As the International Federation of Accountants celebrates its 30th anniversary, ACCA (Association of Chartered Certified Accountants) explores the developments in international accounting over this period and considers the future challenges.
INTRODUCTION:
The pace of progress is faster in our lifetimes than was ever the case for earlier generations. This is not just true for accountancy but also for science, for commerce, for art, for literature, for politics, for humans in general and for the natural environment. As accountants, we seem to fit this pattern very well. Things have changed vastly for this profession in the last thirty or forty years, on balance, mostly for the better if truth were told.
And although it may be tempting to consider that some change has not occurred in the interests of accountants, it is important that we see this change in the context of our wider duty to promote and protect the public interest. Looked at in this light, we can confidently say that change has predominately been for the good of the profession.
One of the biggest changes witnessed in the largest capital markets is the demise of self-regulation. But, as other professions are finding, self-regulation is a double-edged sword: it nourishes the ego but sometimes does little for the public interest. Similarly, it is a common complaint that financial reporting has now become too technical, accessible only to a secret fraternity of experts who can decipher the codes and cast the runes. But do sophisticated financial markets really want unsophisticated standards?
The International Federation of Accountants (IFAC) was founded in 1977 and was born out of realisation that the global profession would benefit from shared expertise and common global standards first of all of auditing, then later of education, public sector accounting and ethics.
BEFORE IFAC:
Accounting and auditing standard setting predates the foundation of IFAC of course. The US Accounting Principles Board (APB) was formed as a Committee of the American Institute of Certified Public Accountants (AICPA) in 1959 but even that was pre-dated by the Committee on Accounting Procedures (CAP), possibly as a late acknowledgement that an absence of rigour in financial reporting played a contributory role in the Wall Street Crash of 1929 and the subsequent depression. Influential as US technical thinking on accounting issues has been (and still remains), other countries soon began to develop their own standard setting mechanisms.
In the United Kingdom, the Accounting Standards Steering Committee (ASSC) was created in 1970 based on an existing internal committee of the Institute of Chartered Accountants in England and Wales. The ASSC brought the whole of the UK accountancy profession together for the first time as official arbiters of what constituted official UK generally accepted accounting practice (GAA). The first standards were issued in 1970.
THE UK ASSC LEFT SOME IMPORTANT LEGACIES, IN PARTICULAR "THE CORPORATE REPORT"
(1975) which set out a new vision for the purpose of financial reporting as well as identifying how corporate reporting could address multiple user constituencies. Throughout the intervening years a number of reports have built upon the conceptual vision of "The Corporate Report" and the debate regarding "fitness for purpose" continues even today witness the publication in late 2006 of the "Vision Document" authored (it is said) by the chief executives of the six largest global accounting firms.
But development in the US and the UK do not, however much we would often like to think otherwise, constitute a global solution to an increasingly global problem: how to support and maintain robust global financial markets in an information age powered by new technology.
INTERNATIONAL ACCOUNTING STANDARDS:
The International Accounting Standards Committee was formed in 1973. The early creation of the IASC with its effective monopoly over the development of international standards for financial reporting has left IFAC the responsibility of developing the entire supporting framework:
auditing standards - which can cope with the increasingly technical and litigious demands of the financial markets.
education standards - which do not just promote but ensure the effective acquisition of the skills and competencies accountants need to service their national and global markets.
ethical standards - which protect the public interest best practice guidance on both the topics that comprise the competency set of the professional accountant in business.
EDUCATION, EDUCATION, EDUCATION!
IFAC is engaged in a "continual improvement" mode with the education of accountants globally. The IFAC International Accounting Education Standards Board develops International Education Standards with which all IFAC member bodies must comply. To ensure the long-term health of the accounting profession, the core syllabus must be able to demonstrate its relevance (to employers) and its attractiveness (to member bodies) in the face of many competing business education qualifications.
THE NEXT 30 YEARS:
IFAC has flourished in its first 30 year - will it survive the next 30?
