality Control, Auditing, Review, Other Assurance, and Related Services Pronouncements and the Handbook of the Code of Ethics for Professional Accountants, along with the Guide to Quality Control for Small and Medium-Sized Practices, Third Edition, and the Guide to Practice Management for Small- and Medium-Sized Practices.

9. What to Watch for in 2012:

• Updated Translations & Permissions FAQs on the Way

A revised version of “Translations & Permissions Frequently Asked Questions” will be available in early September. Please check the Translations & Permissions web site.  

• Iberian-American Cooperation Project for Sustainable Spanish Translations Agreement Expected

IFAC is currently working with its member bodies from Argentina, Mexico, and Spain on a Memorandum of Understanding (MOU) regarding translation and future cooperation to achieve sustainable Spanish language translations of the international standards. The draft MOU is currently under review and the parties will meet in New York City in early October with a view to finalizing it.

• Please Check IFAC’s Translations Database Regularly for Updates

The list of new translations of IFAC publications by third parties is continuously updated, so please visit Translations Database for the latest information available. 

• Use of Translation Memory Software Encouraged

Use of translation memory software can assist in achieving high-quality and sustainable translation processes. In addition to enhancing consistency in the use of translated terminology, use of translation memory software makes it possible to share and reutilize translated content, thereby reducing processing time and the need to perform multiple or new translations. It can also help to reduce translation costs.

IFAC’s designated translating bodies are encouraged to use translation memory software where possible to enhance the quality and efficiency of their translations, to contain translation costs and to achieve sustainable translation processes. Please contact permissions@ifac.org with questions or for more relevant information.

Dan Montgomery, deputy chairman of the IAASB and chairman of its Auditor Reporting Task Force speaks to Accountancy Age on the IAASB’s call for auditor reporting reform.

Stuart Gittleman of Thomson Reuters reports on the release of the IESBA's Exposure Draft, Responding to a Suspected Illegal Act. 

The Realizing the Power of PAOs seminar in Hanoi, Vietnam, on August 17, 2012, brought together more than 50 individuals representing IFAC, the World Bank, and regional organizations and professional accountancy organizations (PAOs) from across the East Asia Pacific region and beyond. The event was hosted by the Vietnam Association of Certified Public Accountants (VACPA) and supported by the Confederation of Asian and Pacific Accountants (CAPA).

The event included presentations from World Bank and IFAC experts who set both the global and regional scenes, recognizing the importance of the accountancy profession and, specifically, the role of PAOs. Presentations also examined the development successes and challenges of PAOs in the context of East Asia Pacific.

Szymon Radziszewicz, IFAC senior technical manager, provided an overview of IFAC’s framework for successful PAOs, including IFAC’s position on global regulatory convergence, balancing shared regulation, and the IFAC Statements of Membership Obligations (SMOs).

A panel session showcased the available tools and diagnostics that support strengthening and development of PAOs, including the World Bank Reports on the Observance of Standards and Codes (ROSC) program, the IFAC Compliance Program and membership requirements, the PAO Development Committee strategy implementation, and an overview of efforts being made by the Recognized Regional Organization CAPA.

The second part of the day was an interactive workshop during which PAOs representing the East Asia Pacific region and beyond had an opportunity to discuss their recent achievements, current challenges, and lessons learned. This session sought to contextualize the range of guidance and information provided earlier in the day, and, most importantly, allowed national PAOs to exchange experiences, receive input from others, and share ideas.

While in Vietnam, Mr. Radziszewicz and Marta Russell, IFAC technical manager, held outreach meetings with key representatives of the profession, including the Ministry of Finance, IFAC member body the Vietnam Association of Accountants and Auditors, and the World Bank. Discussions focused on providing stakeholders with an overview of IFAC’s structure and priorities and enhancing IFAC’s understanding of the nature of the profession and current priorities and challenges for these organizations. Mr. Radziszewicz and Ms. Russell also participated in The Vital Role of PAOs, a conference held by VACPA and CAPA.

A high-level summary of the workshop discussions will be made available soon.

The International Ethics Standards Board for Accountants (IESBA) today released for public exposure new requirements that address a professional accountant’s responsibilities regarding the disclosure of suspected illegal acts committed by a client or employer. The proposals describe the circumstances in which a professional accountant is required or expected to breach confidentiality, one of the five fundamental principles in the Code of Ethics for Professional Accountants (the Code), and disclose the act to an appropriate authority.

The Exposure Draft (ED), Responding to a Suspected Illegal Act, proposes adding two new sections addressing illegal acts to the Code—one each for professional accountants in public practice and professional accountants in business—and several revisions to other related sections. The new sections clearly delineate the expected course of action for a professional accountant to take if those charged with governance do not respond to the issue appropriately.

“Breaching confidentiality is not something to be taken lightly,” said Jörgen Holmquist, chair of the IESBA. “However, when the consequences of non-disclosure are potentially harmful to individuals or society, confidentiality must be overridden. Accountants have an important role to play in protecting the public interest and enabling authorities to take appropriate action.”

How to Comment
The IESBA invites all stakeholders to comment on its proposals in the ED, Responding to a Suspected Illegal Act. To submit a comment, visit the IESBA website at www.ethicsboard.org. Comments on the ED are requested by December 15, 2012.

About the IESBA
The International Ethics Standards Board for Accountants (IESBA) is an independent standard-setting board that develops and issues, in the public interest, high-quality ethical standards and other pronouncements for professional accountants worldwide. Through its activities, the IESBA develops the Code of Ethics for Professional Accountants, which establishes ethical requirements for professional accountants. The structures and processes that support the operations of the IESBA are facilitated by IFAC. Please visit www.ethicsboard.org for more information.

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. It is comprised of 167 members and associates in 127 countries and jurisdictions, representing approximately 2.5 million accountants in public practice, education, government service, industry, and commerce.