Welcome to the International Ethics Standards Board for Accountants (IESBA) eNews.

In This Issue:

1. IESBA Welcomes New Chair
Technical Updates
2. Responding to a Suspected Illegal Act
3. Proposed Change to the Definition of “Those Charged with Governance”
4. Review of Part C of the Code
5. Breach of a Requirement of the Code
6. Reformatting of the Code
7. Strengthening Safeguards against Familiarity Threats
8. Conflicts of Interest
9. Other Matters
Additional News
10. IFAC Is Hiring
11. IESBA Handbook Now Available
12. Upcoming Meetings
13. Share IESBA eNews with Your Colleagues

1. IESBA Welcomes New Chair

Jörgen Holmquist recently began his three-year appointment as the first independent chair of the IESBA. A public member of the IESBA since 2011, he served as director general, DG Internal Market and Services, European Commission from 2007 to 2010, where he was responsible for developing the European Union (EU) regulatory response to the financial crisis, including legislation and policy concerning accounting and auditing.

A key function of the chair is to enable, encourage, and promote a deeper understanding by stakeholders and the public of the strategies and activities of the IESBA. Mr. Holmquist will be active in developing and maintaining effective relationships with national standard setters, regulators, and other key stakeholders.

Mr. Holmquist joined IFAC President Göran Tidström in acknowledging the exemplary contribution and commitment his predecessor Ken Dakdduk brought to the role, and to his position on the board, over the past seven years. To learn more, see Mr. Holmquist's interview in IFAC News and the press release announcing his appointment.

Technical Updates
This section provides an update on recent developments on key projects and a summary of decisions made at the IESBA’s last meeting in June 2012. 

2. Responding to a Suspected Illegal Act

Last month, the IESBA issued Responding to a Suspected Illegal Act. The Exposure Draft (ED) proposes that:

• A professional accountant in public practice providing professional services to an audit client be required to disclose, where the client has not done so, to an appropriate authority, suspected illegal acts that affect financial reporting or fall within the expertise of the professional accountant, and that are of such consequence that reporting would be in the public interest.
• An accountant performing a professional service for a non-audit client and an accountant in business be required to disclose suspected illegal acts to the entity’s external auditor, if any, where the accountant is unable to escalate the matter, or the client/employing organization respectively has failed to take appropriate action, and the matter is of such consequence that the professional accountant determines that disclosure would be in the public interest. If the response to the matter is not appropriate, the professional accountant will have a right to disclose certain suspected illegal acts to an appropriate authority. The accountant would be expected to exercise the right to disclose. An accountant performing a non-assurance service for a non-audit client would have a right to disclose a suspected illegal act that related to the subject matter of the professional service being provided. A professional accountant in business would have a right to disclose a suspected illegal act that affects the financial reporting of the employing organization.
• In exceptional circumstances, a professional accountant would not be required or expected to disclose the suspected illegal act. Exceptional circumstances would arise where a reasonable and informed third party might conclude that the consequences to the professional accountant or others of disclosure are so severe as to justify not complying with the requirement to disclose, for example, where there would be threats to the physical safety of the professional accountant or other individuals. Consequences that are of a commercial nature, such as the loss of a client or income, would not constitute exceptional circumstances.
• Terminating the professional relationship or resigning from the employing organization is not a substitute for disclosure to an appropriate authority.

Visit www.ethicsboard.org to access the ED and submit a comment. Comments are requested by December 15, 2012.

3. Proposed Change to the Definition of “Those Charged with Governance”

The IESBA has issued an Exposure Draft (ED) to revise the definition of the term “those  charged with governance” to more closely align with the definition in ISA 260, Communication with Those Charged with Governance. The ED recognizes that, consistent with ISA 260, communication may be with a subgroup of those charged with governance. Visit www.ethicsboard.org to access the ED and submit a comment. Comments are requested by October 31, 2012.

4. Review of Part C of the Code

At its June meeting, the IESBA discussed the preliminary recommendations of a Working Group formed to review Part C of the Code of Ethics for Professional Accountants (the Code) and identified areas where further development might be appropriate. For consideration in the IESBA’s next Strategy and Work Plan, the Working Group recommended guidance on two additional issues:

• The responsibility of professional accountants in business (PAIBs) to produce financial reports that are faithful representations of the economics of transactions and to avoid association with misleading information and reports; and
• Situations in which PAIBs are pressured by superiors to violate laws or ethical standards.