Undoubtedly the answer to that question is yes - the world's need for accountants will not evaporate in the foreseeable future - but there must be some caveats. And there will be some challenges. Developments outside accountancy are likely to have a profound effect on the profession. ACCA has identified five challenges.
FINANCIAL REPORTING IN THE MEDIA AGE:
Traditionally, the accountant's role has been reporting and commenting on past financial performance and the annual report and accounts remain the focus of much accounting and auditing activity. But we now face a generation of future investors obsessed by immediacy in the context of text messaging, sound-bites and online communication.
Assuming we get to a point where all public and most international entities use one, common reporting framework, organisations will need to find a way to deliver financial information which suits the global media age in which we live. All this sets a real challenge for our concept of today's printed report and accounts, and the industry which goes into creating these glossy, well-presented documents.
REPORTING IN THE BROADER CONTEXT:
Secondly, we are faced with the challenge of reporting on not just the financials, but the broader business. There is clearly a potential future in which much of the financial analysis is automated, or generated by outsourced teams, supported by enhanced technology. We have already seen the increased emphasis on non-financial reporting. This is likely to be the start of a long-term trend where the skills and training of accountants can be positioned to provide renewed value.
ACCOUNTING AS A VOCATIONAL CAREER:
The role of accountants and the skills they need are constantly changing. ACCA's own research suggests that finance professionals continue to become more strategic. Indeed, by 2020, we expect to see finance managers performing broader, strategic roles in their organisations. Along with this, we expect to see technology and outsourcing increasingly being deployed at transaction level. But perhaps deeper than this is the shifting understanding of the professions. A traditional understanding of being 'professional' encompasses the concepts of 'lifelong vocation' and 'defined skills and competencies'.
APPROPRIATE GLOBAL REGULATION:
The profession also seeks to ensure that regulation is appropriate to the needs of different markets and sectors, it is vital that regulation should be principles based. The emphasis should be on making current systems better and more effective rather than pursuing a future agenda of adding greater burdens to business and their advisers. Our profession's reputation for reporting on a 'true and fair' view and our ability to use judgement and synthesis should not be replaced by a tick-box approach.
The logical conclusion of this is that the audit becomes simply a back-room exercise in compliance, which would leave an audit profession where the intellectual challenge is removed. If this is the future, then the accountancy profession will not reach out to the brightest graduates and business people.
A TRULY GLOBAL PROFESSION BY NAME AND BY STANDARD:
And lastly, and perhaps most significantly for IFAC, all this points to an ongoing need for global standards. As a result, we need to ensure that global standards in accounting continue to underpin our profession. The work of regulars and IFAC and other global bodies are all vital to the success of this. As the profession continues to expand, it is clear that there will be an important role for global standards to play in this.
If true globalisation is our aim - and I think it has to be if we are to remain relevant to global business and acting in the public interest - we need to have a strong profession in all parts of the world. We will need to move beyond issuing global standards to implementation and compliance, to promote a consistent standard in every part of the world. IFAC is already seizing this agenda.
At the same time, we also need to recognise that there are an increasing number of global standards relating to education and training, skills and competence. Clearly, these standards play an important role in establishing benchmarks globally. Within this, however, we should guard against a rigid approach which might not reflect the diverse needs of the profession in wide-ranging countries, sectors and size of business.
Rather, we should focus on achieving an appropriate balance between the core skills an international accountant needs and the specialist knowledge required to effectively meet market and employer needs.
CONCLUSION:
As the body responsible for the development of the profession itself globally, IFAC's activities in areas such as education, small business, developing nations and professional accountants in business will (indeed must) develop in depth and sophistication. The need for accountants will not disappear, and neither will the need for them to be properly skilled at all points in their working careers. The developments in international accounting in the last 30 years have been far-reaching and a cause for celebration.
As we look forward to the next 30 years, we must continue to innovate, to open up the profession to talented people around the world, and to promote to all stakeholders the benefits of a profession operating to consistent standards around the world. We must be open to change which is in the interests of furthering the reach of accountancy. And we, as professional accountants, should seek to ensure that employers continue to professionalise their workforces in the interests of underpinning business performance and economic development.
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