Pwc. PwC Transparency and disclosure 3rd Meeting of the Latin America Corporate Governance...

Transparency and disclosure

3rd Meeting of the Latin America Corporate Governance Roundtable

Mexico City - April 10, 2002

Ana María Elorrieta

© 2001 PricewaterhouseCoopers. PricewaterhouseCoopers refers to the individual member firms of the world-wide PricewaterhouseCoopers organisation. All rights reserved.

PricewaterhouseCoopers

What do markets, investors and stakeholders want?

• Comparable and prepared under common financialcomprehensive reporting principles, full disclosure

• fair represents economic reality,

balance discussion of risks

• considered results from good governance

• reliable audit to high standard

Access to high quality information that is:

Financial reporting

PricewaterhouseCoopers

Financial Reporting - Why IAS?

• The only international framework

• New Board structure in place

• Due process

• Interpretations

• Translations, practice aids

• Principles not rules

PricewaterhouseCoopers

Financial Reporting - Why IAS?

• ComparabilityCommon recognition and measurement principles

• Full disclosure“Financial statements should not be described as complying with IAS unless they comply with all the requirements of each applicable standard”

• Fair presentation“transactions accounted for in accordance with their substance and economic reality and not merely their legal form”

PricewaterhouseCoopers

IAS in some Latin American countries

Argentina

•Rules similar to IAS approved by the professional body, applicable as from July 1, 2002

•Certain minor differences will remain.

Brazil

•Regulators and professional bodies support harmonisation through local rules

•There is a project at the Congress to create the Brazilian Accounting Commission

•New accounting standards in accordance with IASs.

PricewaterhouseCoopers

Colombia

•Government required by law (2000) to promote harmonisation

•Feasibility study conducted by university

Chile

•Regulators and professional body support gradual harmonisation

•IAS concepts apply in the absence of local rules

•New standards are generally IAS compliant

PricewaterhouseCoopers

Ecuador

•IAS’s are translated and adopted as local GAAP

•Time lag due to translation and approval by regulator

Paraguay

•IASs have been adopted by the Professional Council

PricewaterhouseCoopers

Peru

•IAS have been adopted as the Peruvian GAAP by the Government professional body. The IAS’s need to be approved by CNC

•IAS 1 to 38 and SIC 1 to 16 have been approved for 2001 Financials. SIC 17 and IAS 40 are mandatory as from 2002. IAS 32 (revised in 1998), 39 and 41 are mandatory from 2003

Uruguay

•The IAS’s approved by a technical commission are mandatory. Some IASs and IAS interpretations are still not mandatory

PricewaterhouseCoopers

•Panamá and Costa Rica have officially adopted IAS in 2001. However the adoption is still partial in certain industries.

•El Salvador has scheduled full adoption in 2004

•Guatemala in 2002.

•Nicaragua and Honduras has postponed full adoption to 2003/4.

Corporate governance

Auditing

Auditor Independence

PricewaterhouseCoopers

Most inherent value of the auditing profession

Appearance Vs. essence

IndependenceIndependence

PricewaterhouseCoopers

Threats to independence

Safeguards

Circumstances and relationships that may create threats to independence and the safeguards that may be appropriate to eliminate and reduce, including financial interests, relationships with clients, provisions of non-audit services to audit clients.

Conceptual approach adopted by Conceptual approach adopted by IFAC Code of EthicsIFAC Code of Ethics

PricewaterhouseCoopers

Apparent benefit• Independence of auditors

Disadvantages• Reduction in quality due to lack of

cumulative client knowledge, reduction of investments in audit training and industry specialization

• Increase audit costs without a corresponding increase in benefits

In South America: Brazil, Bolivia, Ecuador and Paraguay

Rotation of audit firmRotation of audit firm

PricewaterhouseCoopers

Scope of services - Framework Scope of services - Framework proposedproposed

Services that directly supports high quality audit: audit services, tax services, risk management and control services.

Other services based on study of threats and safeguards.

PricewaterhouseCoopers

SafeguardsSafeguards

Client acceptance procedures

Independence policies

Rotation of audit partner

Concurring partner review

Consultations

Segregation of personnel involved in audit and non-audit services

Internal disciplinary an review processes

Standards on Auditing

PricewaterhouseCoopers

Audit and assuranceAudit and assurance

Financial statements audited in accordance with internationally-recognised framework.

Audit quality enhanced by deeper knowledge of the business.

PricewaterhouseCoopers

International Standards on AuditingInternational Standards on Auditing

Change the name to International Auditing and Assurance Standards Board (IAASB)

Increase the Board size to 18

5 members from FoF, 10 from Member Bodies and 3 public members

Meetings to be held in public

Increase staff resources

PricewaterhouseCoopers

ISAs in Latin American countries

Argentina: in the agenda for 2002, including independence rules. Difference in auditor’s report

Brazil: no significant differences but Brazilian standards are too generic in some areas and could result in differences in application. Independence rules in the accounting body’s agenda for 2002.

Ecuador, Peru and Uruguay: already adopted for audits of financial statements

Conclusions

PricewaterhouseCoopers

Conclusion

In terms of financial reporting

Improve quality of reporting standards, adopting International Accounting Standards

Corporate Governance

Good corporate governance to support quality information

PricewaterhouseCoopers

Conclusion

In terms of auditing

Common goal: audit quality

Independence is a state of mind: adopt a principle approach, the Independence Standard in the IFAC Code of Ethics

Raise local auditing standards to International Standards on Auditing

Independent oversight

Discourage rotation of audit firm

Thank you!