1 June 2000 Hong Kong

Role of Disclosure in Strengthening Corporate Governance and Accountability

Regulation of the Audit Profession

Tsuguoki Fujinuma

President

International Federation of Accountants (IFAC)

1 June 2000 Hong Kong 2

Introduction

• Regulators focussing on audit quality

• Self-regulation – the best way forward

• Action by the profession to ensure audit quality and relevance

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Regulators

• Focus on audit profession due to:– expanded information needs as a result of globalisation, IT etc

– high profile audit failures/Asian crisis

• Increasing involvement in audit profession:– endorsement of IAS by IOSCO

– proposed endorsement of ISA by IOSCO

– demands by regulators and IFIs for improved quality

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Self-regulation – the best solution

• National level:– government/regulators responsible for legislative framework

– professional bodies responsible for standard-setting, compliance, enforcement

• International level:– international legislation still at early stage

– international professional bodies responsible for standard-setting, compliance, enforcement

• Profession is being challenged to demonstrate its ability to:– meet expanded demands of capital markets

– undertake assurance standard-setting/enforcement roles

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IFAC and IASC

• Aim of IFAC/IASC– creation of transparent and comparable global financial and

auditing environment

• IASC– development, promulgation and review of IAS

– changes in governance, membership

• IFAC– broad standard-setting role (ISA, ethics, education, other areas)

– compliance review

– enforcement

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IFAC : International Standards on Auditing (ISA)

• Core of existing standards

• Existing level of acceptance and use

• Ensuring quality and relevance of standards

• New areas to be covered (derivatives)

• Other non-financial assurance areas (eg PFI, environmental reports, KPI)

• Their importance to decision-takers

• Benefits of international endorsement by IOSCO

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IFAC : Ethics

• Importance of independence of auditors

• New IFAC principles-based framework

• Consistency of approach with EU and USA

• Other guidance (MDPs, other services to audit client)

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IFAC : Education

• Particularly relevant to needs of developing nations

• IFAC’s proposed update of standard syllabus and IT components

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Commitments of Major Firms

• To support use of IAS

• To use ISAs in their audit procedures

• To ensure ethics rules comply throughout their networks using IFAC Code as minimum

• To provide greater education and training

• Closer working relationship with IFAC through membership of IFAC Forum of Firms– eligibility requirements

– membership obligations

– firmwide independent quality reviews

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Compliance, Monitoring, Enforcement

• Creation of independent Public Oversight Board• Obligations of IFAC’s 143 member bodies• Creation of IFAC Compliance Committee

– to review domestic introduction of IAS, ISA, other IFAC standards and guidelines

– to review monitoring and disciplinary procedures by profession bodies of their members

• Independent quality assurance reviews of firms through IFAC Forum of Firms

• Encourage adoption of standards through creation of International Forum on Accountancy Development (IFAD)

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International Forum on Accountancy Development (IFAD)

• Building accounting capacity and capabilities in developing and emerging countries

• Strengthening financial reporting and its credibility

• Membership from IFAC, practising firms, regulators, IFIs

• Benchmarking various aspects of financial architecture against international standards e.g. accounting, auditing, independence, corporate governance, disclosure requirements

• Support and assistance to “plug gaps”

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Conclusion

• Profession and firms taking significant steps to meet/exceed public expectations

• Harmonised and high quality accounting and auditing profession to support public and private sectors

• Working increasingly closely with regulators and IFIs towards this goal