The IESBA agreed that the review be extended to identify any other related issues that the IESBA may wish to address in its Strategic Plan for 2014/15.

5. Breach of a Requirement of the Code

At its June meeting, the IESBA discussed amended wording in its proposal to address a breach of the Code. The changes reflect board and CAG members’ comments at meetings held earlier this year. The IESBA’s discussion also benefitted from feedback provided in response to a recent survey of those charged with governance. The IESBA concluded:

• The firm shall discuss all breaches and the action it has taken, or proposes to take, with those charged with governance. The communication shall be as soon as possible, unless those charged with governance have specified an alternative timing for less significant breaches;
• The firm shall communicate the breach in writing to those charged with governance; and
• In addition to complying with any legal or regulatory requirements, the firm shall consider reporting a breach to a member body, relevant regulator, or oversight authority when such reporting is common practice or encouraged in the particular jurisdiction by the member body, regulator, or oversight authority.

The IESBA anticipates publishing the final standard in December with an effective date of January 1, 2014.

6. Reformatting of the Code

At its June meeting, the IESBA reviewed a possible alternative approach to formatting the Code to raise the visibility of its requirements and prohibitions. The IESBA found the possible alternative helpful and requested the proposals be developed further and consideration be given to the views of regulators and those who implement the Code.

7. Strengthening Safeguards against Familiarity Threats

At its February 2012 meeting, the IESBA tentatively agreed it is important to have a position on the key regulatory proposals in Europe, the US, and other jurisdictions that are within the board’s purview. At its meeting in June, the IESBA received a report to assist it in determining its position on mandatory audit firm rotation and other possible safeguards as a means of reducing to an acceptable level the familiarity and self-interest threats that can be created as a result of an auditor’s long association with an audit client. It did not yet form an opinion on these matters and determined that it would continue to monitor developments and the debate in this area.

At its June meeting, the IESBA agreed that it was appropriate to review the provisions in the Code that address partner rotation and requested that a project proposal be prepared to initiate this. The project should address the period that a partner can serve as a key audit partner, the time-out period required, the individuals who should be subject to rotation, and other safeguards that could address the threats created by long association with an audit client. The IEBSA will review a project proposal on these issues at its next meeting in December 2012.

8. Conflicts of Interest

The IESBA discussed a summary of responses (as follows) to the Exposure Draft (ED) addressing conflicts of interest:

• Respondents were generally supportive of the application of the reasonable and informed third-party test and the basis on which threats arising from network firm interests and relationships are addressed in the ED;
• Respondents were supportive of proposals to deal with situations when consent cannot be obtained because it would breach confidentiality; and
• Respondents were supportive of the proposed requirements for professional accountants in business.

The IESBA reached tentative conclusions on the following matters:

• The description of a conflict of interest should be redrafted to provide a linkage between the professional activity and the matters that are in conflict, thus making it clear that a conflict of interest is not created merely because the interests of two clients are in conflict; and
• The guidance on managing conflicts of interest, and obtaining and documenting consent, could be clarified by addressing disclosure and consent separately and providing additional guidance on the types of consent—general, explicit, and implied.

The IESBA will consider revised wording at its December 2012 meeting.

9. Other Matters 

In June, IFAC released a new policy position paper setting out guidance on defining the “public interest.” At its June meeting, the IESBA noted the IFAC Board’s approval of the paper. The IESBA also noted that in its response to the Exposure Draft addressing conflicts of interest, the International Organization of Securities Commissions (IOSCO) had encouraged the IESBA to consider the concept of the public interest as outlined in the Code and whether it should be a fundamental principle. The IESBA agreed that it would consider both of these matters at its December 2012 meeting.

The IESBA has been trial testing an approach to assessing the impact of its proposals and to date has received comments from respondents on three different approaches to developing its impact assessment. The IESBA agreed that it would consider its experience with impact assessment, and the experience of the other standard-setting boards supported by IFAC, at its December 2012 meeting with a view to considering whether there is a favored model to use for future IESBA impact assessments.

Additional News

10. IFAC Is Hiring

The International Federation of Accountants, which supports the operations of the IESBA, is searching for a Technical Director to supervise and coordinate the work of the IESBA. Qualified candidates will have senior level accounting experience, including significant technical experience and a deep working knowledge of ethical and independence standards, in particular, the Code of Ethics for Professional Accountants. Visit Working at IFAC to learn more. Qualified candidates should send a resume and salary requirements to jobs@ifac.org.   

