Notes from the XVII World Congress of Accountants

Istanbul, Turkey, 15 November 2006

Plenary Session 2

The theme of the second plenary session was capital market stability worldwide and the accounting profession. Rene Ricol (past president of IFAC, France) introduced the session by reiterating a common theme here: that capital market stability is essential for development. To fulfil their role in the capital market supply chain, accountants must walk with integrity and join the battle against corruption and money laundering.

Taizo Nishimuro (President and CEO of the Tokyo Stock Exchange) gave an overview of the TSE's operations and how it is responding to advances both in regulation and technology. Among the steps that have been taken to ensure the integrity of financial reporting in Japanese securities markets is a requirement for a management report on internal controls and an independent audit report thereon.

Sir David Tweedie (Chairman, IASB) explained why global accounting standards, based on principles and promoting the appropriate use of professional judgement, are vital to secure an efficient global capital market. He suggesed three simple tests for a good quality accounting standard:

• Can we explain the standard in one minute?
• Does it make intuitive sense?
• Is it written in plain English?

He stressed that the accounting profession had a 'once in a lifetime' opportunity to retrieve accounting standards from rule-based systems, but this will require:

• restraint on the part of preparers and auditors from demanding interpretations and detailed implementation guidance
• acceptance by regulators that the exercise of judgement in a principles-based environment will mean that two entities in similar circumstances might get different accounting answers.

He finished his address with an invitation to the accounting profession to rise to the challenge of implementing IFRSs.

Samuel DiPiazza (Global CEO, PricewaterhouseCoopers) emphasised that for the accounting profession to prosper it must remain relevant. We should ask each day whether we were creating trust and delivering value. He noted that stakeholders today demand financial information that reflects economic reality, and he commended the IASB for progress in that direction. He suggested three goals for a 'sustainable accounting profession':

• Deliver quality audits: The audit opinion lends credibility financial information in the capital markets. It is the duty of the audit firms to attract and develop auditors who are skilled and critical thinkers.
• Convergence of standards around the world: Financial information is no longer national. It is at least regional and often global. IFRS is the way to achieve reliable and consistent financial information. The standards should not be too complex and must be based on the appropriate use of professional judgement, and the legal and regulatory environment must respect those judgements.
• Relevant reporting: The investor community is focused on economic reality and this required both financial and non-financial information; and information that is as much forward-looking as retrospective. To ensure relevance and usefulness, the profession must rethink the timeliness of information and the technology available for communication.

He concluded his remarks by saying that all parts of the financial reporting supply chain must be involved in this effort.

Finally, Professor Mustafa Aysan spoke as a late replacement for Ali Babacan, the Minister of State of Turkey, who could ot attend due to State business arising on short notice. Prof. Aysan reviewed the history of IFRSs in Turkey and spoke in favour of 'adoption' not 'adaptation' of the standards produced by the IASB.

IFRS for SMEs

The IASB's project to develop an IFRS for Small and Medium-sized Entities was the subject of a workshop attended by over 1,000 delegates. The workshop was chaired by Sylvie Voghel, who chairs IFAC's Small and Medium Practices (SMP) Committee.

Paul Pacter, the IASB's Director of Standards for SMEs (and webmaster of www.iasplus.com) led off with an overview of the history of the project and the status of the draft Exposure Draft (ED). He noted that a near-final draft of the ED, along with the Invitation to Comment, Illustrative Financial Statements, and a Disclosure Checklist, were posted on the IASB's website www.iasb.org last week. He said that the IASB is likely to publish the ED for comment in late December or early January. He identified:

• material in IFRSs that is not included in the draft ED because it is not regarded as relevant for a typical SME
• options in IFRSs that are not included in the draft ED (in general, where IFRSs allow accounting policy choices, the IFRS for SMEs will include only the simpler choice, with the alternative available to an SME via cross-reference to the IFRS)
• recognition and measurement simplifications that the Board has made
• proposed simplifications that were rejected

Click to downlooad Paul Pacter's Presentation (PDF 227k).

Comments on the draft ED were offered by:

• Arnon Ratzkovsky, who chairs the Accounting Standards and Financial Reporting Committee of the Istaeli Institute of CPAs
• Mohamed Ali Elaouany Cherif, a partner of Mazars Tunisia and a member of IFAC's SMP Committee
• Pierre Barnes, President of the Interamerican Accounting Association (IAA)

Mr Barnes indicated that his organisation believes that, in addition to standards for listed companies and standards for SMEs, a third tier of accounting standards is needed – one designed for 'micro-sized entities' with fewer than 10 employees. He noted that IAA has embarked on a project to develop accounting standards for the micros.