Just before his untimely death in July 2008, Rashad Malik, the Commissioner of the SEC in Pakistan, wrote a very thought-provoking article on ethics and business.

In it, he suggested that ethics, as standards of society, do not exist in a vacuum but have to be evaluated with reference to accepted thresholds, actions, and feelings. To what extent, he asked, can the regulatory environment in a jurisdiction take account of ethical issues? At first sight, regulatory environment or statutory law do not give much attention to core ethical issues. The regulation in any system does not mention ethics and no legal texts refer to ethical concerns. The regulatory environment, however, does take account of ethics, for example, through enforcement and dispute settlement outcomes, which inevitably reflect certain values about how society perceives actions.

In today’s environment our thoughts on corporate governance immediately turn to visions of boards of directors rewarding themselves with lavish bonuses or unscrupulous owners creating corporate giants without substance. The names of Madoff and Satyam are on everyone’s lips today. In the papers this week, I have seen the initials of seven people accused of swindling Dh 1.8 billion from the Dubai Islamic Bank. A year ago, we were all talking about corporate failure at the Northern Rock Building Society. And before that, the discussion over coffee would have been Enron and WorldCom.

But corporate governance is much bigger than personal gain by a few key individuals in the upper levels of a company. The core of ethical concerns with regard to international economic relations usually comprise human rights, labor standards, environmental protection, and more recently extended to cooperation on anti-terrorism, anti money laundering, and transparency.

Many large companies have ethics and compliance officers. Why? Because there are so many expectations of business and so little public agreement on what ethics means at the detailed level that companies develop Codes of Conduct by which to govern their actions as corporate citizens and  as individuals working in that corporate culture. Of course, a written Code of Conduct does not mean much. Enron was loudly acclaimed as having a model Code with its Visions and Values platform encompassing Respect, Integrity, Communication, and Excellence values statement.

Where are we today?

While businesses brace for the worst and adjust their financial and operating strategies, the indicators from an ethics perspective are equally daunting:

• Business confidence has reached a record low
• 70% of workers in one recent study admitted they have already downloaded confidential company data for future personal use if they find themselves looking for a job
• 90% of compliance, legal, finance and risk executives surveyed say they expect fraud activity to increase in 2009

It is difficult to continue talking about the value of high ethical standards and the importance of individual action when the outlook for a company is grim.

Patricia Harned is President of the Ethics Resource Center. She has helped to shape ethics training for the securities industry in the U.S. She believes the Audit Committee can be a stabilizing influence in ethical matters today.

They must be alert to the fact that conditions are ripe for financial fraud – even in your business. I was talking to one senior partner from the national office of one of the Big 4 audit firms this week. He told me that his office had 200 open files of situations where they were considering a going concern qualification as part of the audit report. In all companies that are facing this trauma, the temptation to skirt the rules will grow. Pressures rising, revenue falling and a perception that the future will only be worse are the ingredients for taking “out of the box” survival strategies too far.

Transparency should be your company mantra. The media is fixated on the economic situation and, as a result, stakeholders are developing impressions of corporate activity from sources wholly apart from the Corporate Communications Department.

I am indebted to Dr. Saidi, who is not only Chief Economist of DIFC but also the Executive Director of the Hawkamah Institute of Corporate Governance, set up here in GCC in 2006. He referred me to their 2007–2008 survey report on corporate governance in MENA. I encourage you to read it.

The key to success will be stakeholder trust, and trust is built through consistent transparency. The ethics compliance officer and audit committee should help set the tone for communication and disclosure. The Hawkahma survey identified that most, but not all, companies provide financial statements but non-financial disclosure could be improved, 32% of GCC companies do not publish an annual report in English, only 23% of companies publicly preannounce the date of their AGM, only 25% of banks and listed firms provide information on their dividend policies on line, 19% of GCC companies have no website at all, and only 2% of GCC companies hold analyst meetings or conference calls. You cannot be a credible company on the world stage if you do not communicate. We heard from Dr. Nasser Saidi earlier today about his vision of the GCC creating a common currency, becoming the third global currency, and a global capital market center. I strongly suggest that the viability of the GCC, as a global market, will be dependent on local businesses listed on that center being seen at the leading edge of good corporate governance and leading proponents of full and complete disclosure of financial and non-financial information. Only then will businesses from around the world feel confident in seeking to raise money on this exchange.

