MEASURING COUNTRY-LEVEL
ACCOUNTANCY PERFORMANCE AND
ACHIEVEMENT
ACCOUNTANCY DEVELOPMENT INDEX
Disclaimer: The author’s views expressed in this publication do not necessarily reflect the views of the
United States Agency for International Development or the United States Government.
Acknowledgements
The measurement methodology that is described in this paper is based on the United States Agency for
International Development project entitled “Benchmarking International Standards for Transparency and
Accountability.” This project resulted in the Accountancy Development Index (ADI) Research Initiative.
Recognition is given to the organizations and experts who contributed to this project. Without their
efforts and continuing support it would not have been possible to present this report on measurement
methodology.
The Accountancy Development Index Research Initiative was made possible through funding by the
United States Agency for International Development (USAID) and the commitment of CARANA
Corporation, Royal NIVRA and Leiden University, The Netherlands. A Steering Council of international
experts discussed, reviewed, analyzed and came to consensus about the methodology that was developed.
Essential contributions were made by all country respondents and reviewers who participated in the
study.
Thanks are due to the Steering Council Chair, Prof. Richard M.S. Wilson, who so ably guided the Council
through the many hours of discussion. His leadership was invaluable.
The Steering Council’s guidance on the conceptual framework provided the necessary intellectual bearing
for the ADI. Without their contribution, the ADI would never have been developed. Thanks are extended
to:
Prof. David Alexander, Paul Hurks, Prof. Dr. Gert Karreman, Prof. Dr. Hans Kuijl, Prof. Wim
Moleveld, Prof. Dr. Belverd Needles Jr., William Phelps, Prof. Dr. William Simons, Gert Smit and
Prof. Lesley Stainbank.
The core research team of Prof. Dr. Gert Karreman, William Phelps, Gabriella Kusz Vallejos and Weiji Shi
provided the operational leadership and the hard work that made the ADI possible.
The genius behind the ADI was Mr. David Meyer who served as the Project’s technical manager at
USAID. His vision for a quantitative tool to measure the accountancy environment served as a constant
source for inspiration.
Special thanks also to Dr. Tim Verdoes and Mr. Anthon Verweij of the Center for Business Studies at
Leiden University; Mr. Jeroen Buchel of Royal NIVRA and to Mr. Hysen Cela of the Albanian Institute of
Authorized Chartered Auditors; Ms. Marina Shelaru of the Association of Professional Accountants and
Auditors of the Republic of Moldova and Ms. Ardiana Bunjaku of the Society of Certified Accountants and
Auditors of Kosovo; and, to all of the country respondents and expert reviewers.
Their research
support, review and suggestions were very useful in the development of the ADI.
i
Finally, the ADI benefited from previous works including the Global Accounting Education Benchmarking
project led by Dr. Prof. Gert Karreman and R. William Phelps and funded by USAID, and The Impact of
Globalization on Accountancy Education authored by Dr. Prof. Gert Karreman.
ii
Contents
Acknowledgements ............................................................................................................................................................... i Contents ................................................................................................................................................................................ iii List of Tables ........................................................................................................................................................................ iv List of Figures ........................................................................................................................................................................ v Acronym Guide ................................................................................................................................................................... vi Executive Summary ............................................................................................................................................................ vii Chapter 1: Monitoring Country Progress ......................................................................................................................1 Quantitative Measures ...................................................................................................................................................1 Accountancy Infrastructure ..........................................................................................................................................1 ADI Stakeholders, Uses and Benefits .........................................................................................................................3 Chapter 2: The ADI - Framework for Performance ....................................................................................................7 Measurement .........................................................................................................................................................................7 The Eight Pillars of Accountability and Transparency ............................................................................................7 ADI Framework Criteria ..............................................................................................................................................8 The Construction and Use of Composite Indices ..................................................................................................8 The Need for ADI ....................................................................................................................................................... 10 Why Has ADI Development Been So Long in Coming? .................................................................................... 11 Observable benchmarks-standards and best practices ....................................................................................... 11 IFAC Statements of Membership Obligations ....................................................................................................... 12 Design - Questionnaire .............................................................................................................................................. 14 Design – Adoption and Implementation Indicators ............................................................................................. 18 Design -Web Based Response .................................................................................................................................. 19 Design - Statistical Framework ................................................................................................................................. 19 Chapter 3 ADI Results ..................................................................................................................................................... 23 Using ADI ...................................................................................................................................................................... 30 Evaluating Results ......................................................................................................................................................... 31 Chapter 4 – Lessons Learned and Recommendations for Future Research ....................................................... 33 Appendix A — Introduction to Indices ....................................................................................................................... 36 Appendix B — Respondent Country Profiles and Results ...................................................................................... 44 Appendix C — Survey Questionnaire.......................................................................................................................... 77 Appendix D —Preface to the Statements of Membership Obligations ............................................................. 131 Appendix E — ADI Frequently Asked Questions ................................................................................................... 135 Appendix F — Mapping ADI to World Bank ROSC .............................................................................................. 139 iii
List of Tables
Table 1: Stakeholders’ Primary Use and Benefit of ADI........................................................................... 4 Table 2: ADI Results Chart ............................................................................................................................. 6 Table 3: Pillar Outline ..................................................................................................................................... 15 Table 4: ADI Country List ............................................................................................................................. 21 Table 5: Mean Cluster Score and Perceived Improvement ................................................................... 30 Table 6: Pillar Score Breakdown by Country ........................................................................................... 32 iv
List of Figures
Figure 1: Accountancy Environment ___________________________________________ 2 Figure 2: ADI Framework __________________________________________________ 14 Figure 3: ADI by Region ___________________________________________________ 23 Figure 4: ADI Developed and Developing Nations ________________________________ 24 Figure 5: Example of Pillar Scores vs. ADI ______________________________________ 25 Figure 6A: ADI Country Peers: Developed _____________________________________ 25 Figure 6B: ADI Country Peers: Transitional _____________________________________ 26 Figure 7: ADI Adoption vs. Implementation Scatter Chart __________________________ 27 Figure 8: Spider Graph Example Adoption vs. Implementation ________________________ 28 Figure 9: ADI Sub-Pillar/Milestones Breakdown __________________________________ 29 v
Acronym Guide
ADI
BISTA
COE
CPI
EC
EU
FDI
GCI
GDP
IAASB
IAESB
IASB
ICDP
IES
IESBA
IFAC
IFRS
IPSAS
IPSASB
ISA
ISAE
ISAR
ISRE
ISRS
ISQC
MOU
NGO
OECD
PEFA
PIOB
PMF
ROSC
SME
SMO
TOR
UNCTAD
UNDP
USAID
WB
WBICDP
WDI
WEF
WGI
XBRL
vi
Accountancy Development Index
Benchmarking International Standards of Transparency and Accountability
Code of Ethics
Corruption Perceptions Index
European Commission
European Union
Financial Development Index
Global Competitiveness Index
Gross Domestic Product
International Accounting and Assurance Standards Board
International Accounting Education Standards Board
International Accounting Standards Board
Integrated Capacity Development Plan
International Education Standard
International Ethics Standards Board for Accountants
International Federation of Accountants
International Financial Reporting Standards
International Public Sector Accounting Standards
International Public Sector Accounting Standards Board
International Standards on Audit
International Standards on Assurance Engagements
International Standards of Accounting and Reporting
International Standards on Review Engagement
International Standards on Related Services
International Standards on Quality Control
Memorandum of Understanding
Non-governmental Organization
Organization for Economic Co-operation and Development
Public Expenditure and Financial Accountability
Public Interest Oversight Board
Performance Measurement Framework
Reports on the Observance of Standards and Codes
Small and Medium Enterprises
Statements of Membership Obligations
Terms of Reference
United Nations Conference on Trade and Development
United Nations Development Programme
United States Agency for International Development
World Bank
World Bank Integrated Capacity Development Plan
World Development Indicators
World Economic Forum
Worldwide Governance Indicators
eXtensible Business Reporting Language
Executive Summary
The Accountancy Development Index (ADI) is an innovative look and a proxy for the condition of the
accountancy development in a country. It measures many aspects of a country’s transparency and
accountability infrastructure through a quantitative composite index. This is a first!
The ADI is a pilot
project funded by the United States Agency for International Development (USAID) and can be used to
monitor country progress by a wide audience of stakeholders that include donors, standard setters,
regulators, professional accountancy associations, government agencies, media, educators and investors.
Overtime it will identify countries that are adopting and implementing reforms and measure compliance
gaps against international standards and best practices. The development challenges can be highlighted and
used to inform future program design and more effectively target resources.
As with all indices, complex, multi-dimensional economic or social phenomena are reduced to a single
number. The measure of a good index, a useful index, is its capacity to measure, summarize and compare.
The ADI meets these criteria. The ADI is a proxy for the accountancy environment in each of 32
countries responding to a self-assessment questionnaire that was subjected to independent third party
quality review. The design of the pilot initiative was guided by a Steering Council of international experts
from the fields of academia, the accountancy profession and development. Additionally, many qualitative
assessments were available that helped to inform both the design and validation of the ADI.
The ADI methodology built on existing international accountancy standards as promulgated by the
International Federation of Accountants’ Statements of Membership Obligation, the International
Accounting Standards Board, standards and best practices from the OECD Corporate Governance
principles, USAID NGO Sustainability Index and common legal, regulatory and institutional practices.
These standards were incorporated into an eight pillar, 42 milestone and 300 indicator survey instrument
that balanced objective and subjective questions resulting in indices on adoption and implementation. The
adoption and implementation distinction is important as the global financial crisis highlighted the urgency
to move more quickly on implementing reforms. The ADI is data rich, allows the user to “drill” down on
compliance gaps and helps to inform future actions.
The methodology is based on a sound statistical framework and applies widely recognized index building
approaches to a traditional qualitative field. The ADI captures the power of graphics to present results at
many different levels – pillar by pillar, region by region, developed vs. developing country, etc.
This is a pilot initiative and therefore, more research and development should be completed to enhance
the results. In this regard the ADI work product was transferred to a consortium led by the United
Nations Conference on Trade and Development (UNCTAD) and supported by Leiden University, The
Netherlands and CARANA Corporation. This Consortium is using the methodology within UNCTAD’s
Intergovernmental Working Group of Experts on International Standards of Accounting and Reporting to
vii
support its capacity building agenda. This agenda aims to build sustainable capacity for the accountancy
profession.
The accountancy profession has a unique role of serving the public interest. With increased public
oversight, the profession must demonstrate progress in closing compliance gaps and convincing regulators
and investors that it has the tools and capabilities to advance the quality of financial reporting. ADI is one
such tool, as it can advance results-oriented development by framing, informing and influencing resource
allocation decisions.
viii
Chapter 1: Monitoring Country Progress
Quantitative Measures
Monitoring country progress to meet development goals stands as one of the fundamental processes of
donor evaluation leading to program design and implementation. Performance indicators may be grouped
into convenient categories such as economic growth, economic reforms, democratic reforms, etc. At the
heart of these indicators are quantitative measurements, frequently using indices, to measure achievement
within the realm of adoption and implementation of pre-determined benchmarks such as internationally
recognized standards and best practices.
Incentives for the international community of donors to support development should be based on an
objective measurement of progress. Critics of development assistance frequently site the diffuse,
uncoordinated and unsustained aspects of many reform projects. These same critics suggest that better
situation assessments be made, more comprehensive monitoring and evaluation tools be developed and
proactive measures taken during projects to adjust for new realities.
Although measurement is not the goal, it is a critical part of advancing results-oriented development.
Measurement can be a tool that quantifies and documents capacity building progress over time, which is a
key feature of sustained economic development. Ideally, performance measurement can be used to
develop results frameworks and a set of performance indicators at the project level. An action-oriented,
results framework that links project level indicators to intermediate and higher level indicators of country
progress in building sustainable capacity are imperative in today’s resource allocation decisions.
Accountancy Infrastructure
Integral to sustained economic growth is a trusted, reliable financial architecture, and integral to this
architecture is an accountancy infrastructure that serves the public interest. It is against this backdrop that
the Accountancy Development Index (ADI) was developed. The challenge was to design, test and evaluate
a pilot quantitative measurement tool that would essentially be a proxy for a country’s accountancy
development. A balance sheet of a country’s accountancy development- its assets (achievements) and its
liabilities (compliance gaps) summarized into its net worth (index). A balance sheet is a “snapshot” in
time. The ADI would use this date in time to measure progress as future updates are solicited. It can be
used to recognize reformers and conversely, those that regress. As a development tool it will serve as yet
another means of focused programming in an era of limited international funds/resources.
Measuring economic growth and accountancy reforms would not be complete without considering the
importance of the accountancy profession on capital formation and foreign direct investment. Essentially,
at the end of the accountancy value chain is the financial report. In the ADI context, a financial report
includes both a private enterprise or of a public agency. It is well recognized that general purpose financial
1
reporting, both public and private, plays a critical role in the financial architecture of today’s global
economy. In order to serve the public interest, financial reports (the foundation of information for
investment analytics) must provide unbiased, transparent and relevant information about the economic
performance and condition of businesses and public entities. Effective financial reporting depends on high
quality accounting standards as well as the consistent and faithful application and rigorous enforcement of
those standards.
Figure 1: Accountancy Environment illustrates the many facets of the accountancy environment.
There exists a wealth of qualitative assessment information and data about the accountancy profession,
yet no comprehensive quantitative measure existed prior to the ADI. Reasons may vary but include some
of the challenges that the ADI design/research team had to overcome – a large number of stakeholders
with different information needs, economic conditions that differ between developed and developing
countries, regulatory systems that have widely different structures, and identification of knowledgeable
country respondents and expert independent reviewers. Interestingly, these factors, in the end, were not
insurmountable. Further, the wealth of qualitative information contributed significantly to the design and
validation of the ADI.
2
ADI Stakeholders, Uses and Benefits
The ADI supports the following key aims of many development agencies, in particular USAID, in relation
to:
•
promoting sustainable economic growth;
•
enhancing regional transparency and accountability;
•
improving economic policy-making and governance; and,
•
accelerating harmonization and integration.
ADI is designed around internationally accepted standards and best practices and, for the first
time, provides a simple, comprehensive quantitative summary about a country’s accountancy
environment. This environment includes a country’s adoption and implementation of accounting,
auditing, governance, legal and institutional capacity standards and best practices that may be
used by a wide audience. It is flexible because of its design around eight pillars that are
independently “scored” with features that grab the audiences’ attention through strong data
visualization.
The audience includes donor agencies, standard setters, regulators, professional associations,
educators, pundits, and other capital market participants whose use and benefit is illustrated in
the following Table1:
3
Table 1: Stakeholders’ Primary Use and Benefit of ADI identifies the key stakeholders, their
expected primary use and the primary benefit from using ADI.
TABLE 1
Stakeholder
Primary Use
Primary Benefit
Standard Setters
Determine status of adoption and
implementation
Improve standards, communication
and outreach
Professional Accounting &
Auditing Associations
Inform initiatives to close
compliance gaps
Improved financial reporting
Government Agencies
Identify changes to laws, rules and
regulations
More favorable capital markets
recognition
Regulators
Identify non compliance
Improve enforcement and reduce
negative capital markets ratings
Donors
Identify strategic priorities for
assistance
Targeted assistance yielding
sustained results
Educators
Improve curriculum and relations
with accountancy profession
Greater understanding of current
financial realities
Investors
Align risks and pricing
Better understanding of country
risk profiles
The ADI took over two years to develop by a dedicated design/research team, guided by a Steering
Council of international experts and aided by country respondents, volunteers and funded by USAID. A
pilot group of 40 countries were asked to participate in the testing and evaluation. It should be stressed
that this was a pilot initiative and was conducted knowing that some design features will require further
research and development. For the ADI to continue beyond this pilot initiative, it must be seen by the
primary stakeholders as a tool that aids in accelerating the adoption and implementation of international
accountancy standards and best practices.
To ensure that additional countries would be surveyed and further enhancements made, the transfer of
the methodology and results to a sustaining institution was a required contractual obligation.
Consequently, a MOU was signed between UNCTAD, in a partnership with Leiden University in The
Netherlands and CARANA Corporation to accept the responsibility to move forward to maintain and
enhance the ADI and incorporate this important measurement tool within UNCTAD’s ISAR capacity
building agenda.
The ADI relied heavily on existing methodologies and frameworks in IFAC publications and Statements of
Membership Obligations, OECD Principles of Corporate Governance, USAID NGO Sustainability Index,
World Bank Accounting and Auditing Reports on Observance of Standards and Codes and World Bank
Public Expenditure Financial Assessment Reports. To adopt and implement the international standards and
4
best practices embodied in these publications require significant financial and human resources. It requires
well designed and managed development programs that carefully monitor and evaluate progress toward
closing compliance gaps. The ADI is a tool that may assist stakeholders in determining the actions and
resource requirements that will lead to the design of development programs. The incentive for this type
of assistance is a powerful motivator for moving a country’s accountancy profession toward greater
compliance with international standards and best practices.