11. IESBA Handbook Now Available

The 2012 Handbook of the Code of Ethics for Professional Accountants is now for sale on the IFAC website. Discounts for bulk orders, students, educators, and those in World Trade Organization developing countries are available.

12. Upcoming Meetings

Meetings of the IESBA and the IESBA Consultative Advisory Group are open to the public. The IESBA plans to next meet by conference call on October 15, 2012, 7:00–9:00 AM Eastern Daylight Time and October 16, 2012, 7:00–8:00 AM Eastern Daylight Time. The next face-to-face meeting of the IESBA is scheduled for December 10–12, 2012 in New York, USA. For more information and to register to attend an IESBA meeting as an observer, visit IESBA Meetings.

13. Share IESBA eNews with Your Colleagues

The IESBA issues regular eNews updates to help keep you informed of its activities and recent developments. Please forward this eNews to any interested colleagues and advise them that they can subscribe to receive IESBA eNews by following these simple steps:

• Register a new account or log in to your existing IFAC web account.
• Go to My Subscriptions to manage your subscription preferences.
• Select "Ethics eNews" from the checklist, as well as any other newsletters or press releases that you would like to receive.

The International Federation of Accountants (IFAC), the global organization for the accountancy profession, today issued Policy Position Paper 6, Global Regulatory Convergence and the Accountancy Profession.

Continued efforts to sustain global regulatory convergence are critical for the evolution of a sound, global financial system. Convergence assists in providing solutions to problems highlighted by the global financial crisis and contributes to greater economic certainty and financial stability. To be effective, global convergence requires the support of a broad range of key stakeholders—including politicians, governments, regulatory bodies, and professional accounting organizations—at the national and international levels.

“Global convergence is a significant issue in the current debate about regulatory reform and responses to the financial and sovereign debt crises,” said IFAC Chief Executive Officer Ian Ball. “Crucially, convergence helps users compare financial information, minimizes the effects of systemic economic risks, reduces information costs, and decreases opportunities for regulatory arbitrage.”

IFAC believes that the global public interest is best served by consistent global adoption and implementation of high-quality, internationally accepted financial reporting, auditing, assurance, public sector accounting, accounting education, and ethics standards (including independence requirements for auditors), and by use of these standards for reporting financial information for capital and debt markets. The process of convergence involves national and regional standard setters and regulators either adopting international standards or modifying their own standards to achieve consistency with agreed global norms.

In addition, the public interest is served when regulatory arrangements involving auditor registration and licensing requirements, the public oversight of auditors of public interest entities, and arrangements that promote greater cross-border trade-in-services are globally consistent and based on cooperation and mutual recognition.

“Successful global solutions require national governments and regulators to avoid the temptation to implement legislative and regulatory reforms without considering the global agenda, and without a serious commitment to cooperating with national and international counterparts,” continued Mr. Ball. "Reforms that have extra-territorial impacts, or regulatory actions that require entities to potentially violate or bypass the laws of other countries, exacerbate current problems in the global financial system."

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.

# # #

Global regulatory convergence is an essential element of the globalization of capital and debt markets, and is important in promoting the comparability of financial information, minimizing the effects of systemic economic risks, and helping to create a level playing field for international competition. For the accountancy profession, regulatory convergence includes the globally consistent adoption and implementation of high-quality internationally accepted financial reporting, auditing, assurance, and auditor independence standards.

The Journal of Accountancy covers the IAASB roundtable meeting recently held in New York City.

Welcome to this Special Edition of eNews—The Role of Professional Accountants in the Sustainability of Small Businesses.

In This Issue:

1. Introduction
2. Reporting and Assurance
3. Guidance and Support Tools
4. Surveys and Reports
5. Events and Presentations
6. Awards
7. Next Steps

1. Introduction

IFAC’s member organizations are increasingly developing activities that specifically address small- and medium-sized entities (SMEs), sustainability, and the role of accountants. This special edition of eNews highlights these activities to facilitate information sharing, and to promote how professional accountants can work with SMEs to improve their environmental, social, and governance (ESG) performance.

There is an opportunity for accountants working in small- and medium-sized practices (SMPs) to respond and provide sustainability advice and guidance to their SME clients. Professional accountants working in SMEs also have a critical role to play in embedding sustainability into the business strategy and practices of their employers.

A good starting point for organizations is to do more with less. Accountants can advise on the benefits of reducing energy costs and pollution, from simple behavioral changes aimed at eliminating waste, to investment in new equipment and alternate sources of energy, to developing an environmental management system. Accountants can also assist with the preparation of sustainability and integrated reports and the provision of assurance thereon.