There is no one country that has a perfect system of corporate governance. We can all learn from each other. Don’t reject one country’s model on the basis that it was not made here. Take the best elements from different frameworks and adopt them to your environment. And all countries have weaknesses that need to be overcome. Whether it is the U.S. preference for having the Chairman and CEO roles held by one person, in spite of overwhelming global views that this is a bad idea, or the GCC experience that only 25% of listed family-owned enterprises have a family council in place, we can all improve. I want to recognize good governance that I have seen since I arrived in Dubai last week. The Abu Dhabi Ship Building company announced its general meeting in the papers. I was pleased to note that one of the items on the agenda was a proposal to amend the company’s Articles of Association to comply with the Corporate Governance Code for Joint Stock Companies. In the same paper, Qatar Telecom announced its annual meeting, which included a proposal to determine the remuneration of the directors for the year ended December 2008.

So where do you look for good ideas? The Organisation for Economic Co-operation and Development (OECD) published the OECD Principles of Corporate Governance: 2004. They are intended to assist governments in their efforts to evaluate and improve the legal, institutional, and regulatory framework for corporate governance in their countries, and to provide guidance and suggestions for stock exchanges, investors, corporations, and other parties that have a role in the process of developing good corporate governance. Last month IFAC published International Good Practice Guidance (IGPG) that provides a framework and principles-based guidance for the professional accountant in business and their organizations on evaluating and improving governance in organizations. It is based on the OECD principles and can be downloaded free of charge from the IFAC website. Look to Appendix B for a list of useful resources.

I am a member of the Institute of Directors in my home country of Canada. To become a director of a publicly listed company there, it is very desirable, although not yet mandatory, that you take 12–15 days of training and pass an examination run by the Institute of Directors to show you have the overall skills needed to act properly as a corporate director. The companies that provide directors and officers liability insurance are beginning to ask how many directors on a board have had this training and rewarding companies who recruit these qualified directors by lowering premiums on the D&O insurance. Those boards are a better risk.

And finally, I call on each of you to lead by example. Your credibility as a professional has taken you a lifetime to achieve. It can take a single unethical action to destroy. And not only do you destroy your own reputation, but you damage the reputation of everyone from the same professional background or holding a similar job title. Headline journalism brands us all. The 999 members of boards of directors who act ethically and apply good corporate governance practices are forgotten in the 1 case that is reported in the press.

I liked the 5 Cs of Linda de Beer’s presentation. They are worth repeating:

• Conscience – acting with intellectual honesty
• Care
• Competence – knowledge and skills, but also a willingness to be reviewed
• Commitment – diligence in the performance of duties
• Courage – to always act with integrity

Thank you.

A policy position paper released today by the International Federation of Accountants (IFAC) describes and explains the international standard-setting process, particularly for International Standards on Auditing (ISAs). The paper, International Standard Setting in the Public Interest, explains how responsibility is shared between public and private sector organizations to produce high quality standards that are in the public interest. The paper identifies the underlying principles of legitimacy, independence, accountability, transparency and performance that are key to a successful standard-setting process, and it describes how the structures and processes of the independent standard-setting boards in the areas of international auditing, ethics and accounting education are consistent with these principles.A policy position paper released today by the International Federation of Accountants (IFAC) describes and explains the international standard-setting process, particularly for International Standards on Auditing (ISAs). The paper, International Standard Setting in the Public Interest, explains how responsibility is shared between public and private sector organizations to produce high quality standards that are in the public interest. The paper identifies the underlying principles of legitimacy, independence, accountability, transparency and performance that are key to a successful standard-setting process, and it describes how the structures and processes of the independent standard-setting boards in the areas of international auditing, ethics and accounting education are consistent with these principles.