The following chapters will describe the operational framework and methodology used to develop the
composite ADI; the design challenges, the findings and analysis, lessons learned and recommendations. But
first Table 2, on the next page, shows the ADI for 32 pilot countries based on April 2009 data. This Table
2 is the results from the first ranking ever produced of countries’ accountancy infrastructure. More will be
said in later chapters about the ADI results; nevertheless, what is more important than ranking is ADI’s
ability to measure movement or progress. This feature will sustain ADI as a measurement tool of choice.
5
Table 2: ADI Results Chart
Accountancy Development Index
6
Country
ADI Score
Adoption
Score
Implementation
Score
C1
8.7
8.9
8.5
C2
8.5
8.5
8.5
C3
8.4
8.7
8.2
C4
8.2
8.5
8.0
C5
8.0
8.7
7.5
C6
7.9
8.5
7.6
C7
7.9
8.1
7.8
C8
7.8
8.1
7.5
C9
7.6
8.2
7.2
C10
7.4
8.2
6.9
C11
7.3
8.1
6.7
C12
6.9
7.5
6.6
C13
6.2
6.5
6.0
C14
6.2
6.8
5.8
C15
5.8
6.0
5.6
C16
5.6
7.8
4.1
C17
5.5
6.4
4.9
C18
5.2
6.0
4.7
C19
5.2
7.2
3.9
C20
5.1
6.9
3.9
C21
5.0
6.4
4.0
C22
5.0
6.1
4.2
C23
4.9
6.8
3.7
C24
4.8
6.4
3.7
C25
4.4
5.9
3.5
C26
4.1
5.6
3.1
C27
4.1
5.3
3.3
C28
3.0
3.6
2.6
C29
2.5
3.0
2.1
C30
2.3
2.8
1.9
C31
1.6
2.2
1.3
C32
0.8
0.9
0.7
Mean Score
5.7
6.5
5.1
Chapter 2: The ADI - Framework for Performance
Measurement
The Eight Pillars of Transparency and Accountability
Recognizing the subjectivity of measurement, the uniqueness of country economic and legal characteristics
and the public interest objective of financial reporting, the ADI takes a holistic view of the accountancy
infrastructure or more broadly viewed as the accountancy environment. The accountancy environment is
defined as the set of institutions, laws, policies, standards, and best practices that determines the quality of
financial reporting, both public and private. The ADI went further by segregating these interrelated pieces
into adoption and implementation actions. The ADI captures this multi-dimensional picture by providing a
composite index of eight pillars with over 300 pillar milestones and indicators.
The ADI is constructed as a single index drawn from each of eight pillars. However, to facilitate more
disaggregated analysis, each pillar is its own index. This comparative set of layered indices is more useful
as an aid to decision-making and as an important element of accountability and transparency, created for
the purpose of assisting future change and progress.
The pillars of the ADI include subject areas of accounting and auditing, education, corporate governance,
institutional capacity and sustainability, statutory framework and ethics. These pillars are:
Pillar 1, Legal, Regulatory and Institutional Framework.
Pillar 2, Audit, Assurance and Quality Control.
Pillar 3, Professional Education.
Pillar 4, International Public Sector Accounting Standards.
Pillar 5, International Financial Reporting Standards.
Pillar 6, Ethics & Discipline.
Pillar 7, Corporate Governance – Transparency & Disclosure.
Pillar 8, Professional Accountancy Association Institutional Capacity.
In reality, the pillars are not independent but are interrelated and reinforcing. For example, Pillar 3 on
professional education has requirements for teaching ethics while ethics is a prime focus for ethics and
discipline in Pillar 6. Nevertheless, the overall pillar structure is flexible and makes it possible to change
the structure to include new developments or even add new pillars to broaden the focus of performance
measurement. For example, at the time the ADI was developed, IFRS for SME was not an international
standard. Future editions of ADI will easily incorporate this important standard into Pillar 5 –
International Financial Reporting Standards.
7
ADI Framework Criteria
In order to meet the ADI goals of designing, testing and evaluating a pilot quantitative performance
measurement tool that could lead to actionable development programs, the following criteria were
established:
•
A composite index would be developed to measure country level information.
•
The index would be based on observable benchmarks.
•
The benchmark milestones and indicators would identify both adoption and implementation actions
and provide sufficient detail to “drill down” through the data to facilitate the development of
actionable plans.
•
The survey instrument would be a self-assessment tool validated by third party independent
country experts.
•
The audience would include all major stakeholders.
•
The ADI methodology and pilot results must be exposed to international experts to gain their
independent views of the value of the index to users.
•
ADI must be sufficiently developed so that a recognized and respected institution assumes the
responsibility to continue the ADI; to promote its use; to enhance and refine; and, update
periodically.
The Construction and Use of Composite Indices
In order to meet the objective of a quantitative measurement tool, the focus turned to indices and
required a review of literature (Appendix A) to confirm that no index similar to what was envisioned by
ADI existed. This literature review confirmed both that no similar index existed and that the OECD’s
“Handbook on Constructing Composite Indicators”1 (Handbook) would be the authoritative user guide
for construction of the ADI.
According to the OECD Handbook, an index is a quantitative or a qualitative measure derived from a
series of observed facts that can reveal relative positions (e.g. of a country) in a given area, and when
measured over time, can point out the direction of change. The construction of an index is not a hard
science,
1
but
rather
a
combination
of
art,
science,
and
statistics.
This
means
that
Organization for Economic Co-operation and Development, Handbook on Constructing Composite
Indicators: Methodology and User Guide. OECD Statistics Working Paper, by Michela Nardo, Michaela Saisana,
Andrea Saltelli and Stefano Tarantola, Anders Hoffman and Enrico Giovannini. Paris 09 August 2005.
8
theoretical/methodological, normative and positive arguments, sufficient and necessary conditions all
come together in the creation of an index.
The OECD Handbook enumerates several benefits afforded by indices. The popularity of indices, (there
are thousands), is due in large part to their ability to combine large amounts of data into easily
understood formats so that they are media and decision maker friendly. By reducing complex, multidimensional economic or social phenomena to a single index, composite indices focus and direct policy
debates better than do large sets of individual indicators. Composites can help in setting priorities,
especially when the various dimensions of a composite are shown and can aid in initiating discussion and
attracting public interest to a particular topic. Finding trends is much easier with the assistance of
composite indices as opposed to sifting through the many individual indicators that comprise a composite
index.
Indices further country progress in a specific area by facilitating country ranking and benchmarking and by
illustrating country progress over time. Also, indices can be modified to reduce or expand their scope by
simply decreasing the number of indicators, within certain limits, or including more information within the
scope. Finally, because of their ease of use and simplicity, indices can be used as a tool to communicate
with the stakeholders and to promote oversight and accountability.
Although there are many benefits to using indices to measure and convey information, there are some
areas of concern that must be considered. Indices are much like mathematical or computational models.
As such, their design is dictated more by the craftsmanship of the modeler than to universally-accepted
scientific rules for their construction. In addition, no index can include every possible variable and
therefore, the picture the modeler creates is always relative or somewhat incomplete. Also, improper
construction in regards to the inclusion and exclusion of certain indicators and inappropriate choices
regarding sensitivity, weighting and aggregation techniques and missing data can result in a distorted
picture of a situation.
Arbitrary choices in regard to these areas have to be made and justified, but also have to be transparent
so that feedback from stakeholders can occur. The high degree of human influence in the creation of an
index also makes indices vulnerable to manipulation. Basing the index on sound statistical or conceptual
principles and maintaining a transparent construction process can hedge against these risks.
In addition, in constructing an index there can be a disconnect between theory and policy. The design of
an index cannot take place within a vacuum, but must include consideration of the potential users and
uses of the measures. Finally, the most important benefit that indices provide to users is an easy to use,
concise summary of complex or multi-dimensional issues.
However this single number (index) may
conceal areas of concern in some dimensions of the index and thereby make it difficult to suggest
corrective courses of action.
9
Mindful of the possible shortcomings of indices, the ADI design/research team built into the process the
following controls:
•
Selected a Steering Council of international experts – educators, accounting practitioners,
development professionals, and professional body experts to provide guidance on the design of
the ADI.
•
Employed an independent and trained statistician and econometrics expert to model and
calculate the index scores.
•
Selected self-assessment respondents as the “knowledge center” of a country’s accountancy
environment and had their responses validated by independent experts with working knowledge
of that country’s accountancy environment.
•
Presented the ADI concept and results at several formal venues (seminars) and solicited opinions
from educators and practitioners that were not otherwise associated with the research initiative.
•
Compared ADI to other indices for correlation of results.
•
Reviewed other published indices that measure economic activities or behavior.
One index that stands out as exemplary is the World Economic Forum’s Global Competitiveness Index
for its theoretical concept, operational framework and thoroughness. As with the ADI, the WEF’s The
Global Competitiveness Index2 is designed around pillars. For example, embodied in their first pillar“Institutions” is a sub-index on strength of auditing and reporting standards. Other indicators within this
pillar track other ADI indicators such as governance, ethical behavior and legal framework.
In summary, composite indices assist in formulating programs and action plans, defining strategies,
measuring performance and reforms, and taking corrective actions. They can be of assistance to donors,
governmental organizations, standard setters, professional bodies and international investors in
understanding and communicating position and progress. The ADI design/research team was aware of the
pitfalls in the creation and use of an index. They mitigated the possible adverse impact of these pitfalls
with an operational framework that stressed transparency, proper design, measurement, and
communication of findings.
The Need for ADI
In reviewing the existing indices, three conclusions were apparent. The first is that information about a
country’s accountancy environment is almost exclusively from qualitative assessments. The second is that
there are many indices covering a variety of subjects and overlapping many domains. The third conclusion
2
World Economic Forum, The Global Competitiveness Report 2007-2008. Geneva, Switzerland 2007
10
is that there is specialization and even competition between the indices themselves. With all these
different indices and their varying degrees of specialization and competition, the question is: “Is there a
need for an index that focuses specifically on a country’s level of accountancy development?”
As previously discussed in regard to the role of accountancy in the global financial architecture,
accountancy is a component of, and is interconnected with, many facets of the capital markets. As such,
there are no existing indices that capture information on the level of development of accountancy in a
country. Consequently, the ADI was developed to meet the need for a comprehensive view of a country’s
accountancy environment.
Although the ADI’s core subject of accountancy is not as broad as the core subjects of its peer indices
(i.e., competitiveness, innovation and environmental sustainability), the variety and diversity of the
different elements taken into consideration to construct the ADI allow it to be categorized as a
composite index. The unique strength and utility of the ADI is that it is a multi-dimensional institutional
analysis, with a specialized in-depth focus not found in other indices. It is comprehensive, yet presented in
an easily understood format. It benefits from data visualization, taking advantage of today’s graphic tools
for presentation.
Why Has ADI Development Been So Long in Coming?
If there is an unmet need for the ADI the question remaining is why has this need gone unmet for so long
– especially when indices and indicators have sprung up for a variety of other subjects such as political
transparency, human rights, etc.? The reasons for this may be that international norms concerning political
and human rights are older, more embedded, and more understood than economic or financial rights.
International accounting norms and standards have only recently begun to accelerate and converge,
making the interest and need to measure this convergence a relatively recent event.
Prior to the recent financial crisis, compliance with established accountancy standards was focused more
on adoption rather than implementation, and was more of a guide than an imperative. Further, compliance
gaps were accepted as the norm for developing countries—compliance was a long term struggle. Finally,
the emphasis was on assessments resulting in qualitative reports that were generally very thorough but
not comparative nor easily used by a broad stakeholder base. The basis of the ADI is to mobilize, organize
and combine all the efforts made to measure a country’s position and progress in the area of accountancy
into one composite index capitalizing on the popularity of indices—simply put, the time was right.
Observable benchmarks-standards and best practices
The development of the ADI methodology turned initially on the benchmarks that would be used for the
framework.
Standard setters for the accountancy profession (IFAC and IASB) have developed
international standards for accounting, auditing, ethics, education, and discipline. These standards were
developed through an exhaustive process of research, consultation, outreach to stakeholders, and
11
oversight. Collaboration, communication and strategic alignment with the public interest are hallmarks of
the standard setting process.
However, the accountancy standards, in isolation, would not achieve the purpose of measuring the
accountancy environment because governing the profession is a set of country laws, rules and regulations
frequently promulgated as the “accounting law”, “audit law”, “company law” and/or “securities
regulations”. Additionally, the development and capacity of the professional accounting/auditing
association(s) within a country play a key role in how well the accountancy profession functions. Lastly,
and importantly, governance cannot be ignored especially given that full financial disclosure rests with the
accountancy profession. Therefore, the ADI added legal, regulatory, governance and institution pillars to
account for these important factors.
In addition to the country’s legal/regulatory environment, the reputation, expertise, and capabilities of the
institutions from which these standards and best practices were derived are also important. These
include:
•
International Federation of Accountants (IFAC) Statements of Membership Obligations (SMO);
•
OECD Principles of Corporate Governance – V. Disclosure and Transparency;
•
World Bank Public Expenditure Financial Assessment (PEFA) Reports;
•
World Bank Accounting and Auditing Reports on the Observance of Standards and Codes
(ROSC);
•
USAID NGO Sustainability Index;
•
EU 8th Directive.
The standards and best practices developed by these institutions are broad, complex, and multidimensional with a diverse stakeholder base.
The ADI research initiative did not attempt to determine whether these standards and best practices
were the “best” but agreed that these are widely accepted as the standards or best practices.
Fundamentally, these standards and best practices were chosen because they exist and preclude ADI from
having to develop its own benchmarks and open discussion on the appropriateness of “new”
standards/best practices. Further, significant qualitative information was available that could be used to
inform the ADI development.
IFAC Statements of Membership Obligations
ADI’s basic framework is based on the IFAC Statements of Membership Obligations (SMOs), which include
detailed requirements for professional bodies of accountants and auditors who are members or associate
12
members of IFAC. The SMOs also address the requirements for individual accountants and auditors. (See
Appendix D). They cover the following subjects:
•
SMO 1: Quality Assurance;
•
SMO 2: International Education Standards for Professional Accountants;
•
SMO 3: International Standards for Quality Control, Audit and Assurance;
•
SMO 4: Code of Ethics for Professional Accountants;
•
SMO 5: International Public Sector Accounting Standards;
•
SMO 6: Investigation and Discipline; and,
•
SMO 7: International Financial Reporting Standards.
Selection of these membership obligations as standards also recognizes the leadership role that IFAC plays
on a global stage. IFAC’s standards and those of the IASB are based on a transparent process that is
responsive to input of members and international experts and scholars, collaboration with national
standard setters and regulators and subject to oversight by the Public Interest Oversight Board. Likewise,
the OECD Principles of Governance, the World Bank’s ROSC and PEFA and USAID’s NGO Sustainability
frameworks are well researched and documented. The ADI benchmarks are based on a solid foundation
and lend credence to the operational methodology and international acceptance.
The ADI is a countrywide tool that uses the “knowledge center” concept. The “knowledge center” is the
professional accounting and auditing body(ies) of the subject country. Even though IFAC members are
professional bodies, they have countrywide responsibilities. The ADI Steering Council debated the issue
of choosing a countrywide index or an index based solely on a professional body and decided
overwhelmingly to produce ADI based on a country. This is due in part to IFAC’s requirements of the
professional body, which explains that:
“It is important to understand that it is possible for member bodies to comply with the
obligations of an SMO, even if government, regulators or other appointed authorities carry out
some or all of the functions specified in that SMO. In such circumstances, the obligation of IFAC
member bodies is to use their best endeavors (emphasis provided by author) to encourage
those entrusted with those functions to implement them in accordance with the provisions of
these Statements and to assist them in implementing those functions when appropriate”.3
3
International Federation of Accountants, Statements of Membership Obligations 1-7: (New York:
IFAC 2004). p2.
13
One last point, many standards are truly national in context; for example, the education standards that
embrace the range of pre- and post-qualification professional accountancy education and development
that includes subjects such as economics, marketing, finance, etc.
Design - Questionnaire
The pillars form the foundation of the ADI and building on this foundation are milestones and indicators.
Milestones are major chapters while the indicators form the basis for the questions/statements in the selfassessment questionnaire.
Figure 2: ADI Framework is a schematic that depicts the design framework.
14
Table 3: Pillar Outline further illustrates the ADI design framework and outlines the pillars and
milestones.