SMEs are crucially important to the health, stability, and sustainability of the global economy: they account for the majority of private sector gross domestic product (GDP), wealth and employment creation, and social and environmental impacts. Today, they are starting to face pressure to measure and reduce outputs that negatively affect the environment and society. The good news is that studies are finding that initiatives that help SMEs reduce their carbon footprint also help improve their bottom line. SMEs of all kinds—for profits and not for profits, public or private, across all industrial sectors—stand to yield significant benefits from adopting sustainable business practices and their accountants can help.

2. Reporting and Assurance

• For the years 2011-2012, the Association of Chartered Certified Accountants (ACCA) issued its first integrated annual report, which follows the initial approach set out by the International Integrated Reporting Council (IIRC) in their Pilot Programme (see below for additional information on the IIRC).

Prior to the United Nations Conference on Sustainable Development (Rio+20) in June 2012, the ACCA also released Making a Difference at Rio+20, advocating for theinclusion in the final conference outcome document of a call for the integration of sustainability information into corporate reports (from companies of any size). See also the final document from the conference.

• The CPA Australia 2011 Annual Report combines CPA Australia’s annual and sustainability reports, which reflects its “journey towards an integrated report.” The report also benchmarks performance against the Global Reporting Initiatives’ G3.0 Guidelines and sustainability indicators. The report highlights CPA Australia’s activities related to thought leadership, carbon emissions, human resources, governance, and community involvement.
   
• The IIRC is developing the Integrated Reporting Framework, a new approach to corporate reporting that demonstrates the linkages between an organization’s strategy, governance, and financial performance and the social, environmental, and economic context in which it operates.

In 2011, the IIRC released the Discussion Paper, Towards Integrated Reporting—Communicating Value in the 21^st Century. The IIRC received comment letters from more than 200 respondents, including the IFAC Small and Medium Practices (SMP) and Professional Accountants in Business (PAIB) Committees. See additional submissions on the IIRC website.

IFAC’s President Göran Tidström is a member of the IIRC and IFAC Chief Executive Officer Ian Ball is the chairman of the IIRC’s Working Group. Additionally, IFAC provides staff support for the development of the integrated reporting framework.

In July 2012, the IIRC released its Draft Outline of the Framework and plans to launch a prototype later in 2012, a Draft Framework in early- to mid-2013, and a “version 1.0” of the Framework in late 2013. Mr. Ball recently gave an update on the work of the IIRC, which is available on the IFAC website in the News & Events section.

The ACCA, the Chartered Institute of Management Accountants (CIMA), and the Consiglio Nazionale dei Dottori Commercialisti e degli Esperti Contabili (CNDCEC) are participating in IIRC’s Pilot Programme to test the building blocks of the Framework and inform its development and application.

• The International Auditing and Assurance Standards Board (IAASB) has released the International Standard on Assurance Engagements (ISAE) 3410, Assurance Engagements on Greenhouse Gas (GHG) Statements, to ensure high-quality assurance reviews for those organizations that release GHG statements. The standard covers reasonable and limited assurance engagements and is designed to help foster public confidence in assured greenhouse gas emissions information. The ISAE has been drafted such that it can be applied in a manner proportionate to the size of complexity of the entity. It is therefore applicable in various contexts, from emissions from a single office to emissions from complex physical or chemical processes at several facilities across a supply chain. See the At a Glance summary for more information.
   
• In 2011, the South African Institute of Chartered Accountants (SAICA) published its first integrated annual report, using the guidelines in the discussion paper released by the (South African) Integrated Reporting Committee. SAICA has also created a dedicated website for sustainability issues: www.sustainabilitysa.org. The website contains information on integrated reporting and sustainability for both South Africa and the global community.

3. Guidance and Support Tools

• The article The Role of SMPs in Greening Small Business, written by Sylvie Voghel, then chair of the IFAC SMP Committee, and Paul Thompson, IFAC deputy director, SME and SMP Affairs, presents the arguments, both environmental and financial, in favor of SMPs implementing “green” policies and initiatives within their own organizations. The article also explores sustainability advisory as an emerging service area for SMPs.
   
• The IFAC Sustainability Framework 2.0, published by the IFAC PAIB Committee, is a tool for accountants around the world to accomplish the integration of sustainability within their organization from three perspectives: strategy, operations, and reporting. Through key considerations developed from examples and opinions from entities of all sizes, from major international corporations to smaller firms, and leaders from around the world, the Framework provides a comprehensive global view of some of the current best practices in each of these areas.
   