In the immediate post Sarbanes-Oxley period, IFAC and the international regulatory community took initiatives to strengthen the international auditing standard-setting process in line with these principles. Among the most important actions was the establishment of the Public Interest Oversight Board (PIOB) to provide independent public interest oversight of the key elements of the standard-setting structure and process. The PIOB, formed in 2005, oversees the International Auditing and Assurance Standards Board (IAASB), the International Accounting Education Standards Board, the International Ethics Standards Board for Accountants, as well as the IFAC Member Body Compliance Program.

"A system of shared responsibility for standard setting draws on the strengths of the profession and of the regulators. Each group brings different skills, experiences and authority to the standard-setting process," states IFAC Chief Executive Officer Ian Ball.  "The PIOB, for example, provides assurance that the standard-setting process is operating independently and in the public interest."

In addition to the establishment of the PIOB, other significant elements of the standard-setting process include a highly transparent due process, a strong role for Consultative Advisory Groups that provide technical input from the perspective of external stakeholders, including regulators, and a composition of the standard-setting boards that has an appropriate balance of "practitioner" and "non-practitioner" members.

Speaking about the system as a whole, Mr. Ball emphasizes, "The ultimate test of any system is that it works well, in this case meaning it produces high quality standards that operate in the public interest. The level of adoption and endorsement of the standards - also outlined in the paper - suggest that this test is being met."

 "IFAC and the regulators share a common goal: we want effective standard-setting processes," points out new IFAC President Robert Bunting. "To be effective they must operate in the public interest, they must be balanced, not resulting in excessive compliance costs for any group, and they must contribute to building public confidence in financial reporting. These criteria are ageless, but they are worth re-emphasizing in times of global crisis like these."

International Standard Setting in the Public Interest may be downloaded from the IFAC website by going to http://www.ifac.org/Store/. 

IFAC (http://www.ifac.org/) 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 158 members and associates in 122 countries and jurisdictions, representing more than 2.5 million accountants in public practice, education, government service, industry and commerce. The organization, through its independent standard-setting boards, sets international ethics, auditing and assurance, education, and public sector accounting standards. IFAC also issues guidance to encourage high quality performance by professional accountants in business.

This information paper contains the results of a survey conducted by the Professional Accountants in Business Committee (PAIB) in the spring of 2008, designed to identify similarities and differences in performance measurement structures in public sector entities and to assess the extent to which these structures help meet their objectives.

As part of its mission to serve all professional accountants in business, including those working in the public sector, IFAC's Professional Accountants in Business (PAIB) Committee has conducted a survey to obtain information about the development of financial and non-financial performance measurement and reporting structures in various public sector entities around the world.

The results of this survey, contained in the information paper Developments in Performance Measurement Structures in Public Sector Entities, will help professional accountants in business, and others who work in the public sector, in evaluating and further improving their own financial and non-financial performance measurement structures. This will enable them to better plan, execute and control their organization's service delivery and to achieve a higher level of accountability. The results will also help IFAC's PAIB Committee to consider specific public sector aspects when developing International Good Practice Guidance for professional accountants in business.

The survey received 250 responses from public sector organizations at all levels of government and in a variety of sectors, including local councils, public utilities and various ministries from countries all over the world. The survey results clearly demonstrate that respondents are much more satisfied with the performance measurement structures in the public sector entities for which they completed this survey, if these structures possess the following, more advanced elements:

• A balanced combination of relevant financial and non-financial objectives, supported by specific measurement indicators (financial and non-financial KPIs);
• Accrual accounting for the budgeting, the (legislative) appropriation and the financial reporting processes;
• Capability for capturing, processing and reporting useful information on both financial and non-financial developments;
• Independent external review of the figures to report on financial and non-financial performance;
• A formal structure for measuring and assessing risk, and developing strategies to control it; and
• A regular review to ensure that the performance measurement structure remains effective and efficient.

IFAC (www.ifac.org) 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 157 members and associates in 123 countries and jurisdictions, representing more than 2.5 million accountants in public practice, education, government service, industry and commerce. Through its independent standard-setting boards, IFAC sets international standards on ethics, auditing and assurance, education, and public sector accounting. It also issues guidance to encourage high quality performance by professional accountants in business.