1.0
2.0
3.0
4.0
Legal, Regulatory and
Institutional Framework
Audit, Assurance, and
Quality Control
Professional Education
International Public
Sector Accounting
Standards
The legal and regulatory
environment as it relates to
accountancy.
International standards,
procedures & best practices for
the provision of high quality audit,
assurance, review, & related
services.
Adoption & Implementation of
International standards for
accountancy education,
practical experience,
assessment and continuing
professional education.
Adoption and implementation of
IPSAS
1.01 Accounting & Auditing
Framework
1.02 Public Sector Framework
1.03 Public Oversight
1.04 Licensing Arrangements
2.01 International Standards on
Audit (ISA)
2.02 International Standards on
Assurance (ISAE)
2.03 International Standards on
Review Engagement (ISRE)
2.04 International Standards on
Related Services (ISRS)
2.05 International Standards on
Quality Control (ISQC1)
2.06 Quality Control at the Firm Level
2.07 Quality Control at the Partner
Level
2.08 System of Quality Assurance
3.01
3.02
3.03
3.04
3.05
3.06
3.07
Entry Requirements
Program Content
Professional Skills
Values, Ethics, Attitudes
Assessment
Practical Experience
Continuing Professional
Development
4.01 Public Sector Accounting
Environment
4.02 Comprehensiveness &
Transparency of PFM
4.03 External Audit of Government
Annual Financial Statements
4.04 IPSAS Accounting Programs
4.05 IPSAS Monitoring & Enforcement
5.0
6.0
7.0
8.0
International Financial
Reporting Standards
Code of Ethics,
Investigation & Discipline
Corporate Governance
– Transparency &
Disclosure
Professional Accountancy
Association Institutional
Capacity
Adoption & Implementation of
IFRS
Principles of professional ethics
for accountancy professionals and
processes for bringing to account
professionals who fail to maintain
high professional standards.
The framework of rules and
practices by which firms ensure
accountability, fairness, and
transparency in its operations.
The efficiency and effectiveness of
professional accounting / auditing
association operations
6.01 Creation of a Code of Ethics
(COE)
6.02 The ethical environment
6.03 Investigation Process
6.04 Disciplinary Process
6.05 Appeals Process
7.01
7.02
7.03
7.04
7.05
5.01 Private Sector Accounting
Environment
5.02 IFRS Monitoring & Enforcement
Material Disclosures
Annual Audit
Auditor Accountability
Information Dissemination
Provision of Information
8.01
8.02
8.03
8.04
8.05
8.06
Organizational Capacity
Financial Viability
Advocacy
Service Provision
Recognition
Public Image
15
In selecting the pillars, two SMOs where combined because of similarities of content and to shorten the
number of pillars. SMO 1- on quality assurance and SMO 3- on quality control, audit and assurance were
combined into pillar 2. SMO 4- Code of Ethics and SMO 6 on Investigation and Discipline were combined
into pillar 6.
Over 300 indicators were identified and included in the self-assessment questionnaire. The reasons for
this data-intense design are:
•
The theoretical framework started from identifying what was to be measured, i.e. accountancy
environment, and not which indicators were available. Consequently, it was decided to cover,
within reason, the full universe of possible questions, issues, and circumstances at the country
level. “More is better” was one of the design features of this pilot.
•
The number of potential users is large and covers very different needs. For example, the media
may only be interested in the index for ranking while leaders of professional bodies may want
very detailed data to inform their 3-5 year strategic action plans. Educators may use the survey
data for academic research of interest to doctoral students. Regulators may choose a different
metric that requires top level data to cross check with their existing database of current
information.
•
The “drill down” design criteria require large data sizes.
Some indicators were purposely designed to be similar so that inconsistencies were identified in the
subsequent review. These were limited so as not to create statistical distortions. It should also be noted
as the ADI pilot initiation moves into the next phase of research and development, that undoubtedly
these indicators may change and others added or deleted.
The indicators’ outcomes derive primarily from the publication of the standards and best practices and
surrounding authoritative interpretations, guides, discussions and consultative papers. In the selfassessment survey questionnaire a distinction is made between adoption and implementation questions.
Generally an adoption question can be answered by a simple YES or NO reflecting whether the specific
element exists in the country that is considered. Implementation questions are more complicated as they
require comprehensive professional judgment to consider both the existence and the level of
implementation of a particular subject. Typically implementation can be broken down into five levels:
1.
2.
3.
4.
5.
( --- ) does not exist
( --- ) does not exist but is currently being proposed/discussed
( --- ) does exist and there is little or no implementation
( --- ) does exist and there is a medium level of implementation
( --- ) does exist and there is a high level of implementation
Together, the answers to the questionnaire give a helicopter view of the state of development of the
accountancy infrastructure in a country. This overall approach is complementary to the more detailed
16
information available through the IFAC Compliance Program, and the World Bank ROSC and PEFA
Reports.
A sample of the indicators taken from Pillar 6 – Ethics and Discipline are:
6.01 Ethics and Discipline – OBSERVATIONS.
YES
NO
6.01.2 A formal process for updating the country’s Code of Ethics exists.
6.01.4 Investigations have been conducted into suspected cases of a breach of the Code of Ethics.
6.01.5 A professional accountant or auditor has lost the license to practice due to a breach of
the Code of Ethics.
6.01 Ethics and Discipline - OVERALL OPINION.
6.01A Professional accountants/auditors are required to comply with a Code of Ethics that is
identical to the most recent up to date version of the IFAC Code of Ethics.
Does not exist.
Does not exist but is currently being proposed/ discussed.
Does exist and there is little or no implementation.
Does exist and there is a medium level of implementation.
Does exist and there is a high level of implementation.
The complete questionnaire is attached as Appendix C.
The ADI includes questions that measure a country’s change/improvement in a certain pillar or sub-pillar.
These questions are not incorporated into ADI scores as the index is designed to provide a point-in-time
measure of accounting environments across countries. As the index holds countries to a uniform scoring
system, incorporating “improvement” may also unfairly bias against countries already possessing high
quality accounting environments. Measurements of changes/improvements are analyzed separately from
the overall ranks/scores to provide donors and policymakers with expectations and trends on possible
future developments. In addition, these scores provide a baseline measure for this initial ADI exercise.
As ADI grows into a repeated exercise over time, questions on change/improvements may be deleted as
any change should become self-evident through comparing a country’s current and past ADI scores.
The ADI also includes questions that gauge a country’s perceived need to change. This provides donors
and policymakers with a proxy for a country’s awareness and motivation to comply with prevailing
international standards.
17
During the design phase of ADI, extensive discussion focused on the accuracy of basic data and the
source. It was decided that the professional accountancy body(ies) in each country would have the most
thorough knowledge of the eight pillars. Professional body representatives, professional staff, volunteers,
and board members, comprise a natural primary pool of expert respondents. These individuals have an
understanding and familiarity with the international standards and practices that form the basis of the ADI
by virtue of working with IFAC, and because they are practitioners in both public and private practice and
in some cases, accountants in government agencies and regulators. Further, in general, the professional
body(ies) is viewed as being credible and ethical.
Another important aspect is trust in the objectivity of the data. The ADI methodology built in an
independent third party review that was designed to check objectivity and accuracy of data. Using a
network of volunteers that are familiar with the country’s accountancy environment, the responses were
reviewed and questions, if appropriate, were asked of the initial responder. These volunteers had either
worked in the respective country on development projects or were knowledgeable and experienced
practitioners in developed countries. Additionally, the ADI design/research team reviewed available data
from other published sources to validate the respondent data. In this way, the credibility and reliability of
self-assessment is enhanced.
Design – Adoption and Implementation Indicators
Late in the design phase of the ADI the importance of distinguishing between adoption and
implementation became apparent, in part because of the increased emphasis on effective implementation
as a result of the 2008 global financial crisis. The crisis highlighted that the public interest is best served
with not only the development and adoption of standards but their effective full implementation.
Adoption of international standards is based on a decision that the international standard is appropriate
for use in the national financial reporting environment. Implementation is concerned with the practical
steps necessary to make use of the standards. As a result, quite different actions are necessary to achieve
each step in a meaningful way.
Note that there are at least two ways to view adoption. One is the broad, non-legalistic definition of
adoption to include a “decision” (without naming the decider) that the international standard is
“appropriate”. The use of “appropriate” rather than the use of legal terminology like “is hereby adopted”,
“mandatory” or “required” helps to distinguish this view from the more “legalistic” view. Therefore, if a
professional association or country is “implementing” a standard that is deemed appropriate, then by
definition that standard has been adopted because someone decided that the standard was appropriate to
implement. The other, narrower view of adoption, uses the legal conscript that defines adoption as “is
hereby adopted”, “mandatory” or “required” as passed by a parliament or other officially recognized
body.
18
An example of the two different views can be illustrated with respect to IFRS. In the broad, non-legalistic
definition of adoption there are a few countries where no rule, regulation or law requires the use of IFRS,
yet the private sector uses it for preparation of financial statements, because of, for example,
requirements of banks or investors. Under this scenario the de facto use of IFRS would be viewed as
“adopting” IFRS. If defined in this way, the ADI would never have implementation scores greater than
adoption. Alternatively, in the above situation, IFRS would not have been formally adopted by law, rule or
regulation yet some degree of implementation would be scored. In these calculations, implementation may
have a higher score than adoption. The ADI was prepared based on the more legalistic view of adoption.
The ADI statistical build-up gives more weight to implementation than adoption. This was based on the
decision that implementation, no matter to what degree, is more difficult than adoption and therefore,
should be rewarded with a higher weight. As noted from sample indicators on pages 27 and 28,
implementation indicators are noted as “Overall Opinion”. It is worth noting that the degree of
implementation requires the respondent to apply judgment.
Design -Web Based Response
Pillars, milestones, and indicators were arranged through a web based survey document called “Survey
Monkey” (http://www.surveymonkey.com). Respondents were given passwords directly to the
questionnaire to protect confidentiality of information. Of the 32 responses, all but six used this online
tool. The six manually completed questionnaires were sent directly to the ADI design/research team. See
Appendix C for the Survey Monkey format of the questionnaire.
Design - Statistical Framework
A number of statistical methods are available when constructing an index. The ADI design/research team
retained the services of an experienced econometrics professional who has been involved in designs of
similar indices. Key statistical considerations included:
•
Sample size, sampling frame, and selection bias. The selection of 40 countries was large enough to
draw statistical inference while keeping the costs within limited funds. The sample was framed
around countries. The selection bias was on Europe and Eurasia countries (a requirement of
USAID) and focus on IFAC member body countries.
•
Data quality – validity and completeness. Data validity was based on independent and
knowledgeable third party reviews. Missing variables were not statistical imputed but instead
were supplied from secondary sources, primarily public information.
•
Indicator aggregation and normalization. By basing questions on an “exist/not exist” format
(Observation questions), responses are already normalized. The use of pillars, milestones and
indicators each aggregated primary data, which was later expressed in summary form.
19
•
Weighting schemes. Weighting was based on expert opinion.
•
Stages of development of countries. The issue of a country’s development was considered but was
not incorporated in the ADI pilot due to funding and time limitations.
•
Sensitivity and robustness. Subjective judgments were made on the selection of pillars, milestones,
indicators, the treatment of missing values, the choice of aggregation model, the weights, etc.
Since the quality of the ADI depends on the soundness of the assumptions, a sensitivity analysis
was performed that essentially studied the information and its impact flowing in and out of the
ADI.
•
External validity. Correlation testing was performed but the results were inconclusive due in great
part to the limited relevant indices.
The development of the statistical framework necessarily involved subjective judgment. For example, the
selection of indicators, the treatment of missing values, the weights of the respective pillars, indicators and
adoption vs. implementation. Sensitivity analysis was applied to the data sets to test the soundness of
assumptions and the robustness of the index.
The pilot sample size was set at forty countries. Thirty two responses were received. Reasons for non
responses included, (a) not having the time because of existing professional body commitments (e.g. in the
middle of their budget cycle); (b) unwilling to complete another comprehensive survey. i.e. survey
“fatigue”; (c) wanting to be compensated for the time; and, (d) concern about the ultimate use of the data.
A larger sample was not possible due to time, funding and volunteer network constraints. However, the
size was sufficiently large enough to provide reasonable assurance that the ADI is soundly constructed
with reasonable results. The country selection criteria included geographic diversity (bias for European
countries based on USAID funding sources from their Europe and Eurasia Bureau), whether developed or
developing, and legal system (common or civil law). The countries that responded are listed on the
following Table 4.
20
Table 4: ADI Country List presents the countries that responded.
TABLE 4
Albania
Ukraine
Republic of Georgia
Bulgaria
Serbia
Saudi Arabia
United Kingdom
Montenegro
Afghanistan
Netherlands
Macedonia
Kazakhstan
Romania
Botswana
Hong Kong
Kosovo
South Africa
Mexico
Italy
Liberia
El Salvador
Moldova
Tunisia
Guyana
Bosnia & Herzegovina
Rwanda
Brazil
Poland
Turkey
United States of America
Czech Republic
Armenia
Features of the statistical construction are:
•
Numerical scores are based on a scale of 0.0 – 9.0. Popular indices are stated in many different
scales frequently on 0.0-100 range. The Global Competitiveness Index uses a 1.0-7.0 scale, which
provides ease of reading. A narrow range does create “bunching” with countries separated by
one hundredth of a point. ADI wanted to combine ease of reading and move away from a scale
where 100 would be interpreted as 100% or perfection. It is important to note that a score of
9.0 should not be viewed as “perfection” with absolutely no room for improvement.
•
Missing values were imputed through the use of publicly available data. Examples of this data
include World Bank ROSCs, PEFA Reports, Corporate Governance ROSCs, etc.
•
Completed survey questionnaires were then reviewed by independent third party reviewers
familiar with the respective country’s accountancy environment. Third party reviewers were
asked to note (a) any questions for which they did not agree with the respondent’s answer, (b)
the answer the reviewer believed more appropriately reflected the country’s condition, and (c)
their rationale for this modification. The ADI design/research team then compared reviewer and
publicly available information to original respondent answers. Reviewer rationale as well as
publicly available analyses was taken into consideration. In instances where it was determined
that reviewer or publicly available information more appropriately reflected the situation,
questionnaires were modified accordingly.
•
Third party reviewers rarely disagreed with original respondent answers. On average, reviewers
recommended modifying 11 questions out of close to 300 questions. This means on average,
21
reviewers agreed with 96% of the responses provided by original respondents and recommended
changes to approximately 4% of respondent answers.
•
Survey questionnaire information was collected and aggregated into data form.
•
To ensure the survey is user-friendly and to avoid ambiguity, the indicator-level questions
(mostly factual questions) are formulated to be yes/no questions. These “Observation” questions
allowed respondents to answer yes or no to whether or not their accountancy environment
maintained a particular element. This allowed question scaling to be conducted with yes =1 and
no =0.
•
The “Observation” questions are supplemented with more nuanced, “Overall Opinion” type of
questions that allow respondents to rank their countries along a more differentiated scale from 1
to 5. These questions are present at the sub-pillar level. The mean of the binary responses yields
a value between 0 and 1. The responses from “Overall Opinion” questions are also scaled to a
[0, 1] range using this formula: (score-1)/4. At the sub-pillar level, the mean of the binary
“Observation” questions and that of the “Overall Opinion” questions are then averaged again
(within the respective adoption or implementation dimension), bearing equal weights. The final
scores for presentation purposes are converted to a [0, 9] scale.
•
The ADI design/research team then categorized each of the indicators into one of two groups –
those indicators that measured and reflected “adoption” and those which measured and reflected
“implementation”.
•
Within each milestone, adoption and implementation scores were separately aggregated. Note
that the number of indicators (questions) in each pillar differ, in some cases significantly.
Statistically all indicators are averaged with 1.0 as the maximum score.
•
Milestones were then aggregated into pillars (keeping adoption and implementation separate).
•
The ADI score was determined by summing adoption and implementation scores where
implementation carries a heavier weight of 60% of the total ADI final score and adoption carries
a slightly lower weight of 40% of the total ADI final score.
The ADI design/research team debated the issue of weighting. It was decided that all eight pillars would
carry the same weight. All of these pillars form the foundation of measuring country progress—
independent but interrelated. Given that these pillars are similar to support pillars of a bridge, all are
required with equal strength to maintain the structural integrity.
Weights were applied to indicators. It was decided that implementation of standards and best practices
should weigh heavier than adoption. As noted above, full implementation is far more difficult, and time
and resource requirements much greater. The 60%-40% weights (implementation and adoption,
respectively) may require further research but served to illustrate the important differences in this pilot.