• The PAIB Committee also published Investor Demand for Environmental, Social, and Governance Disclosures: Implications for Professional Accountants in Business earlier in 2012 to consider the current trends in investor demand for and use of ESG information, and make recommendations on how professional accountants can better support their organizations in responding to these demands. The report includes a sector-neutral list of the most commonly used core performance indicators, which are of use for professional accountants working with organizations.
   
• The ACCA’s The ABC of CSR for Small and Medium Enterprises provides guidance on how businesses “can voluntarily engage with key stakeholders to determine how to ‘do good while doing good business.’” It breaks corporate social responsibility (CSR) down into plain English and basic categories that can help businesses assess what they do and make sense of CSR from a holistic perspective. It focuses on four key areas that are likely to be important to businesses: employees, environment, community, and the supply chain. The guidance includes definitions of key terms, real-life case studies and an explanation of the what, why, and how of CSR for small businesses.
   
• In 2011, the AICPA, the Canadian Institute of Chartered Accountants, and CIMA issued a joint report discussing how SMEs can profit from sustainability and the growing emphasis SMEs are putting on sustainability. SMEs Set Their Sights on Sustainability uses case studies from Canada, the UK, and the US to illustrate how smaller companies are using sustainability issues to their advantage and taking various approaches to core issues.
   
• The Institute of Chartered Accountants in England and Wales (ICAEW)’s Business Sustainability Program earlier in 2012 to consider the current trends in investor demand for and use of ESG information, and make recommendations on how professional accountants can better support their organizations in responding to these demands. The report includes a sector-neutral list of the most commonly used core performance indicators, which are of use for professional accountants working with organizations.
   
• The Institute of Chartered Accountants in Australia (ICAA) developed a series of case studies that highlight five businesses and their initiatives to integrate sustainable business practices at their organizations. Integrating Sustainability into Business Practices: A Case Study Approach features companies of varying size, industry, and structure and includes tips to help business leaders get involved. For the organizations examined, moving toward a more sustainable business has yielded both environmental and financial gains.
   
• With financial support from the Swedish Transport Administration, the Swedish Energy Agency, the Swedish Environmental Protection Agency, and the Swedish region Västra Götaland, Swedish professional accountancy organization FAR has developed a set of tools known as MER (Miljö Engagerad Revisor, or Environmentally Committed Accountant). The tools strive to help accountants work with their SME clients to assess the environmental and financial status of the business’s operations. MER was featured in a FEE paper promoting the tools as a good practice example in March 2010. To access the tools in English, see the MER website.
   
• Nederlandse Beroepsorganisatie van Accountants has published Corporate Social Responsibility: CSR for SME Accountants, designed to provide practical guidance to professional accountants working with SMEs get started in CSR. The brochure explores a number of different aspects of CSR and its importance for SMEs and the professional accountants that work with them. Most significantly, it examines how an SME and its accountant can get involved in CSR and what roles the accountant can play.

4. Surveys and Reports

• Published in July 2012, the ACCA’s Environmental Aspects of Sustainability, SMEs, and the Role of the Accountant, investigates the intersection between these issues. Building on previous research on the role of SMPs as SME advisors, the study was conducted via 14 interviews with practicing accountants, SME representatives, and environmental consultations.

The research found that SMPs are not generally providing sustainability advice due to limited resources and their lack of knowledge and confidence to apply their accounting skills in this area. In addition, the current sustainability advice provided by SMPs is largely informal in nature, pertaining mostly to cost-reduction opportunities, such as energy consumption and transport costs.

• The Comité de Integración Latino Europa-América (CILEA) conducted a survey from October 2011 to February 2012 on social and environmental reporting in Latin American and Latin European countries. The objective of the survey was to determine what types of social and environmental information is currently being reported in the participating countries, what the requirements are in those jurisdictions, and what the benefits are of reporting such information. The survey results include an indication of which mandatory requirements are applicable to SMEs. Twelve professional organizations participated in the survey, including several IFAC member bodies. For the complete results, see Resultados de la Encuesta Sobre Balance Social.
   
• Released by the Fédération des Experts Comptables Européens (FEE) in January 2010, the policy statement Small and Sustainable: Opportunities for SMEs calls for professional accounting practices to contribute to sustainable thinking in SMEs by developing sustainable products and services for their small business clients. The statement is part of a series of policy statements released by FEE on core issues related to sustainability and the accountancy profession.
   