The International Federation of Accountants (IFAC) supports recent moves by the International Accounting Standards Board (IASB) to contribute to greater consistency in financial reporting and to work towards convergence of international standards, an objective which IFAC views as critical to the efficient operation of global capital markets.

While accepting the value of moving rapidly to remove differences in the application of fair value accounting in different jurisdictions, IFAC strongly opposes attempts to change more radically, or to suspend, the use of fair value accounting without adequate due process. In particular, IFAC considers that making changes at a national or regional level that exacerbate reporting differences would serve to further confuse financial markets and would result in a reduction of confidence in financial reporting - exactly the opposite of what is required in current circumstances. "Reducing transparency is not the answer," says IFAC President Fermín del Valle, "and it will not serve the interests of investors."

IFAC believes that the additional guidance given to those applying both accounting and auditing standards relating to fair values has been very valuable and will contribute to the public interest through more consistent application of the standards. This guidance has come from the IASB and the United States Financial Accounting Standards Board, as well as from the International Auditing and Assurance Standards Board in its Staff Audit Practice Alert, Challenges in Auditing Fair Value Accounting Estimates in the Current Market Environment.

IFAC and its independent standard-setting boards are continuing to monitor the impact of the credit crisis and will consider whether further guidance is needed.

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 157 members and associates in 123 countries and jurisdictions, representing more than 2.5 million accountants in public practice, education, government service, industry and commerce. Through its independent standard-setting boards, IFAC sets international standards on ethics, auditing and assurance, education, and public sector accounting. It also issues guidance to encourage high quality performance by professional accountants in business. For more information about IFAC, visit its website at www.ifac.org.

The International Public Sector Accounting Standards Board (IPSASB), an independent standard-setting board of the International Federation of Accountants (IFAC), has issued for comment the first in a series of consultation papers focused on the development of an international public sector conceptual framework. Entitled Conceptual Framework for General Purpose Financial Reporting by Public Sector Entities, the consultation paper represents a landmark achievement for the public sector financial reporting community.

The consultation paper identifies the IPSASB's preliminary views on the objectives and scope of financial reporting, the qualitative characteristics of information included in general purpose financial reports and the characteristics of public sector reporting entities. 

 "Our ultimate goal is to develop a framework that makes explicit the concepts, definitions, and principles that underpin the development of IPSASs," states IPSASB Chair Mike Hathorn. "Since it will apply across countries and jurisdictions with different political systems and forms of government, the framework will recognize the diversity that exists in the many jurisdictions that may adopt IPSASs and help to strengthen the transparency and consistency of financial reporting by governments worldwide. This makes receiving a broad spectrum of comments on this paper, and all our consultation papers, all the more significant."

"Given the important role the conceptual framework will eventually play in the future standard-setting activities of the IPSASB, I strongly urge constituents to respond to the views expressed in this milestone paper," adds Mr. Hathorn.

How to Comment
Comments on the consultation paper are requested by March 31, 2009. It may be viewed and downloaded by going to http://www.ifac.org/Guidance/EXD-Details.php?EDID=0119. Comments may be submitted by email to EDComments@ifac.org. They can also be faxed to the attention of the IPSASB Technical Director at +1 (416) 977-8585, or mailed to the IPSASB Technical Director at 277 Wellington Street West, 6th Floor, Toronto, Ontario M5V 3H2, Canada.   All comments will be considered a matter of public record and will ultimately be posted on the IFAC website.

About IFAC

IFAC (http://www.ifac.org/) 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 157 members and associates in 123 countries, representing more than 2.5 million accountants in public practice, education, government service, industry and commerce. In addition to setting international public sector financial reporting standards through the IPSASB, IFAC, through its independent standard-setting boards, sets ethics, auditing and assurance, and education standards. It also issues guidance to encourage high quality performance by professional accountants in business.

The International Public Sector Accounting Standards Board (IPSASB), an independent standard-setting board within the International Federation of Accountants (IFAC), is seeking comments on its proposed changes to IPSAS 5, Borrowing Costs, set forth in exposure draft (ED) 35, Borrowing Costs (Revised 200X). 
 