22
Chapter 3 ADI Results
Table 2, on page 6, shows the results of the 32 pilot countries as of April 2009. This Table purposely
codes the country name. The focus for this pilot is not on rankings but rather on the power of composite
indices to take multi-dimensional data and present it in an easily understood quantitative manner. Table 2
further illustrates a key policy point on the adoption vs. implementation lag. Note for example, country
“C-21,” which has an overall score of 5.00, yet has an adoption score of 6.40 and an implementation
score of 4.0. Clearly the gap between adoption and implementation is an opportunity for focused
assistance.
The following Figure 3 through Figure 9 show results from the ADI research and illustrate the power of
quantitative data to put complex data in graphic form.
Figure 3 compares the composite index between nine regions.
Figure 3: ADI by Region
23
Figure 4 overlays the achievements of developing nations with those of the more developed nations. The
differences between the eight ADI pillars are highlighted.
Figure 4: ADI Developed and Developing Nations
Accountancy Development Index Developed vs. Developing NaMons Professional Accountancy AssociaMon InsMtuMonal Capacity Legal, Regulatory and InsMtuMonal Framework 9.0 6.0 AudiMng, Assurance, and Quality Control 3.0 Corporate Governance – Transparency & Disclosure 0.0 InternaMonal Financial ReporMng Standards Professional EducaMon Ethics & Discipline InternaMonal Public Sector AccounMng Standards Developed Developing 24
Figure 5 captures pillar data within the same country and illustrates where most achievements have
occurred and conversely, where the largest compliance gaps exist.
Figure 5: Example of Pillar Scores vs. ADI
Figure 6A compares two countries within the developed category that are considered peers.
Figure 6A: ADI Country Peers: Developed
Accountancy Development Index
Country Peers-Developed
Professional Accountancy AssociaMon InsMtuMonal Capacity Legal, Regulatory and InsMtuMonal Framework 9 6 AudiMng, Assurance, and Quality Control 3 Corporate Governance – Transparency & Disclosure 0 InternaMonal Financial ReporMng Standards Professional EducaMon Ethics & Discipline InternaMonal Public Sector AccounMng Standards C4 C1 25
Figure 6B compares two countries within the transitional category that are considered peers.
Figure 6B: ADI Country Peers: Transitional
Accountancy Development Index
Country Peers-Transitional
Legal, Regulatory and InsMtuMonal Framework 9.0 Professional Accountancy AssociaMon InsMtuMonal Capacity 6.0 AudiMng, Assurance, and Quality Control 3.0 Corporate Governance – Transparency & Disclosure 0.0 InternaMonal Financial ReporMng Standards Professional EducaMon Ethics & Discipline InternaMonal Public Sector AccounMng Standards C18 26
C20 Figure 7 is a cluster graph around the critical issue of adoption and implementation.
Figure 7: ADI Adoption vs. Implementation Scatter Chart
Accountancy Development Index
9.0 8.0 C16 7.0 Adoption Score
6.0 C26 C19 C20 C23 C24 C21 C17 C22 C18 C25 C12 C14 C13 C15 C27 5.0 4.0 C28 3.0 C29 C30 C31 2.0 1.0 C1 C3 C5 C6 C4 C2 C10 C9 C11 C8 C7 C32 High AdopMon/ High ImplementaMon TransiMonal Low AdopMon/ Low ImplementaMon 0.0 0.0 1.0 2.0 3.0 4.0 5.0 6.0 7.0 8.0 9.0 Implementation Score
27
The following Figure 8 illustrates the differences, by pillar, of adoption and implementation of standards
within the same country.
Figure 8: Spider Graph Example Adoption vs. Implementation
Accountancy Development Index
Pillar Scores - C21
Professional Accountancy AssociaMon InsMtuMonal Capacity Legal, Regulatory and InsMtuMonal Framework 9.0 6.0 AudiMng, Assurance, and Quality Control 3.0 Corporate Governance – Transparency & Disclosure 0.0 InternaMonal Financial ReporMng Standards Professional EducaMon Ethics & Discipline InternaMonal Public Sector AccounMng Standards AdopMon ImplementaMon 28
Figure 9 shows the milestone results from one country within the professional education pillar.
Figure 9: ADI Sub-Pillar/Milestones Breakdown
29
Table 5: Mean Cluster Score and Perceived Improvement
TABLE 5 Cluster
Countries
Overall
ADI
Adopt
Implement
Improvement
Perceived
over the last 3
need for
years
change
Netherlands, South
High Adoption
/High
Implementation
Africa, USA, Brazil,
Mexico, Saudi Arabia,
Czech Republic, Italy,
7.9
8.3
7.6
59%
25%
5.1
6.4
4.3
58%
62%
2.0
2.5
1.7
31%
84%
Poland, UK, Hong
Kong, Kazakhstan
Bosnia & Herzegovina,
Tunisia, Botswana,
Bulgaria, El Salvador,
Transition
Republic of Georgia,
Kosovo, Macedonia,
Moldova, Montenegro,
Romania, Serbia,
Turkey, Ukraine
Low
Afghanistan, Armenia,
Adoption/Low
Albania, Rwanda,
Implementation
Liberia, Guyana
It is worth-noting in Table 5 that the mean adoption scores far exceed implementation scores for the
transition group whereas the other two groups score relatively evenly across the two dimensions.
However, it is somewhat surprising that it’s the high adoption/high implementation cluster that reports
the greatest improvement over the last three years.
Using ADI
The ADI is data intense and with its eight pillar, 300 indicator design, is a rich source for research. As
noted previously, different stakeholders will have different uses for the data, or research objectives. As
the above graphs and charts illustrate, the ADI can harness the power of graphics to influence or serve
the needs of the different stakeholders. The quantitative nature of ADI provides a snapshot of the data,
30
which allows for busy decision makers to quickly brief on their points of interest. It can compare at the
index level or be disaggregated to provide a more granular view by milestones. Over time, the ADI will
provide measurement of progress or conversely, regression.
A most interesting aspect of ADI comes from the cluster analysis (Figure 7 on page 28) wherein countries
are classified into three groups depending on their ADI adoption and implementation scores:
High
adoption/High implementation, Transitional countries, and Low adoption/Low implementation countries.
A common statistical technique called “k-means clustering” is used to identify the “natural centers” in
data. These natural clusters possess distinctive features that may guide policy decisions and donors.
All indices suffer to one degree or another from assumptions and subjective decisions that may distort the
findings or conclusions. Further, the underlying data quality is crucial to the reliability and credibility of the
index. However, with each update and the addition of more countries, patterns or trends will emerge that
will validate results or influence changes in methodology. Mindful of the potential weaknesses, the ADI
design/research team used the best available data and framework consistent with a pilot.
Evaluating Results
Some of the more interesting results (from Table 6 below) are outlined in this section:
•
Comparing a country’s pillar index to its composite ADI score revealed that four pillars in
particular fell most frequently below the ADI score. These were:
•
o
IFRS in 25 countries;
o
Auditing, Assurance, and Quality Control in 23 countries;
o
Corporate Governance-Transparency & Disclosure in 18 countries; and,
o
Ethics and Discipline in 17 countries.
The strongest overall pillar was the professional association’s institutional capacity.
31
Table 6: Pillar Score Breakdown by Country
TABLE 6 Country Pillar 1 Pillar 2 Pillar 3 Pillar 4 Pillar 5 Pillar 6 Pillar 7 Pillar 8 Afghanistan Y Y Y Y Y Albania Y Y Y Armenia Y Y Y Y Y Bosnia & Herzegovina Y Y Y Y Botswana Y Y Y Y Brazil y y Bulgaria Y Y Y Y Y Czech Rep. Y Y Y El Salvador Y Y Y Y Rep. Georgia Y Y Y Y Guyana Y Y Y Y Hong Kong Y Y Italy Y Y Kosovo Y Y Y Y Y Liberia Y Y Y Y Y Macedonia Y Y Y Y Mexico Y Y Y Y Moldova Y Y Y Y Y Montenegro Y Y Y Y Netherlands Y Y Y Poland Y Y Y Romania Y Y Y Y Saudi Arabia Y Y Y Rwanda Y Y Y Y Serbia Y Y Y Y Y South Africa Y Y Y Tunisia Y Y Y Turkey Y Y United King. Y United States Y Y Ukraine Y Y Y Y Legend: "Y" equals yes this pillar's index score is less than that country’s composite ADI score
32
Chapter 4 – Lessons Learned and Recommendations for
Future Research
The design, testing and evaluation of ADI spanned almost two years. During this pilot initiative, lessons
learned were documented to inform further research and development. The following are the more
important issues that must be considered in the future:
1.
ADI is data intense. By limiting the pilot to 40 countries, the data collection and evaluation were
manageable. Expanding this to 100 or more countries will require a close review to the amount
of data required to produce an index that is a proxy for the accountancy environment. At each
step in the design the quality and reliability of the ADI data was paramount. Other popular
indices (WEF Global Competitiveness Index) are built from large data sources; thus, ADI is not
unique but it will take institutional resources and support to expand the list of countries.
2.
“Survey fatigue” is common for many organizations today. The ADI response rate of 80% is
extraordinarily high due in part to the network that was available to the design/research team. In
the future, completion of the ADI should be driven more by incentives rather than the personal
network of the institutional sponsor, although the network is still important. We found two
priority reasons for completing the survey; (a) among developing nations there is a desire to
highlight resource needs for possible development assistance, and, (b) among developed nations
there is a sense of professional responsibility.
3.
Self- assessment is only one piece of the data equation. Expert third party reviewers that have both
the time and expertise to review and comment on survey results are imperative. One solution is
to enlist the support of experts from each country that would be willing to periodically comment
on survey results. These experts or correspondents would benefit from a worldwide network
of professionals who share a common interest in furthering the cause of improved financial
reporting.
4.
Additional research is necessary to expand the number of survey respondents. As designed, the ADI
relies on a “knowledge center” of the local professional body. The reliability of this single
respondent was re-enforced with independent third party reviewers. Using respondents from
other stakeholders may reduce the reliance on independent third party reviewers. Respondents
from government, academia, and practitioners are examples of other “knowledge centers.”
5.
Resource requirements will need to be carefully determined. Significant design and research support
was provided through the funding of USAID. Though this initial investment will significantly
reduce the future requirements in research and development, operational costs may be high to
develop the respondent network, “brand” ADI, and gather and analyze.
This will require
developing systems to routinely handle the data gathering and analysis. Using the underlying
33
methodology for XBRL may be one solution. Another is a process of continuous updating – the
respondents would submit changes to any answer upon a change in adoption or implementation.
The full questionnaire would then have to be addressed more infrequently.
6.
Standards and best practices change over time. This happened during the pilot with the new
standard on IFRS for SMEs.
The ADI is designed to accommodate changes with its pillar,
milestone and indicator structure. However, a research team must adjust each period’s selfassessment based on changes that take place in standards and best practice. Restating a prior
period’s survey results may be necessary to keep comparability between periods.
7.
The pilot ADI of only 32 respondent countries potentially compromises the index’s statistical robustness.
With a growing sample, a number of statistical methods may be considered and used such as
Principle Components Analysis (PCA), factor analysis, etc. For example, preliminary statistical
analysis showed that Pillars 1, 7, and 8 have greater variation than other pillars. Using a more
sophisticated PCA method may reduce this variation since a key feature of PCA is to assign
greater weights to components with higher variance. However, in the Pilot, it was determined
that the variation would not significantly distort the ADI results.
8.
The self-assessment questionnaire was in the English language only. Translation and interpretation
are always an issue. Third party reviewers were careful to identify potential words or phrases
that may be troubling. In one case, “public interest” was interpreted to mean “public interest
companies” as opposed to the “greater good”.
9.
The stages of development of a country and their relevance/relation to ADI should be studied. The
WEF’s The Global Competitive Index uses three stages of development. What would be the
criteria for classifying countries into stages of development? How are the weights for different
stages chosen? Are they chosen based on expert opinion or regression on outcome variable by
stage of development (this requires large sample size)?
Is “stage of development” too
prescriptive? For the ADI pilot, the stages of development were considered but the sample
questions above require research and development that were not within the funding and time
limitations.
10. External validity through correlation tested may be expanded. The ADI is innovative and unique with
few indices to compare against. This requires greater analysis of existing data parts to determine
a suitable “fit” for ADI.
11. The ADI is a pilot at a fixed point in time. The frequency of data updates is an issue for future
research. Because of the data requirements it would appear that a system of continuous updating
from data supplied by the primary respondent with biannual or triennial resurveying may be a
solution.
34
12. Adoption and implementation framework was a late addition to the methodology. The survey
questionnaire may need changes to more conveniently convert information into a statistical
format.
As with any index constructed from multiple data sets, the ADI is subject to limitations. The intention of
the ADI design/research team is that development of the ADI methodology will be ongoing and that the
quality of available data will improve over time. The lessons learned and the suggested future research
noted above is intended to inform but not limit future research and development.
35
Appendix A — Introduction to Indices
Research paper by Dr. Tim L. M. Verdoes; Center for Business Studies at Leiden University.
2008
Performance Measurement
Accountancy is the practice of identifying, measuring, and communicating financial information about
economic entities to interested persons (users). The ultimate goal of accountancy is the provision of
financial information to enhance the economic decision-making of users. As such, it functions to fairly and
accurately illustrate the financial position and operations of an entity, and thereby provide information
useful in making investment and credit decisions, assessing cash flows, and measuring an entity’s
resources. Through the provision of this information and its impact on economic decision-making,
accountancy enhances corporate governance, competition, the functioning of capital markets, trade, and
anti-corruption efforts. In this way, rigorous accountancy is necessary to further accountability and
transparency, as well as to promote economic development.
The development of accountancy has not been uniform throughout the world. Just as accountancy
influences society, culture, politics, economics and the judicial aspects of a country, these same aspects
have influenced accountancy, causing its development to vary country by country. Although a great degree
of variation still remains, the last decade has seen an increased tendency toward convergence among
differing accountancy systems worldwide. Globalization, international trade, and supra-national legislation
have been powerful forces behind this convergence. The result of these pressures has been the
emergence of a generally agreed upon group of norms, ethics, and practices that exist and are recognized
as international best practices in the area of accountancy.
Measuring and understanding the progress of a country toward international best practices for
accountancy is important as this progress may enhance the effectiveness and efficiency of economic flows
between countries, the ability of managers and investors to identify and shift resources from failing to
successful projects, further good corporate governance by enhancing shareholder monitoring of
management decisions and may reduce the external cost of capital4.
Introduction to Indices
A concise and user-friendly way of understanding a country’s progression toward convergence with
international standards is by quantifying this movement numerically through an index. According to the
4
Busman and Smith in 2003 noted the three channels through which accounting information enhances
economic growth.
36
OECD, an index (or indicator) is a “quantitative or a qualitative measure derived from a series of
observed facts that can reveal relative positions (e.g. of a country) in a given area, and when measured
over time, can point out the direction of change” (OECD 2005, Freudenberg, 2003). The construction of
an index is not a hard science, but rather a combination of art, science, statistics and accounting. This
means that theoretical/methodological, normative and positive arguments, sufficient and necessary
conditions all come together in the creation of an index. According to Freudenberg there are basically
three levels of indices:
1. Individual indicator sets represent a menu of separate indicators or statistics.
2. Thematic indicators are individual indicators that are grouped together around a specific area or theme
3. Composite indicators are formed when thematic indicators are compiled into a synthetic index and
represent as a single composite measure5.
For the purposes of this report, our discussions will focus on the last level of indices: composite indices.
These indices are used in a variety of different disciplines and manners and are rapidly becoming a popular
way to illustrate a country’s position and progress in a certain area.
Benefits of Indices
According to the OECD Handbook, there are several benefits afforded by indices. The popularity of
indices is due in large part to their ability to combine large amounts of data into easily understood
formats. By reducing complex, multi-dimensional economic or social phenomena to a single index,
composites better focus and direct policy debates than do large sets of individual indicators (OECD
Handbook). Composites can aid in setting priorities – especially when the various dimensions of a
composite are shown, and can aid in initiating discussion and attracting public interest to a particular
topic. Finding trends is much easier with the assistance of composite indices as opposed to sifting through
the many individual indicators that comprise a composite index to identify trends. Indices further country
progress in a specific area by facilitating country ranking and benchmarking, and by illustrating country
progress over time. Also, indices can be modified to reduce or expand their scope by simply decreasing
the number of indicators or including more information within the scope. Finally, because of their ease of
use and understandability, indices can be used as a tool to communicate with the general public and to
promote oversight and accountability. In summary, composite indices assist in formulating purposes,
5
There are also “meta-indicators” as Kurtz and Schrank remark about the World Governance Indicators
project of the World Bank (Kaufman et al. 2007). They also mention an important problem with
governance: “(…) government interference is often a symptom of good governance (…). At the same
time it can foster or signal inefficiency, the prevalence of graft, or judicial capture by private agents.” This
resembles the philosophical questions put aside in chapter 1, note 8.