• ICAEW published Sustainability Assurance: Your Choice in 2010, which outlines the intersection between sustainability and assurance services and what is distinct about the assurance service available from a professional accountant in public practice. The booklet also includes a listing of who makes use of sustainability information, why they want assurance, and the types of services a professional accountant can provide.

The ICAEW’s 2004 report Sustainability: The Role of Accountants, reprinted in 2011, and describes ways in which information supports mechanisms used to promote sustainable development and the challenges and opportunities that these present for professional accountants in business and in practice. An Executive Summary and Abstract of the report are also available.

• In September 2012, the ICAA published a business briefing on building and implementing a sustainability plan to help Chartered Accountants and other financial professionals assess the sustainability of their businesses. Twenty key issues relevant to implementing a new strategic approach to sustainability in a corporate context, the issues are divided into four key areas: building sustainability into your strategy; implementing the strategy; embedding sustainability into core business processes; and creating value through reporting.

5. Events and Presentations

• In response to growing interest in the environmental footprint of SMEs, ACCA held a roundtable, SMEs and SMPs on the Road to Sustainability: Opportunities and Barriers, to discuss trends, challenges, and opportunities shaping the sustainability and CSR agenda for SMEs and SMPs in December 2010.
   
• The Hong Kong Institute of Certified Public Accountants’ professional development events for members in 2012 cover corporate environmental management; environmental, social and governance (ESG) reporting; and becoming a sustainable company.
   
• The South African Institute of Professional Accountants (SAIPA) held its National Conference, Accounting as a Catalyst for Change, on building and implementing a sustainability plan to help Chartered Accountants and other financial professionals assess the sustainability of their businesses. Twenty key issues relevant to implementing a new strategic approach to sustainability in a corporate context, the issues are divided into four key areas: building sustainability into your strategy; implementing the strategy; embedding sustainability into core business processes; and creating value through reporting.

6. Awards

• The ACCA sponsors the annual Sustainability Reporting Awards, which recognize companies for excellence in ESG reporting, with an emphasis on innovative ways to communicate performance and transparency. The awards only comment on transparency and reporting standards. Previous winners have included multinational corporations and SMEs, such as REAP and Traidcraft. ACCA has been sponsoring the awards program for more than ten years.
   
• CPA Australia's Global Research Perspectives Program, an annual research grant program for research of relevance to CPA Australia’s members, the accountancy profession, and the global business community as a whole, includes sustainability and integrated reporting as an eligible category. Research in this area should link internal sustainability-based performance to external reporting and seek to explore how accounting practices should adapt or develop to contend with changing expectations of the responsibility, scope, and impact of business. Previously selected research included the influence and impact of sustainability on capital investment decisions and applying sustainability reporting to product focus.
   
• The Hong Kong Institute of Certfied Public Accountants’ annual Best Corporate Governance Disclosure Awards includes an award for performance in sustainability and corporate social responsibility reporting and a category for listed companies of mid-small market capitalization.  Information about the 2012 awards is available on the Institute’s website.
   
• Winners of the inaugural Finance for the Future Awards were announced in June 2012. The ICAEW, The Prince’s Accounting for Sustainability Project, and NatWest launched the new awards program to promote sustainability in business in the UK. With six categories ranging from start-ups to established major corporations, including not-for-profit, public sector, and small business organizations, the Awards help raise awareness of organizations that have shown how the finance function has driven or had a significant role in embedding and measuring sustainable performance. ICAEW also recently launched a series of new videos and website dedicated to encouraging sustainability in business—Just Good Business.

7. Next Steps

Join us on LinkedIn! As evidenced in this newsletter, IFAC member bodies are ramping up efforts to support accountants in this area, but there may be scope for the profession to do even more to position and equip professional accountants as sustainability advisors.

Please join us in the IFAC group on LinkedIn to share your thoughts on how professional accountants in business and in practice, especially SMPs:

• can further support their organizations in strengthening and facilitating sustainable practices; and
• provide high-quality sustainability advice to SMEs

We are also interested in learning what else member bodies are doing to support their SMP members in sustainability accounting, reporting, and advising.

IFAC and the SMP and PAIB Committees look forward to hearing from you.

Note: IFAC has reported on the member body activities related to SMPs/SMEs and sustainability of which it was aware. If you feel that your organization has an activity that should have been included, please email communications@ifac.org so that we may include it in any subsequent editions of this newsletter.

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.