"Public sector entities borrow for a variety of reasons, most of which are unrelated to asset acquisition," said Mike Hathorn, Chair of the IPSASB. "The IPSASB concluded that requiring public sector entities to capitalize borrowing costs as part of the cost of qualifying assets would not satisfy the qualitative characteristics of general purpose financial reporting, particularly related to the reliability of information reported. The immediate expensing of these borrowing costs instead will enhance the accountability of public sector entities." 

Most notably, ED 35 proposes amendments to reflect that in many circumstances the capitalization of borrowing costs as part of the cost of an asset is not appropriate for public sector entities.  This view, a departure from both IPSAS 5 and International Accounting Standards Board's International Accounting Standard 23, Borrowing Costs, is an evolution from public sector consideration of the issue.  The ED proposes that entities recognize borrowing-related expenses, such as interest or loan origination fees, during the period in which they are incurred. The ED also proposes, however, that where entities borrow funds specifically to acquire, construct or produce a qualifying asset, the entity has the option to capitalize those costs as part of the cost of that asset.

ED 35 may be viewed and downloaded by going to http://www.ifac.org/EDs. The IPSASB values the public's opinion and welcomes comments on its decision to require entities to expense borrowing costs, except in the circumstances outlined.

How to Comment
Comments on ED 35 are requested by January 7, 2009, and may be submitted via email at EDcomments@ifac.org.  Comments can also be faxed to the attention of the IPSASB Technical Director at +1 (416) 977-8585, or mailed to the IPSASB Technical Director at 277 Wellington Street West, 6th Floor, and Toronto, Ontario M5V 3H2, Canada. All comments will be considered a matter of public record and, ultimately, will be posted on the IFAC website.

About IFAC
IFAC (www.ifac.org) 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 157 members and associates in 123 countries, representing more than 2.5 million accountants in public practice, education, government service, industry and commerce. In addition to setting international public sector financial reporting standards through the IPSASB, IFAC, through its independent standard-setting boards, sets ethics, auditing and assurance, and education standards. It also issues guidance to encourage high quality performance by professional accountants in business.

The International Federation of Accountants (IFAC), in partnership with the World Bank, is seeking expressions of interest from professional accountants to carry out an evaluation of the activities of the International Public Sector Accounting Standards Board (IPSASB). The IPSASB, an independent standard-setting board within IFAC, develops international standards and guidance to improve public sector financial reporting and fiscal management. The IPSASB's activities are partly financed by World Bank funding grants and, under the funding terms and conditions, an external review of these activities is periodically performed.

The review will cover matters including the extent of adoption of IPSASB standards worldwide, the effectiveness of the World Bank's involvement in the IPSASB's work, whether developing nations have an effective voice in IPSASB activities and whether the governance and management of these activities are transparent and accountable. The evaluator will also be free to propose other suggestions for improvements to the IPSASB's standards development program.

"This external review provides an important opportunity to demonstrate the value of the IPSASB's work in developing international standards to a key supporter and our wider constituents and will assist in identifying areas for improvement," states Mike Hathorn, IPSASB Chair.

Applicants must have substantive prior experience in public sector accounting or auditing. Direct experience with accounting or auditing standards setting is desirable. The evaluator must be a professional accountant and a member of a professional accountancy body.

The requirements for the evaluator and the issues to be addressed by the review are explained in the Terms of Reference for the Evaluation of Development Grants Facility Program, which can be downloaded from the IPSASB home page at http://www.ifac.org/PublicSector/Projects.php. The deadline for submitting an application to be the evaluator is 12:00 pm (EST), Friday, May 31, 2008.

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 157 members and associates in 123 countries, representing more than 2.5 million accountants in public practice, education, government service, industry and commerce. In addition to setting international public sector financial reporting standards through the IPSASB, IFAC, through its independent standard-setting boards, sets ethics, auditing and assurance, and education standards. It also issues guidance to encourage high quality performance by professional accountants in business.