37
defining strategies, measuring performance and taking corrective actions. They can be of assistance to
donors, governmental organizations, alternative indices, professional bodies, and international investors in
understanding and communicating position and progress.
Areas of Concern for the Construction and Use of Indices
Although there are many benefits to using indices to measure and convey information, the OECD
Handbook notes some areas of concern that should be taken into account. Indices are much like
mathematical or computational models. As such, their design is dictated more by the craftsmanship of the
modeler than to universally-accepted scientific rules for their construction. In addition, no index can
include every possible variable and as such, the picture the modeler creates is always relative or
somewhat incomplete. Also, improper construction in regards to the inclusion and exclusion of certain
indicators and inappropriate choices regarding sensitivity, weighting and aggregation techniques and
missing data can result in a malformed picture of a situation. Arbitrary choices in regard to these areas
have to be made, and justified, but also have to be made transparent so that feedback from stakeholders
can occur. Modeler decisions may be politically sensitive, and as a result may be challenged. The high
degree of human influence in the creation of an index also makes indices vulnerable to manipulation
(Freudenberg, 2003). Basing the index on sound statistical or conceptual principles and maintaining a
transparent construction process can hedge against these risks. Manipulation not only by the modeler, but
also by the users of such information (e.g., to further a cause or make a case) is also a risk. In addition, in
constructing an index there can be a ‘disconnect’ between theory and policy. The design of an index
cannot take place within a vacuum, but must include consideration of the potential users and uses of the
measures6. Finally, the most important benefit that indices provide to users; an easy to use, concise
summary of complex or multi-dimensional issues, can also be an index’s greatest area of concern.
Summaries of information often miss important details. The lack of such details may invite overly simplistic
and incorrect policy conclusions. In addition, the combination of multi-dimensional issues into one easy to
understand index may conceal areas of concern in some dimensions of the index and thereby make it
difficult in suggesting corrective courses of action.
Rationale for an ‘Accountancy Development Index’
Although there are issues to be cautioned against in the creation and use of an index, with the proper
design, measurement, transparency and communication of findings, indices can be an invaluable tool to
country governments and international donors in their efforts to advance the progress of a country in a
given area. It is for this reason that they are available and widely used for a variety of different subject
areas.
6
In addition, the UNDP offers a users’ guide of governance indicators (UNDP).
38
In developing a rationale for the creation of the ADI, we first reviewed existing indices on subjects
relevant to accountancy (transparency, accountability, governance, development, corruption, and
competitiveness) to examine whether similar indices were currently available and if so, to what extent
they would compete with or supplement the creation of an ADI. Below are short descriptions of these
related indices and discussions on the dimensions of accountancy they capture7 8.
World Economic Forum (www.weforum.org)
Global Competitiveness Report
Since 1979, the Global Competitiveness Report and accompanying index have examined the factors
enabling national economies to achieve sustained economic growth and long-term prosperity by
measuring country progress on 12 different pillars9. Although the WEF covers a wide range of
competitiveness issues, the index only touches on the area of accountancy in its first pillar Institutions.The
only indicator for accountancy included in the index, is very general and simply measures the “strength of
financial auditing and reporting standards regarding company financial performance in a country10.”
Although this index is very general in comparison to the ADI, the information captured by this index can
be used through statistical analysis to understand the power of the ADI.
World Bank & International Finance Corporation (www.doingbusiness.org )
Doing Business Report
‘Doing Business’ presents quantitative indicators on business regulations and the protection of property
rights that can be compared across 178 economies and over time. The objective of this index is to
measure the ease of doing business in various countries by obtaining an understanding of the regulations
7
This report only examines existing indices. There are also frameworks or reports available that are
aimed at assessments of a country’s accounting institution; however, these were disregarded.
8
There are many indices available, for an overview see Kaufman and Kraay, Booysen, Besancon.
9
These pillars include (1)Institutions (2) Infrastructure (3) Macroeconomy (4) Health and Primary
Education (5) Higher Education and Training (6) Goods Market Efficiency (7) Labor Market Efficiency (8)
Financial Market Sophistication (9) Technological Readiness (10) Market Size (11) Business Sophistication
and (12) Innovation
(http://www.weforum.org/en/initiatives/gcp/Global%20Competitiveness%20Report/index.htm)
10
WEF ‘The Global Competitiveness Report 2007-2008’ Pillar 1.16 “Strength of Auditing and Reporting
Standards” page 391.
39
affecting the ten stages of a business’s life11. The index illustrates both the regulations that enhance
business activity and those that constrain it. In regards to ranking, ‘Doing Business’ utilizes a method
based on one country’s position in relation to others is used and as such, there is no maximum or
minimum score. Of the ten stages (pillars) measured, only one, the sixth pillar (“protecting investors”)
directly relates to the ADI as it contains a measure of disclosure very related to accountancy: the
transparency of related-party transactions.
eStandardsForum (http://www.estandardsforum.com/ )
eStandardsForum provides investors, financial institutions and governments with comprehensive
monitoring of the efforts of 83 countries to comply with international standards and codes by global
standard setting authorities in 12 key areas12. The three primary aims of this organization are: (1) To raise
awareness of international financial standards and codes within the public and private sectors; (2) To
provide investors and governments with a new means to assess the potential risks of foreign investment
or lending; (3) To encourage countries to increase the scope, transparency and integrity of the
information available about their economies and financial systems, while moving towards compliance with
international standards and codes.
To keep information up-to-date and relevant to user needs, countryassessments, eStandardsforum
data/reports/ratings as well as indices and macro economic data from other organizations are frequently
updated. The data sources used are publicly available and mentioned per item in the country assessment.
Compliance with international standards is measured on a range of six categories that closely resemble
the normal process a country follows when implementing standards and codes: (1) no compliance, (2)
intent declared, (3) enacted, (4) compliance in progress, (5) full compliance, and (6) insufficient
information. It should be noted that eStandardsForum gives ‘insufficient information’ the lowest score
possible, a score of ‘0’. The rationale behind this is that the greatest risk for investors is a lack of
information.
The scores of the twelve pillars of eStandardsForum are then aggregated, with the maximum score being
100. The most relevant indicator to the ADI is the eStandardsforum indicator on a country’s assessed
level of compliance with IFRS. Several sources of assessments are used to determine this score,
11
These pillars include: (1) Starting a Business (2) Dealing with Licenses (3) Employing Workers (4)
Registering Property (5) Getting Credit (6) Protecting Investors (7) Paying Taxes (8) Trading Across
Borders (9) Enforcing Contracts (10) Closing a Business (http://www.doingbusiness.org/Downloads/)
12
These key areas include: (1) Data Dissemination (2) Monetary Policy Transparency (3) Fiscal Policy
Transparency (4) Insolvency (5) Accounting (6) Corporate Governance (7) Auditing (8) Money Laundering
(9) Payments and Settlements Systems (10) Banking Supervision (11) Securities Regulation (12) Insurance
Supervision
40
publications from NGO’s (European Commission, International Monetary Fund, etc.), but also private
organizations such as Ernst & Young, PricewaterhouseCoopers and Deloitte. Another indicator of
interest is the eStandardsForum ranking for a country’s auditing environment. This ranking is based on a
country’s level of compliance with International Standards on Auditing (ISAs) promulgated by the
International Federation of Accountants (IFAC). Another indicator similar to those of the ADI is the
eStandardsforum’s governance indicator that is based on the level of a country’s compliance with OECD’s
principles of corporate governance.
The eStandardsForum index resembles the ADI as it covers three important elements of the ADI: IFRS
compliance, ISAs, and corporate governance. The eStandardsForum has greater breadth than the ADI as it
covers 12 subject areas, nine of which go beyond the concept of accountancy. At the same time however,
it lacks the depth that the ADI maintains because it only very generally reviews the level of accountancy
development in a country.
CSRnetwork
and
AccountAbility
(http://www.csrnetwork.com/benchmarking.asp
)
Accountability Rating
This accountability rating evaluates companies across four domains: strategy, governance, engagement and
impact. It has a strong focus on measuring companies’ social and environmental responsibility and includes
some of the largest companies in the world among its respondents. Although this index deals with
corporate accountability, it bears little resemblance to the ADI because of its strong focus on social and
environmental responsibility and sustainability, and because its measures progress and position at the
company level as opposed to using a country level measure.
Transparency International (www.transparency.org )
Corruption Perceptions Index (CPI)
The goal of the CPI is to provide data on perceptions of extensive corruption within countries. The CPI
ranks 180 countries by their perceived levels of corruption, as determined by expert assessments and
opinion surveys. Although very useful in the areas of governance and transparency, the CPI utilizes no
indicators for accountancy in its measures. Although its indicators are not accountancy-related,
correlations of overall CPI scores with ADI scores may be useful in understanding the association
between the level of development of accountancy and the level of corruption of a country. Future
research may also examine cause and effect relationships between these indices.
Heritage Foundation (http://www.heritage.org/Index/ )
Index of Economic Freedom
The Index of Economic Freedom covers 162 countries across 10 specific freedoms such as trade freedom,
business freedom, investment freedom, and property rights. The index provides scores and rankings for
each country, along with detailed data and background analysis. This index provides a picture of economic
41
freedom by using data-driven equations that allow countries to be scored on a scale of zero to 100. Its
use of equal weighting in measuring its "Ten Freedoms" is an effort to produce a simple, unbiased overall
score for each country. Similar to other indices, this index combines information already available from
several sources into one composite index. Although financially oriented, this index does not directly relate
to the ADI’s dimension of accountancy.
World Bank (www.worldbank.org)
Worldwide Governance Indicators.
The Worldwide Governance Indicators (WGI) project reports aggregate and individual governance
indicators for 212 countries and territories over the period 1996–2006, for six dimensions of
governance13. The aggregate indicators combine the views of a large number of enterprise, citizen and
expert survey respondents in industrial and developing countries. The individual data sources underlying
the aggregate indicators are drawn from a diverse variety of survey institutes, think tanks, nongovernmental organizations, and international organizations. Although this project provides useful
information on governance, its focus is more or less on the public sector. In addition, it does not include
indicators directly related to accountancy.
Does a Need Exist for the ADI?
In reviewing the existing indices, two conclusions come into sight. The first is that there are many indices
covering a variety of subjects and overlapping many domains. The second conclusion is that there is
cooperation, specialization and competition between the indices themselves. With all these different
indices and their varying degrees of cooperation, specialization and competition, the question that follows
is: “Is there a need for an index that focuses specifically on a country’s level of accountancy
development?”
Accountancy is a component of and is interconnected with many different issues and subject areas. As
such, many of the existing indices described above capture some measure of the level of development of
accountancy in a country; however, they generally only show a small part of the overall picture.
The Accountancy Development Index (ADI) differs from indices already in existence, as it sets, at the
centre of its analysis, a comprehensive, multi-dimensional view of a country’s accountancy environment.
Although the ADI’s core subject of accountancy is not as broad as the core subjects of its peer indices
(i.e., competitiveness, innovation and environmental sustainability); the variety and diversity of the
different elements taken into consideration to construct the ADI lend it its various dimensions and allow
13
These six dimensions are: (1) Voice and Accountability (2) Political Stability and Absence of Violence (3)
Government Effectiveness (4) Regulatory Quality (5) Rule of Law (6) Control of Corruption
42
it to be categorized as a composite index. The unique strength and utility of the ADI is that it is a
multidimensional institutional analysis, with a specialized in-depth14 focus not found in other indices.
Why Has ADI Development Been So Long in Coming?
If there is an unmet need for the ADI, the question remaining is why has this need gone unmet for so
long,especially when indices and indicators have sprung up for a variety of other subjects such as political
transparency, human rights, etc.? The reasons for this may be that international norms concerning political
and human rights are older, more embedded, and more understood than economic or financial rights.
Following the public sector, international norms and standards for the private sector accounting domain
have only recently began to accelerate and converge, making the interest and need to measure this
convergence a relatively recent event. Another reason for this delay was that previously, introducing an
index for accountancy was not believed to be possible due to a lack of data on the subject and the
accompanying costs it would take to generate this. Data for this type of evaluation are available, but they
are irregular, fragmented, not validated or checked and sometimes found in a rather tacit, unwritten
format (experts’ opinions, commonly held beliefs, perceptions, etc.). The basis of the ADI is to mobilize,
organize and combine all the efforts made to measure country’s position and progress in the area of
accountancy into one composite index.
14
Furthermore, analysis of the index market will reveal that there are already many general
comprehensive and broad governance indices, so there is no niche that the ADI can create.
43
Appendix B — Respondent Country Profiles and Results
44
Afghanistan
Total Population (millions) (2009 est.)..............29.1
GDP (US$ billions) (2009 est.).......................$13.47
GDP per capita (US$) (2010 est.)....................$800
Education expenditure........................N/A
(GDP ranked 219 in World)
Accountancy Development Index
Pillar Scores
Legal, Regulatory and
Institutional Framework
9.0
Professional Accountancy
Association Institutional
Capacity
6.0
Auditing, Assurance, and
Quality Control
3.0
Corporate Governance –
Transparency & Disclosure
0.0
International Financial
Reporting Standards
Professional Education
Ethics & Discipline
International Public Sector
Accounting Standards
Adoption
Implementation
45
Albania
Total Population (millions) (2009 est.)..............3.6
GDP (US$ billion) (2009 est.).......................$11.86
GDP per capita (US$) (2010 est.)................$6,300
Education expenditure........................2.9% of GDP
(Ranked 131 in World)
(Education expenditure ranked 147 in World)
Accountancy Development Index
Pillar Scores
Legal, Regulatory and
Institutional Framework
9.0
Professional Accountancy
Association Institutional
Capacity
6.0
Auditing, Assurance, and
Quality Control
3.0
Corporate Governance –
Transparency & Disclosure
0.0
International Financial
Reporting Standards
Professional Education
Ethics & Discipline
International Public Sector
Accounting Standards
Adoption
Implementation
46
Armenia
Total Population (millions) (2009 est.)..............2.9
GDP (US$ billion) (2009 est.).......................$16.2
GDP per capita (US$) (2009 est.)................$5,900
Education expenditure (2001).........3.2% of GDP
(Ranked 135 in World)
(Ranked 139 in World)
Accountancy Development Index
Pillar Scores
Legal, Regulatory and
Institutional Framework
9.0
Professional Accountancy
Association Institutional
Capacity
6.0
Auditing, Assurance, and
Quality Control
3.0
Corporate Governance –
Transparency & Disclosure
0.0
International Financial
Reporting Standards
Professional Education
Ethics & Discipline
International Public Sector
Accounting Standards
Adoption
Implementation
47
Bosnia and Herzegovina
Total Population (millions) (2010 est.)..............4.6
GDP (US$ billion) (2009 est.).........................$29.1
GDP per capita (US$) (2009 est.)................$6,300
Education expenditure........................................N/A
(Ranked 132 in World)
Accountancy Development Index
Pillar Scores
Legal, Regulatory and
Institutional Framework
9.0
Professional Accountancy
Association Institutional
Capacity
6.0
Auditing, Assurance, and Quality
Control
3.0
Corporate Governance –
Transparency & Disclosure
0.0
International Financial Reporting
Standards
Professional Education
Ethics & Discipline
International Public Sector
Accounting Standards
Adoption
Implementation
48
Botswana
Total Population (millions) (2009 est.)..............1.9
GDP (US$ billion) (2009 est.)............................$26
GDP per capita (US$) (2009 est.).............$13,100
Education expenditure (2007)...........8.7% of GDP
(Ranked 84 in World)
(Ranked 10 in World)
Accountancy Development Index
Pillar Scores
Legal, Regulatory and
Institutional Framework
9.0
Professional Accountancy
Association Institutional
Capacity
6.0
Auditing, Assurance, and Quality
Control
3.0
Corporate Governance –
Transparency & Disclosure
0.0
International Financial Reporting
Standards
Professional Education
Ethics & Discipline
International Public Sector
Accounting Standards
Adoption
Implementation
49
Brazil
Total Population (millions) (2009 est.)..........198.7
GDP (US$ billion) (2009 est.).......................$2,025
GDP per capita (US$) (2009 est.).............$10,200
Education expenditure (2004)..............4% of GDP
(Ranked105 in World)
(Ranked105 in World)
Accountancy Development Index
Pillar Scores
Legal, Regulatory and
Institutional Framework
9.0
Professional Accountancy
Association Institutional
Capacity
6.0
Auditing, Assurance, and
Quality Control
3.0
Corporate Governance –
Transparency & Disclosure
0.0
International Financial
Reporting Standards
Professional Education
Ethics & Discipline
International Public Sector
Accounting Standards
Adoption
Implementation
50
Bulgaria
Total Population (millions) (2009 est.)..............7.2
GDP (US$ billion) (2009 est.).........................$90.5
GDP per capita (US$) (2009 est.).............$12,600
Education expenditure (2005)...........4.5% of GDP
(Ranked 89 in World)
(Ranked 89 in World)
Accountancy Development Index
Pillar Scores
Legal, Regulatory and
Institutional Framework
9.0
Professional Accountancy
Association Institutional
Capacity
6.0
Auditing, Assurance, and
Quality Control
3.0
Corporate Governance –
Transparency & Disclosure
0.0
International Financial
Reporting Standards
Professional Education
Ethics & Discipline
International Public Sector
Accounting Standards
Adoption
Implementation
51
Czech Republic
Total Population (millions) (2009 est.)……...10.2
GDP (US$ billion) (2009 est.)……………$256.7
GDP per capita (US$) (2009 est.)………$25,100
Education expenditure (2004)……..4.4% of GDP
(Ranked 52 in World)
(Ranked 94 in World)
Accountancy Development Index
Pillar Scores
Legal, Regulatory and Institutional
Framework
9.0
Professional Accountancy
Association Institutional Capacity
6.0
Auditing, Assurance, and Quality
Control
3.0
Corporate Governance –
Transparency & Disclosure
0.0
International Financial Reporting
Standards
Professional Education
Ethics & Discipline
International Public Sector
Accounting Standards
Adoption
Implementation
52
El Salvador
Total Population (millions) (2010 est.)..............6.0
GDP (US$ billion) (2009 est.).......................$22.43
GDP per capita (US$) (2009 est.)................$7,100
Education expenditure (2006)...........3.1% of GDP
(Ranked 124 in World)
(Ranked 142 in World)
Accountancy Development Index
Pillar Scores
Legal, Regulatory and
Institutional Framework
9.0
Professional Accountancy
Association Institutional
Capacity
6.0
Auditing, Assurance, and
Quality Control
3.0
Corporate Governance –
Transparency & Disclosure
0.0
International Financial
Reporting Standards
Professional Education
Ethics & Discipline
International Public Sector
Accounting Standards
Adoption
Implementation
53
Republic of Georgia
Total Population (millions) (2009 est.)..............4.6
GDP (US$ billion) (2009 est.).........................$20.3
GDP per capita (US$) (2009 est.)................$4,400
Education expenditure (2006)...........3.1% of GDP
(Ranked 149 in World)
(Ranked 145 in World)
Accountancy Development Index
Pillar Scores
Legal, Regulatory and
Institutional Framework
9.0
Professional Accountancy
Association Institutional
Capacity
6.0
Auditing, Assurance, and
Quality Control
3.0
Corporate Governance –
Transparency & Disclosure
0.0
International Financial
Reporting Standards
Professional Education
Ethics & Discipline
International Public Sector
Accounting Standards
Adoption
Implementation
54
Guyana
Total Population (millions) (2009 est.)..........0.752
GDP (US$ billion) (2009 est.)...........................$2.8
GDP per capita (US$) (2009 est.)................$3,800
Education expenditure (2006)...........8.3% of GDP
(Ranked 157 in World)
(Ranked 13 in World)
Accountancy Development Index
Pillar Scores
Legal, Regulatory and
Institutional Framework
9.0
Professional Accountancy
Association Institutional
Capacity
6.0
Auditing, Assurance, and
Quality Control
3.0
Corporate Governance –
Transparency & Disclosure
0.0
International Financial
Reporting Standards
Professional Education
Ethics & Discipline
International Public Sector
Accounting Standards
Adoption
Implementation
55
Hong Kong
Total Population (millions) (2009 est.)..................7
GDP (US$ billion) (2009 est.).......................$301.6
GDP per capita (US$) (2009 est.).............$42,700
Education expenditure (2006)...........3.9% of GDP
(Ranked 42 in World)
(Ranked 112 in World)
Accountancy Development Index
Pillar Scores
Legal, Regulatory and
Institutional Framework
9.0
Professional Accountancy
Association Institutional
Capacity
6.0
Auditing, Assurance, and
Quality Control
3.0
Corporate Governance –
Transparency & Disclosure
0.0
International Financial
Reporting Standards
Professional Education
Ethics & Discipline
International Public Sector
Accounting Standards
Adoption
Implementation
56
Italy
Total Population (millions) (2009 est.)……58.1
GDP (US$ billion) (2009 est.)……………$1,756
GDP per capita (US$) (2009 est.)………$30,200
Education expenditure (2005)……..4.5% of GDP
(Ranked 43 in World)
(Ranked 88 in World)
Accountancy Development Index
Pillar Scores
Legal, Regulatory and
Institutional Framework
9.0
Professional Accountancy
Association Institutional
Capacity
6.0
Auditing, Assurance, and
Quality Control
3.0
Corporate Governance –
Transparency & Disclosure
0.0
International Financial
Reporting Standards
Professional Education
Ethics & Discipline
International Public Sector
Accounting Standards
Adoption
Implementation
57
Kazakhstan
Total Population (millions) (2009 est.)............15.4
GDP (US$ billion) (2009 est.).......................$182.3
GDP per capita (US$) (2009 est.).............$11,800
Education expenditure (2005)...........2.3% of GDP
(Ranked 94 in World)
(Ranked 163 in World)
Accountancy Development Index
Pillar Scores
Legal, Regulatory and
Institutional Framework
9.0
Professional Accountancy
Association Institutional
Capacity
6.0
Auditing, Assurance, and
Quality Control
3.0
Corporate Governance –
Transparency & Disclosure
0.0
International Financial
Reporting Standards
Professional Education
Ethics & Discipline
International Public Sector
Accounting Standards
Adoption
Implementation
58
Kosovo
Total Population (millions) (2009 est.)..............1.8
GDP (US$ billion) (2008 est.)..........................$5.3
GDP per capita (US$) (2007 est.)................$2,500
Education expenditure……………………. N/A
(Ranked 172 in World)
Accountancy Development Index
Pillar Scores
Legal, Regulatory and
Institutional Framework
9.0
Professional Accountancy
Association Institutional
Capacity
6.0
Auditing, Assurance, and
Quality Control
3.0
Corporate Governance –
Transparency & Disclosure
0.0
International Financial
Reporting Standards
Professional Education
Ethics & Discipline
International Public Sector
Accounting Standards
Adoption
Implementation
59
Liberia
Total Population (millions) (2009 est.)..............3.4
GDP (US$ billion) (2009 est.)..........................$ 1.6
GDP per capita (US$) (2009 est.)...................$500
Education expenditure……………………... N/A
(Ranked 225 in World)
Accountancy Development Index
Pillar Scores
Legal, Regulatory and
Institutional Framework
9.0
Professional Accountancy
Association Institutional
Capacity
6.0
Auditing, Assurance, and
Quality Control
3.0
Corporate Governance –
Transparency & Disclosure
0.0
International Financial
Reporting Standards
Professional Education
Ethics & Discipline
International Public Sector
Accounting Standards
Adoption
Implementation
60
Macedonia
Total Population (millions) (2009 est.)..............2.1
GDP (US$ billion) (2009 est.).........................$18.8
GDP per capita (US$) (2009 est.)................$9,000
Education expenditure (2002)...........3.5% of GDP
(Ranked 112 in World)
(Ranked 130 in World)
Accountancy Development Index
Pillar Scores
Legal, Regulatory and
Institutional Framework
9.0
Professional Accountancy
Association Institutional Capacity
6.0
Auditing, Assurance, and Quality
Control
3.0
Corporate Governance –
Transparency & Disclosure
0.0
International Financial Reporting
Standards
Professional Education
Ethics & Discipline
International Public Sector
Accounting Standards
Adoption
Implementation
61
Mexico
Total Population (millions) (2009 est.)..........111.2
GDP (US$ billion) (2009 est.).......................$1,482
GDP per capita (US$) (2009 est.).............$13,500
Education expenditure (2005)...........5.5% of GDP
(Ranked 83 in World)
(Ranked 49 in World)
Accountancy Development Index
Pillar Scores
Legal, Regulatory and
Institutional Framework
9.0
Professional Accountancy
Association Institutional Capacity
6.0
Auditing, Assurance, and Quality
Control
3.0
Corporate Governance –
Transparency & Disclosure
0.0
International Financial Reporting
Standards
Professional Education
Ethics & Discipline
International Public Sector
Accounting Standards
Adoption
Implementation
62
Moldova
Total Population (millions) (2009 est.)..............4.3
GDP (US$ billion) (2009 est.)............................$10
GDP per capita (US$) (2009 est.)................$2.300
Education expenditure (2006)...........7.6% of GDP
(Ranked 182 in World)
(Ranked 17 in World)
Accountancy Development Index
Pillar Scores
Legal, Regulatory and
Institutional Framework
9.0
Professional Accountancy
Association Institutional
Capacity
6.0
Auditing, Assurance, and
Quality Control
3.0
Corporate Governance –
Transparency & Disclosure
0.0
International Financial
Reporting Standards
Professional Education
Ethics & Discipline
International Public Sector
Accounting Standards
Adoption
Implementation
63
Montenegro
Total Population (2010 est.).......................666,730
GDP (US$ billion) (2009 est.)...........................$4.5
GDP per capita (US$) (2009 est.)................$9,800
Education expenditure (2006)...........................N/A
(Ranked 108 in World)
Accountancy Development Index
Pillar Scores
Legal, Regulatory and
Institutional Framework
9.0
Professional Accountancy
Association Institutional
Capacity
6.0
Auditing, Assurance, and
Quality Control
3.0
Corporate Governance –
Transparency & Disclosure
0.0
International Financial
Reporting Standards
Professional Education
Ethics & Discipline
International Public Sector
Accounting Standards
Adoption
Implementation
64
The Netherlands
Total Population (millions) (2009 est.)..….....16.7
GDP (US$ billion) (2009 est……………..$652.3
GDP per capita (US$) (2009 est.)……....$39,000
Education expenditure (2005)….….5.3% of GDP
(Ranked 22 in World)
(Ranked 58 in World)
Accountancy Development Index
Pillar Scores
Legal, Regulatory and
Institutional Framework
9.0
Professional Accountancy
Association Institutional
Capacity
6.0
Auditing, Assurance, and
Quality Control
3.0
Corporate Governance –
Transparency & Disclosure
0.0
International Financial
Reporting Standards
Professional Education
Ethics & Discipline
International Public Sector
Accounting Standards
Adoption
Implementation
65
Poland
Total Population (millions) (2009 est.)............38.5
GDP (US$ billion) (2009 est.).......................$690.1
GDP per capita (US$) (2009 est.).............$17,900
Education expenditure (2005)...........5.5% of GDP
(Ranked 68 in World)
(Ranked 50 in World)
Accountancy Development Index
Pillar Scores
Legal, Regulatory and
Institutional Framework
9.0
Professional Accountancy
Association Institutional
Capacity
6.0
Auditing, Assurance, and
Quality Control
3.0
Corporate Governance –
Transparency & Disclosure
0.0
International Financial
Reporting Standards
Professional Education
Ethics & Discipline
International Public Sector
Accounting Standards
Adoption
Implementation
66
Romania
Total Population (millions) (2009 est.)............22.2
GDP (US$ billion) (2009 est.).......................$255.4
GDP per capita (US$) (2009 est.).............$11,500
Education expenditure (2005 est.)...3.5% of GDP
(Ranked 96 in World)
(Ranked 129 in World)
Accountancy Development Index
Pillar Scores
Legal, Regulatory and
Institutional Framework
9.0
Professional Accountancy
Association Institutional
Capacity
6.0
Auditing, Assurance, and
Quality Control
3.0
Corporate Governance –
Transparency & Disclosure
0.0
International Financial
Reporting Standards
Professional Education
Ethics & Discipline
International Public Sector
Accounting Standards
Adoption
Implementation
67
Rwanda
Total Population (millions) (2010 est.)............11.1
GDP (US$ billion) (2009 est.).........................$5.07
GDP per capita (US$) (2009 est.)...................$900
Education expenditure (2005)...........3.8% of GDP
(Ranked 216 in World)
(Ranked 115 in World)
Accountancy Development Index
Pillar Scores
Legal, Regulatory and
Institutional Framework
9.0
Professional Accountancy
Association Institutional
Capacity
6.0
Auditing, Assurance, and
Quality Control
3.0
Corporate Governance –
Transparency & Disclosure
0.0
International Financial
Reporting Standards
Professional Education
Ethics & Discipline
International Public Sector
Accounting Standards
Adoption
Implementation
68
Saudi Arabia
Total Population (millions) (2009 est.)............28.7
GDP (US$ billion) (2009 est.)..........................$585
GDP per capita (US$) (2009 est.).............$20,400
Education expenditure (2004)...........6.8% of GDP
(Ranked 60 in World)
(Ranked 28 in World)
Accountancy Development Index
Pillar Scores
Legal, Regulatory and
Institutional Framework
9.0
Professional Accountancy
Association Institutional
Capacity
6.0
Auditing, Assurance, and
Quality Control
3.0
Corporate Governance –
Transparency & Disclosure
0.0
International Financial
Reporting Standards
Professional Education
Ethics & Discipline
International Public Sector
Accounting Standards
Adoption
Implementation
69
Serbia
Total Population (millions) (2009 est.)..............7.4
GDP (US$ billion) (2009 est.).........................$78.4
GDP per capita (US$) (2009 est.).............$10,400
Education expenditure.......................................N/A
(Ranked 104 in World)
Accountancy Development Index
Pillar Scores
Legal, Regulatory and
Institutional Framework
9.0
Professional Accountancy
Association Institutional Capacity
6.0
Auditing, Assurance, and Quality
Control
3.0
Corporate Governance –
Transparency & Disclosure
0.0
International Financial Reporting
Standards
Professional Education
Ethics & Discipline
International Public Sector
Accounting Standards
Adoption
Implementation
70
South Africa
Total Population (millions) (2009 est.)...............49
GDP (US$ billion) (2009 est.).......................$495.1
GDP per capita (US$) (2009 est.).............$10,100
Education expenditure (2006)...........5.4% of GDP
(Ranked107 in World)
(Ranked 52 in World)
Accountancy Development Index
Pillar Scores
Legal, Regulatory and
Institutional Framework
9.0
Professional Accountancy
Association Institutional
Capacity
6.0
Auditing, Assurance, and
Quality Control
3.0
Corporate Governance –
Transparency & Disclosure
0.0
International Financial
Reporting Standards
Professional Education
Ethics & Discipline
International Public Sector
Accounting Standards
Adoption
Implementation
71
Tunisia
Total Population (millions) (2009 est.)............10.5
GDP (US$ billion) (2009 est.).........................$83.2
GDP per capita (US$) (2009 est.)................$8,000
Education expenditure (2005)...........7.3% of GDP
(Ranked 122 in World)
(Ranked 19 in World)
Accountancy Development Index
Pillar Scores
Legal, Regulatory and
Institutional Framework
9.0
Professional Accountancy
Association Institutional
Capacity
6.0
Auditing, Assurance, and
Quality Control
3.0
Corporate Governance –
Transparency & Disclosure
0.0
International Financial
Reporting Standards
Professional Education
Ethics & Discipline
International Public Sector
Accounting Standards
Adoption
Implementation
72
Turkey
Total Population (millions) (2009 est.)............76.8
GDP (US$ billion) (2009 est.).......................$863.3
GDP per capita (US$) (2009 est.).............$11,200
Education expenditure (2004)..............4% of GDP
(Ranked 98 in World)
(Ranked 104 in World)
Accountancy Development Index
Pillar Scores
Legal, Regulatory and
Institutional Framework
9.0
Professional Accountancy
Association Institutional
Capacity
6.0
Auditing, Assurance, and
Quality Control
3.0
Corporate Governance –
Transparency & Disclosure
0.0
International Financial
Reporting Standards
Professional Education
Ethics & Discipline
International Public Sector
Accounting Standards
Adoption
Implementation
73
United Kingdom
Total Population (millions) (2009 est.)............61.1
GDP (US$ billion) (2009 est.)..............$2,149
GDP per capita (US$) (2009 est.).............$35,200
Education expenditure (2005)...........5.6% of GDP
(Ranked 34 in World)
(Ranked 47 in World)
Accountancy Development Index
Pillar Scores
Legal, Regulatory and
Institutional Framework
9.0
Professional Accountancy
Association Institutional Capacity
6.0
Auditing, Assurance, and Quality
Control
3.0
Corporate Governance –
Transparency & Disclosure
0.0
International Financial Reporting
Standards
Professional Education
Ethics & Discipline
International Public Sector
Accounting Standards
Adoption
Implementation
74
United States of America
Total Population (millions) (2009 est.).............307
GDP (US$ billion) (2009 est.)....................$14,260
GDP per capita (US$) (2009 est.).............$46,400
Education expenditure (2005)...........5.3% of GDP
(Ranked 11 in World)
(Ranked 56 in World)
Accountancy Development Index
Pillar Scores
Legal, Regulatory and
Institutional Framework
9.0
Professional Accountancy
Association Institutional
Capacity
6.0
Auditing, Assurance, and
Quality Control
3.0
Corporate Governance –
Transparency & Disclosure
0.0
International Financial
Reporting Standards
Professional Education
Ethics & Discipline
International Public Sector
Accounting Standards
Adoption
Implementation
75
Ukraine
Total Population (millions) (2009 est.)............45.7
GDP (US$ billion) (2009 est.).......................$294.3
GDP per capita (US$) (2009 est.)................$6,400
Education expenditure (2006)...........6.3% of GDP
(Ranked 129 in World)
(Ranked 36 in World)
Accountancy Development Index
Pillar Scores
Legal, Regulatory and
Institutional Framework
9.0
Professional Accountancy
Association Institutional
Capacity
6.0
Auditing, Assurance, and
Quality Control
3.0
Corporate Governance –
Transparency & Disclosure
0.0
International Financial
Reporting Standards
Professional Education
Ethics & Discipline
International Public Sector
Accounting Standards
Adoption
Implementation
76
Appendix C — Survey Questionnaire
77
Accountancy Development Index (ADI) Questionnaire Revised
ADI: Accountancy Development Index BISTA: USAID Benchmarking International Standards of Transparency and Accountability Project COFOG: United Nations Classifications of the Functions of Government IAASB: International Audit and Assurance Standards Board IES: International Federation of Accountants International Education Standards IFAC: International Federation of Accountants IFRS: International Financial Reporting Standards INTOSAI: International Organisation of Supreme Audit Institutions IOSCO: International Organization of Securities Commissions IPSAS: International Public Sector Accounting Standards ISA: International Standards on Auditing ISAE: International Standards on Assurance Engagements ISQC1: International Standard on Quality Control 1 ISRE: International Standards on Review Engagements ISRS: International Standards on Related Services OECD: Organisation for Economic Cooperation and Development PIE: Public Interest Enterprise SOE: State Owned Enterprise SMO: International Federation of Accountants Statements of Membership Obligations 4. Respondent Information
Please complete the following Demographic Information noted below:
Respondent Name:
Organization Name:
Address 1:
Address 2:
City/Town:
State/Province:
Postal Code:
Country:
Email Address:
Phone Number:
1.0 Legal, Regulatory, and Institutional Framework
Click on the button that corresponds with the most appropriate answer to note your response to the statements below. 78
Accountancy Development Index (ADI) Questionnaire Revised
1.0 Legal, Regulatory, and Institutional Framework: Accounting & Auditing ­ OBSERVATION
YES
NO
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1.01.2 Statutory audits are required to be performed by an independent auditor.