The International Public Sector Accounting Standards Board (IPSASB), an independent standard-setting board of the International Federation of Accountants (IFAC), has released a technical update to International Public Sector Accounting Standard (IPSAS) 4, The Effects of Changes in Foreign Exchange Rates. The update to IPSAS 4, which was issued as part of the IPSASB's global convergence program, reflects the latest amendments to the corresponding International Financial Reporting Standard (IFRS) issued by the International Accounting Standards Board.

"Converging IPSASs with IFRSs, where appropriate for the public sector, is one of the key strategic objectives of our standards development program," states Mike Hathorn, Chair of the IPSASB. "The revised IPSAS clarifies the requirements for public sector entities to convert foreign currency transactions and balances into their reporting currency."

The revised IPSAS 4 can be downloaded from the IFAC online bookstore at http://www.ifac.org/store. It will also be included in the 2008 edition of the Handbook of International Public Sector Accounting Pronouncements.

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 157 members and associates in 123 countries, representing more than 2.5 million accountants in public practice, education, government service, industry and commerce. In addition to setting international public sector financial reporting standards through the IPSASB, IFAC, through its independent standard-setting boards, sets ethics, auditing and assurance, and education standards. It also issues guidance to encourage high quality performance by professional accountants in business.

The International Public Sector Accounting Standards Board (IPSASB), an independent standard-setting board of the International Federation of Accountants (IFAC), is seeking comments on a consultation paper entitled Accounting and Financial Reporting for Service Concession Arrangements.

The consultation paper identifies issues and provides proposals to be considered in the development of IPSASB requirements for accounting and financial reporting of service concession arrangements. Obtaining feedback from constituents is a key desired outcome of the paper. The consultation paper provides an overview of the various types of arrangements that are considered public-private partnerships, of which service concession arrangements are a subset. Also included is an analysis of existing authoritative guidance to assess whether it is sufficient to address the accounting and reporting implications for these arrangements. The paper concludes that additional guidance is needed for service concession arrangements in the public sector. 

Service concession arrangements are distinct from other public-private partnership arrangements in that the risks and benefits associated with constructing, owning and operating the underlying property, along with the control over the property, are shared to a greater degree by the public sector entity and private sector entity involved in the arrangement. The sharing of these aspects of the property, as well as the general complexity of these transactions, has often made the financial reporting of the property for the parties unclear.

This lack of specific guidance for service concession arrangements has caused divergence in how the property is reported, even occasionally resulting in the property not being reported as an asset by either the public sector or private sector entity. This has also provided public sector entities the opportunity to use these arrangements as a means to fulfill their infrastructure needs without recognizing the property and related financing in their financial statements, while potentially still meeting fiscal targets.

In November 2006, the International Accounting Standards Board's International Financial Reporting Interpretations Committee (IFRIC) issued IFRIC 12, Service Concession Arrangements, which is applicable only to the operators of these arrangements and not to the public sector grantor. This left many public sector grantors without international guidance on reporting on service concession arrangements. This consultation paper is the IPSASB's first step in considering options for developing guidance for them.

"The use of public-private partnership arrangements, which include service concession arrangements, by the public sector, as vehicles to build and improve infrastructure and other public facilities and provide the services associated with these structures, has continued to grow worldwide over recent years," states IPSASB Chair Mike Hathorn. "The lack of international guidance for grantors of service concession arrangements, combined with the growing public sector interest in these arrangements, made the need for IPSASB action on this issue critical."

How to Comment
Comments on the consultation paper are requested by August 1, 2008, and it may be viewed by going to http://www.ifac.org/EDs. Comments may be submitted by email to EDComments@ifac.org. They can also be faxed to the attention of the IPSASB Technical Director at +1 (416) 977-8585, or mailed to the IPSASB Technical Director at 277 Wellington Street West, 6th Floor, Toronto, Ontario M5V 3H2, Canada. All comments will be considered a matter of public record and will ultimately be posted on the IFAC website.

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 157 members and associates in 123 countries, representing more than 2.5 million accountants in public practice, education, government service, industry and commerce. In addition to setting international public sector financial reporting standards through the IPSASB, IFAC, through its independent standard-setting boards, sets ethics, auditing and assurance, and education standards. It also issues guidance to encourage high quality performance by professional accountants in business.