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1.01.1 The Statutory Framework identifies specific governmental or self­regulating entities/organizations as being responsible for setting widely applicable private sector accounting and auditing standards.
accordance with the Statutory Framework.
1.01.4 Companies which meet or exceed specified criteria (thresholds) are required to obtain an annual statutory audit.
79
Accountancy Development Index (ADI) Questionnaire Revised
1.01 Legal, Regulatory, and Institutional Framework: Accounting and Auditing ­ OVERALL OPINION
Does not exist in Does not exist our country's in our country's statutory framework statutory but is currently framework
being proposed/discussed
1.01A The country has in place Does exist in Does exist in Does exist in our country's our country's our country's statutory statutory statutory framework and framework and framework and there is little or there is a there is a high no medium level of level of implementation implementation implementation
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and regularly updates, as needed to serve the public interest, a comprehensive, openly available, set of Private Sector Accounting and Auditing Laws, legal codes, statutes and agency regulations applicable to companies which meet or exceed specified criteria (thresholds).
1.01B Overall, the vast majority of companies subject to the country's Private Sector Accounting and Auditing standards consistently prepare their annual financial statements in accordance with the requirements and objectives of these standards.
1.01C Overall, the vast majority of statutory audits are conducted by properly licensed auditors in a professional manner consistent with the requirements and objectives of the country's applicable auditing standards.
1.02 Legal, Regulatory, and Institutional Framework: Public Sector ­ OBSERVATION
1.02.1 The Statutory Framework identifies specific governmental entities as being responsible for setting and/or adopting widely applicable public sector accounting standards.
80
YES
NO
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Accountancy Development Index (ADI) Questionnaire Revised
1.02 Legal, Regulatory, and Institutional Framework: Public Sector ­ OVERALL OPINION
Does not exist in Does not exist our country's in our country's statutory framework statutory but is currently framework
being proposed/discussed
1.02A The country has in place Does exist in Does exist in Does exist in our country's our country's our country's statutory statutory statutory framework and framework and framework and there is little or there is a there is a high no medium level of level of implementation implementation implementation
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and regularly updates, as needed to serve the public interest, a comprehensive, openly available, set of Public Sector Accounting laws, legal codes, statutes and agency regulations generally applicable to most governmental ministries, agencies, and other major public entities.
1.02B Overall, the vast majority of governmental reporting entities subject to the country's Public Sector Accounting standards consistently prepare their annual financial statements in accordance with the requirements and objectives of these standards.
1.03 Legal, Regulatory, and Institutional Framework: Public Oversight Boards and/or Regulatory Agencies ­
OBSERVATION
1.03.1 The Statutory Framework includes official Independence guidelines for public oversight YES
NO
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board and/or regulatory agency members.
1.03.02 Under the Statutory Framework, the system of public oversight has the responsibility and authority to impose sanctions for serious violations of applicable public sector accounting laws, rules and regulations including the failure to properly account for the receipt and use of public funds.
81
Accountancy Development Index (ADI) Questionnaire Revised
1.03 Legal, Regulatory, and Institutional Framework: Public Oversight Boards and/or Regulatory Agencies ­
OVERALL OPINION
Does not exist in Does not exist our country's in our country's statutory framework statutory but is currently framework
being proposed/discussed
1.03A There is regular and Does exist in Does exist in Does exist in our country's our country's our country's statutory statutory statutory framework and framework and framework and there is little or there is a there is a high no medium level of level of implementation implementation implementation
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reasonably adequate public funding for the country's system of oversight of public funds.
1.03B Overall, the system of public oversight is adequately staffed with individuals who possess sufficient professional education, knowledge, skills, and experience to perform their responsibilities in a manner that serves the public interest.
1.03C The country has in practice an accountable and independent public authority with a demonstrated track record of regularly and consistently serving the public interest by ensuring and enforcing compliance with public sector accounting and auditing standards.
1.04 Licensing Arrangements for Professional Accountants and Audit Professionals ­ OBSERVATION
1.04.1 Under the Statutory Framework, the government EITHER (a) licenses professional YES
NO
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accountants and audit professionals; OR (b) delegates (all or part of) this responsibility to an entity (e.g., professional association) and oversees this delegation of responsibility. Note: Choose NO only if neither (a) nor (b) is applicable under the country's Statutory Framework.
1.04.2 Initially, in order to obtain a professional license, an individual must take and pass an examination of professional competence.
1.04.3 Individuals are required to complete practical experience training in order to obtain a professional license.
1.04.4 Continuing Professional Development (CPD) is required for license renewal and/or continuation.
1.04.5 There is a process in place for monitoring CPD achievement.
82
Accountancy Development Index (ADI) Questionnaire Revised
1.04 Licensing Arrangements for Professional Accountants and Audit Professionals ­ OVERALL OPINION
Does not exist in Does not exist our country's in our country's statutory framework statutory but is currently framework
being proposed/discussed
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Does exist in Does exist in Does exist in our country's our country's our country's statutory statutory statutory framework and framework and framework and there is little or there is a there is a high no medium level of level of implementation implementation implementation
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functioning system for licensing accountants and/or auditors.
Legal, Regulatory, and Institutional Framework: Accounting and Auditing ­ DEVELOPMENT
Please respond with your level of agreement to the statement below to note your country's development in
Statutory Framework.
STRONGLY AGREE
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DISAGREE
Within the last 3 years, the STRONGLY DISAGREE
AGREE
country's Statutory Framework for Accounting and Auditing has incorporated substantial improvements based on international standards and best practices intended to serve the public interest.
Within the last 3 years, the country's Statutory Framework for Licensing Audit Professionals has incorporated substantial improvements based on international standards and best practices intended to serve the public interest.
To better serve the public interest, the country's present Statutory Framework for Accounting and Auditing requires substantial changes founded on international standards and best practices.
To better serve the public interest, the country's present Statutory Framework for Licensing Audit Professionals requires substantial changes founded on international standards and best practices.
83
Accountancy Development Index (ADI) Questionnaire Revised
2.0 Auditing, Assurance, and Quality Control
Click on the button that corresponds with the most appropriate answer to note your response to the statements below. 2.01 Auditing, Assurance, and Quality Control: International Standards on Auditing ­ OBSERVATIONS
YES
NO
j
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2.01.1 There is a process for including into law, rules and regulation, updates to auditing standards.
2.01 International Standards on Auditing ­ OVERALL OPINION
Does not exist in our country's statutory framework
Does not exist Does exist in Does exist in Does exist in in our country's our country's our country's our country's statutory statutory statutory currently being there is little or proposed/ discussed
2.01A Financial Statement Audits j
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statutory framework but is framework and framework and framework and j
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no there is a there is a high medium level of level of implementation implementation implementation
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must comply with the most up­to­
date version of International Standards on Auditing (ISA)*.
2.02 International Standards on Assurance Engagements ­ OBSERVATIONS
YES
NO
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2.02.1 There is a process for including into law, rules and regulation, updates to assurance engagement standards.
2.02 International Standards on Assurance Engagements ­ OVERALL OPINION
Does not exist in our country's statutory framework
Does not exist Does exist in Does exist in Does exist in in our country's our country's our country's our country's statutory statutory statutory framework but is framework and framework and framework and currently being there is little or proposed/ discussed
2.02A Assurance Engagements must comply with the most up­to­
date version of International Standards on Assurance Engagements (ISAE)***.
84
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statutory j
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no there is a there is a high medium level of level of implementation implementation implementation
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j
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n
Accountancy Development Index (ADI) Questionnaire Revised
International Standards Issued by the International Audit and Assurance Standards Board (IAASB) ­
DEVELOPMENT
Please respond with your level of agreement to the statement below to note your country's development in
IAASB Standards.
STRONGLY AGREE
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DISAGREE
Withing the last 3 years, the STRONGLY DISAGREE
AGREE
country's standards on auditing have incorporated substantial improvements based on international standards and best practices intended to serve the public interest.
Within the last 3 years, the country's standards on review engagements have incorporated substantial improvements based on international standards and best practices intended to serve the public interest.
Within the last 3 years, the country's standards on assurance engagements have incorporated substantial improvements based on international standards and best practices intended to serve the public interest.
Withing the last 3 years, the country's standards on related services have incorporated substantial improvements based on international standards and best practices intended to serve the public interest.
Within the last 3 years the country's standards on quality control have incorporated substantial improvements based on international standards and best practices intended to serve the public interest.
To better serve the public interest, the country's present standards on auditing require substantial changes 85
Accountancy Development Index (ADI) Questionnaire Revised
founded on international standards and best practices.
To better serve the public interest, j
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the country's present standards on review engagements require substantial changes founded on international standards and best practices.
To better serve the public interest, the country's present standards on assurance engagements require substantial changes founded on international standards and best practices.
To better serve the public interest, the country's present standards on related services require substantial changes founded on international standards and best practices.
To better serve the public interest, the country's present standards on quality control require substantial changes founded on international standards and best practices.
86
Accountancy Development Index (ADI) Questionnaire Revised
FOOTNOTES *If your country uses national standards for auditing which are substantially similar to ISAs (These may be based off an older version of ISA, may have some modifications, may be converging toward ISA, etc.) as its method for auditing standards ­ please select either "Does exist in our country's statutory framework and there is little or no implementation" OR "Does exist in our country's statutory framework and there is a medium level of implementation", as your response based on the level of implementation, degree of similarity to ISA and proximity of your country's standards to complete convergence. **If your country uses national standards for review engagements which are substantially similar to ISREs (These may be based off an older version of ISRE, may have some modifications, may be converging toward ISRE, etc.) as its method for review engagement standards ­ please select either "Does exist in our country's statutory framework and there is little or no implementation" OR "Does exist in our country's statutory framework and there is a medium level of implementation", as your response based on the level of implementation, degree of similarity to ISRE and proximity of your country's standards to complete convergence. ***If your country uses national standards for assurance engagements which are substantially similar to ISAEs (These may be based off an older version of ISAE, may have some modifications, may be converging toward ISAE, etc.) as its method for assurance engagement standards ­ please select either "Does exist in our country's statutory framework and there is little or no implementation" OR "Does exist in our country's statutory framework and there is a medium level of implementation", as your response based on the level of implementation, degree of similarity to ISAE and proximity of your country's standards to complete convergence. ****If your country uses national standards for related services which are substantially similar to ISRSs (These may be based off an older version of ISRS, may have some modifications, may be converging toward ISRS, etc.) as its method for related services standards ­ please select either "Does exist in our country's statutory framework and there is little or no implementation" OR "Does exist in our country's statutory framework and there is a medium level of implementation", as your response based on the level of implementation, degree of similarity to ISRS and proximity of your country's standards to complete convergence. *****If your country uses national standards for quality control which are substantially similar to ISQC 1 (These may be based off an older version of ISQC may have some modifications, may be converging toward ISQC, etc.) as its method for quality control standards ­ please select either "Does exist in our country's statutory framework and there is little or no implementation" OR "Does exist in our country's statutory framework and there is a medium level of implementation", as your response based on the level of implementation, degree of similarity to ISQC and proximity of your country's standards to complete convergence. 2.03 International Standards on Review Engagements ­ OBSERVATIONS
2.03.1 There is a process for including into law, rules and regulation, updates to review YES
NO
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engagements.
87
Accountancy Development Index (ADI) Questionnaire Revised
2.03 International Standards on Review Engagements ­ OVERALL OPINION
Does not exist in our country's statutory framework
Does not exist Does exist in Does exist in Does exist in in our country's our country's our country's our country's statutory statutory statutory framework but is framework and framework and framework and currently being there is little or proposed/ discussed
2.03A Review Engagements must j
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statutory no there is a there is a high medium level of level of implementation implementation implementation
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comply with the most up­to­date version of International Standards on Review Engagements (ISRE)**.
2.04 International Standards on Related Services ­ OBSERVATIONS
YES
NO
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2.04.1 There is a process for including into law, rules and regulation, updates to related services standards.
2.04 International Standards on Related Services ­ OVERALL OPINION
Does not exist in our country's statutory framework
Does not exist Does exist in Does exist in Does exist in in our country's our country's our country's our country's statutory statutory statutory currently being there is little or proposed/ discussed
2.04A Related Services must be j
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statutory framework but is framework and framework and framework and no there is a there is a high medium level of level of implementation implementation implementation
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performed in compliance with the most up­to­date version of International Standards on Related Services (ISRS)****.
2.05 International Standards of Quality Control ­ OBSERVATIONS
2.05.1 There is a process for including into law, rules and regulation, updates to quality assurance standards.
88
YES
NO
j
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n
j
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n
Accountancy Development Index (ADI) Questionnaire Revised
2.05 International Standards of Quality Control ­ OVERALL OPINION
Does not exist in our country's statutory framework
Does not exist Does exist in Does exist in Does exist in in our country's our country's our country's our country's statutory statutory statutory framework but is framework and framework and framework and currently being there is little or proposed/ discussed
j
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2.05A Audits, reviews, assurance statutory no there is a there is a high medium level of level of implementation implementation implementation
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engagements and related services must comply with the most up­to­
date version of International Standards of Quality Control (ISQC 1)*****.
2.06 Adequate System of Quality Controls at Firm Level ­ OBSERVATIONS
YES
NO
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2.06.1 Audit firm system of quality controls are required to be in accordance with International Standards of Quality Control 1 (ISQC 1).
2.06.2 Audit firms are required to assess the continued adequacy and operational effectiveness of quality control policies and procedures on a timely basis.
2.06 Adequate System of Quality Controls at Firm Level ­ OVERALL OPINION
Does not exist in the Quality Assurance System (QAS)
2.06A Audit firms are required to j
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Does not exist Exists in the in the Quality Quality Assurance Assurance System (QAS), System (QAS) Exists in the Quality Assurance System (QAS) Exists in the Quality Assurance System (QAS)
and there is only but is being and there is little and there is a a medium level proposed/ or no high level of of discussed
implementation
implementation
implementation
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have an adequate system of quality control.
89
Accountancy Development Index (ADI) Questionnaire Revised
2.07 Adequate System of Quality Controls at the Partner Level ­ OVERALL OPINION
Does not exist in Does not exist the Quality in the Quality Assurance System Assurance (QAS) but is System (QAS)
currently being proposed/discussed
2.07.1 The audit firm partner is j
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Exists in the Exists in the Exists in the Quality Quality Quality Assurance Assurance Assurance System (QAS) System (QAS) System (QAS) and there is and there is a and there is a little or no medium level of high level of implementation implementation implementation
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subject to a firm system of quality control AND either a professional body OR government system of quality control.
If your country maintains multiple systems for quality assurance, please identify the system you are using
(as described in the Instructions to the ADI)
to respond to the statements below:
Please select the appropriate conclusion to this sentence based on your country's experience:
My country's Quality Assurance System is based upon...
j Country law
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j The concept of self­regulation by the profession
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j A combination of country law and the concept of self­regulation by the profession
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j Other
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90
Accountancy Development Index (ADI) Questionnaire Revised
2.08 System of Quality Assurance ­ OBSERVATIONS
YES
NO
2.08.1 A System of Quality Assurance operates in your country.
j
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2.08.2 Mandatory quality assurance reviews apply for audits of the financial statements of j
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2.08.7 Documentation of evidence supporting the quality control review report is required.
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2.08.8 The Review Team leader is required to issue a written report to the reviewed firm or j
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2.08.13 The Quality Assurance System has secure and independent funding.
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2.08.14 Quality Control Reviews are required to take place at least every six years (every three j
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listed entities.
2.08.3 Mandatory quality assurance reviews apply for audits of the financial statements of large (as defined by each individual country's laws) non­listed companies.
2.08.4 The Quality Assurance System reviews the work of non­audit services (reviews, compilations, insolvency, etc.).
2.08.5 When performing reviews, members of the Review Team must comply with a Code of Ethics.
2.08.6 The independence of the Quality Assurance Review Team is assessed and documented.
partner with conclusions on the compliance with the system of quality control recommendations for areas of improvement.
2.08.9 Reviewed firms are required to provide written responses to these written review reports and conclusions.
2.08.10 Reviewed firms are required to provide timely adjustments according to the recommendations of Quality Control Review Reports.
2.08.11 The Quality Assurance System links unsatisfactory results with corrective and disciplinary actions.
2.08.12 The Quality Assurance System is independent from the reviewed statutory auditors and audit firms.
years for statutory audits of public interest entities).
2.08 System of Quality Assurance ­ OVERALL OPINION
Does not exist Does exist and Does exist and Does exist and Does not exist
but is currently there is little or being proposed/ discussed
2.08A There is a Quality j
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no there is a there is a high medium level of level of implementation implementation implementation
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Assurance System (QAS) for accountants and/or auditors.
91
Accountancy Development Index (ADI) Questionnaire Revised
System of Quality Assurance ­ DEVELOPMENT
Please respond with your level of agreement to the statement below to note your country's development in
Quality Assurance
STRONGLY Within the last 3 years, the STRONGLY DISAGREE
AGREE
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DISAGREE
AGREE
country's Quality Assurance System has incorporated substantial improvements based on international standards and best practices intended to serve the public interest.
To better serve the public interest, the country's present Systems of Quality Assurance requires substantial changes founded on international standards and best practices.
92
Accountancy Development Index (ADI) Questionnaire Revised
FOOTNOTES *If your country uses national standards for auditing which are substantially similar to ISAs (These may be based off an older version of ISA, may have some modifications, may be converging toward ISA, etc.) as its method for auditing standards ­ please select either "Does exist in our country's statutory framework and there is little or no implementation" OR "Does exist in our country's statutory framework and there is a medium level of implementation", as your response based on the level of implementation, degree of similarity to ISA and proximity of your country's standards to complete convergence. **If your country uses national standards for review engagements which are substantially similar to ISREs (These may be based off an older version of ISRE, may have some modifications, may be converging toward ISRE, etc.) as its method for review engagement standards ­ please select either "Does exist in our country's statutory framework and there is little or no implementation" OR "Does exist in our country's statutory framework and there is a medium level of implementation", as your response based on the level of implementation, degree of similarity to ISRE and proximity of your country's standards to complete convergence. ***If your country uses national standards for assurance engagements which are substantially similar to ISAEs (These may be based off an older version of ISAE, may have some modifications, may be converging toward ISAE, etc.) as its method for assurance engagement standards ­ please select either "Does exist in our country's statutory framework and there is little or no implementation" OR "Does exist in our country's statutory framework and there is a medium level of implementation", as your response based on the level of implementation, degree of similarity to ISAE and proximity of your country's standards to complete convergence. ****If your country uses national standards for related services which are substantially similar to ISRSs (These may be based off an older version of ISRS, may have some modifications, may be converging toward ISRS, etc.) as its method for related services standards ­ please select either "Does exist in our country's statutory framework and there is little or no implementation" OR "Does exist in our country's statutory framework and there is a medium level of implementation", as your response based on the level of implementation, degree of similarity to ISRS and proximity of your country's standards to complete convergence. *****If your country uses national standards for quality control which are substantially similar to ISQC 1 (These may be based off an older version of ISQC may have some modifications, may be converging toward ISQC, etc.) as its method for quality control standards ­ please select either "Does exist in our country's statutory framework and there is little or no implementation" OR "Does exist in our country's statutory framework and there is a medium level of implementation", as your response based on the level of implementation, degree of similarity to ISQC and proximity of your country's standards to complete convergence. 3.0 Professional Education
Click on the button that corresponds with the most appropriate answer to note your response to the statements below. (Please make sure to read the Footnotes listed below for applicable questions) If your country maintains multiple systems for accountancy education, assessment and certification, please
identify the system you are using (as described in the Instructions to the ADI) to answer the questions below:
93
Accountancy Development Index (ADI) Questionnaire Revised
3.01 Entry Requirements to a Program of Accountancy Education ­ OBSERVATIONS
YES
NO
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3.01.1 Accountancy education and training includes university entrance or the equivalent level at the start.
3.01.2 There is balance between the level of knowledge/education required at the starting point of the program and the amount of information/instruction covered by the program.
3.01 Entry Requirements to a Program of Accountancy Education ­ OVERALL OPINION
Does not exist Does exist and Does exist and Does exist and Does not exist
but is currently there is little or being proposed/ discussed
3.01A Entry Requirements to a program of accountancy education are in compliance with the most up­to­date version of IFAC IESs.*
94
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no there is a there is a high medium level of level of implementation implementation implementation
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j
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n
Accountancy Development Index (ADI) Questionnaire Revised
3.02 Content of Accountancy Education Programs ­ OBSERVATIONS
YES
NO
j
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n
j
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n
j
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j
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n
(b) management accounting and control
j
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n
j
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n
(c) taxation
j
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n
j
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n
(d) business and commercial law
j
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n
j
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n
(e) audit and assurance
j
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n
j
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n
(f) finance and financial management
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n
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(g) professional values and ethics
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n
j
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n
3.02.3 The organizational and business knowledge component of the education program j
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j
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n
(b) business environment
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(c) corporate governance
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(d) business ethics
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(e) financial markets
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(f) quantitative methods
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(g) management and strategic decision making
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(h) marketing
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j
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(i) international business and globalization
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(j) organizational behavior
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3.02.4 The information technology component of the education program includes: (a) General j
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(b) IT control knowledge
j
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(c) IT control competences
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(d) IT user competences
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(e) One of, or a mixture of, the competences of the roles of manager, evaluator or designer of j
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3.02.1 The program of professional accounting education exists which includes a framework of professional values, ethics and attitudes for exercising professional judgment and for acting in an ethical manner that is in the best interest of society and the profession.
3.02.2 The accounting, finance and related knowledge component of the education program includes: (a) financial accounting and reporting
includes: (a) economics
Knowledge of IT
information systems
3.02.5 Education programs for CERTIFIED AUDITORS contain a component on the audit of historical financial information at an advanced level. This includes (1) best practices in the audits of historical financial information, including relevant current issues and developments, (2) International Standards on Auditing and International Auditing Practice Statements; and/or (3) any other applicable standards or laws.
3.02.6 Education programs for CERTIFIED AUDITORS contain a component on financial accounting and reporting at an advanced level. This includes(1) financial accounting and reporting processes and practices, including relevant current issues and development; and (2) 95
Accountancy Development Index (ADI) Questionnaire Revised
International Financial reporting Standards; and/or other applicable standards or laws.
3.02.7 Education programs for CERTIFIED AUDITORS contain a component on information j
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technology systems for financial accounting and reporting including relevant current issues and developments.
3.02.8 Education programs for CERTIFIED AUDITORS contain a component on frameworks for evaluating controls and assessing risks in accounting and reporting systems as appropriate for the audit of historical financial information.
Content of Accountancy Education Programs ­ OVERALL OPINION
Does not exist but Does exist and is currently being there is a medium proposed/ level of discussed
implementation
j
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m
n
j
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n
j
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j
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Does not exist
3.02A The program of accounting Does exist and there is a high level of implementation
education and its contents are in compliance with the most up to date version of IFAC IESs.*
3.02B The program of auditing education and its contents are in compliance with the most up to date version of IFAC IESs.*
96
Accountancy Development Index (ADI) Questionnaire Revised
3.03 Professional Skills ­ OBSERVATIONS
YES
NO
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j
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j
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j
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n
(b) Undertaking appropriate technical research
j
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n
j
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n
(c) Working in teams effectively
j
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n
j
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n
(d) Gathering and evaluating evidence
j
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j
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n
3.03.8 Advanced Application in an Audit Environment: In addition to other skills, programs for j
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(b) Evaluating applications of relevant financial reporting standards
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(c) Demonstrating capacity for inquiry, abstract logical thought, and critical analysis
j
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j
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(d) Demonstrating professional skepticism
j
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j
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(e) Applying professional judgment
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j
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(f) Withstanding and resolving conflicts
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3.03.1 Intellectual skills: Programs are designed to increase knowledge, understanding, application, analysis, synthesis (to combine knowledge from several areas, predict and draw conclusions) and evaluation of accounting and auditing topics.
3.03.2 Technical and functional skills: Programs emphasize the areas of (a) numeracy (mathematical and statistical applications) and IT proficiency, (b) decision modeling and risk analysis, (c) measurement, (d) reporting, and (e) compliance with legislative and regulatory requirements.
3.03.3 Personal Skills: Programs emphasize the areas of: (a) self­management, (b) initiative, influence and self learning, (c) the ability to select and assign priorities within restricted resources and to organize work to meet tight deadlines, and (d) professional skepticism.
3.03.4 Interpersonal and Communication Skills: Programs emphasize the areas of: (a) work with others in a consultative process, to withstand and resolve conflict; (b) work in teams; (c) negotiate acceptable solutions and agreements in professional situations; and (d) present, discuss, report and defend views effectively through formal, informal, written and spoken communication.
3.03.5 Organizational and Business Management Skills: Programs emphasize the areas of: (a) strategic planning, project management, management of people and resources, and decision making; (b) the ability to organize and delegate tasks, to motivate and to develop people; (c) leadership; and (d) professional judgment and discernment.
3.03.6 Intellectual skills: In addition to other skills, programs for CERTIFIED AUDITORS emphasize the advancement of knowledge, understanding, application, analysis, synthesis (to combine knowledge from several areas, predict and draw conclusions) and evaluation of accounting and auditing topics.
3.03.7 Application in an Audit Environment: In addition to other skills, programs for CERTIFIED AUDITORS emphasize: (a) Identifying and solving problems
CERTIFIED AUDITORS emphasize:(a) Applying relevant audit standards and guidance
97
Accountancy Development Index (ADI) Questionnaire Revised
3.03 Professional Skills ­ OVERALL OPINION
Does not exist Does exist and Does exist and Does exist and Does not exist
but is currently there is little or being proposed/ discussed
3.03A Accountancy skills (as no there is a there is a high medium level of level of implementation implementation implementation
j
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n
j
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j
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j
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j
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j
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n
outlined by the most up to date version of IFAC IESs) are taught as part of an accounting education program.*
3.03B Auditing skills (as outlined by the most up to date version of IFAC IESs) are taught as part of an auditing education program.*
3.04 Values, Ethics and Attitudes ­ OBSERVATIONS
YES
NO
3.04.1 The ethics component of professional education includes: (a) The nature of Ethics
j
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j
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n
(b) Differences of detailed rules­based and framework approaches to ethics, their advantages j
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j
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n
j
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n
j
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(d) Professional behavior and compliance with technical standards
j
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n
j
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(e) Concepts of independence, skepticism, accountability and public expectations
j
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n
j
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n
(f) Ethics and the profession: social responsibility
j
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n
j
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n
(g) Ethics and law, including the relationship between laws, regulations and the public interest
j
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j
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n
(h) Consequences of unethical behavior to the individual, to the profession and to society at j
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j
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(i) Ethics in relation to business and good governance
j
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j
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(j) Ethics and the individual professional accountant: whistle blowing, conflicts of interest, j
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j
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j
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j
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and drawbacks
(c) Compliance with the fundamental ethical principles of integrity, objectivity, commitment to professional competence and due care, and confidentiality
large
ethical dilemmas and their resolution
3.04.2 Individuals are required to apply required professional values, ethics and attitudes in an audit environment before taking on the role of an AUDIT PROFESSIONAL.
98
Accountancy Development Index (ADI) Questionnaire Revised
3.04 Values, Ethics and Attitudes ­ OVERALL OPINION
Does not exist Does exist and Does exist and Does exist and Does not exist
but is currently there is little or being proposed/ discussed
3.04A Values, Ethics and no there is a there is a high medium level of level of implementation implementation implementation
j
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n
j
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j
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j
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j
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j
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j
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j
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j
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n
Attitudes (as outlined by the most up to date version of IFAC IESs) are taught as part of an accounting education program.*
3.04B Values, Ethics and Attitudes (as outlined by the most up to date version of IFAC IESs) are taught as part of an auditing education program.*
99
Accountancy Development Index (ADI) Questionnaire Revised
3.05 Assessment of Accountancy Capabilities and Competencies ­ OBSERVATIONS
YES
NO
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n
3.05.4 The assessment is uniform for all students.
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n
3.05.5 The assessment is written and evaluated by qualified, approved individuals.
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n
3.05.6 Specified pre­qualification requirements relating to professional knowledge, skills, j
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(c) International accounting standards
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(d) Financial analysis
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(e) Cost and management accounting
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(f) Risk management and internal control
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(g) Auditing and professional skills
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(h) Legal requirements and professional standards relating to statutory audit and statutory j
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(i) International auditing standards
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(j) Professional ethics and independence
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n
3.05.9 The examination covers the following elements of: (a) Company law and corporate j
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n
(b) The law of insolvency and similar procedures
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j
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(c) Tax law
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(d) Civil and commercial law
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(e) Social security law and employment law
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j
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n
(f) Information technology and computer systems
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(g) Business, general and financial economics
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(h) Mathematics and statistics
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(i) Basic principles of the financial management of undertakings
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3.05.1 In this Certification Scheme/Program, an assessment (examination) is required prior to certification as an accountant and/or auditor.
3.05.2 The assessment requires a significant proportion of candidates’ responses to be in recorded form (written).
3.05.3 The assessment is reliable and valid and, over time, the assessments produce consistent, objective results and assessment methods used are generally accepted.
values, ethics, and attitudes exist.
3.05.7 The assessment covers professional knowledge, professional skills, and professional values, ethics and attitudes.
3.05.8 The examination covers the following elements of: (a) General accounting theory and principles
(b) Legal requirements and standards relating to the preparation of annual and consolidated accounts
auditors
governance
100
Accountancy Development Index (ADI) Questionnaire Revised
3.05 Assessment of Accountancy Capabilities and Competencies ­ OVERALL OPINION
Exists in the Does not exist in Does not exist in the certification the certification program, but is program
being proposed/ discussed
certification program Exists in the and there is a certification program medium Exists in and there is little or the certification no implementation program and there is a high level of implementation
3.05A An assessment of j
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Accounting Capabilities and Competencies is conducted in compliance with the most up to date version of IFAC IESs. *
3.05B An assessment of Auditing Capabilities and Competencies is conducted in compliance with the most up to date version of IFAC IESs*.
3.06 Practical Experience Requirements ­ OBSERVATIONS
3.06.1 A set period of practical experience in performing the work of accountancy is required YES
NO
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for certification.
3.06.2 The period of practical experience required for certification consists of a minimum of three years (one of which can be covered by theoretical education).
3.06.3 The professional body and/or government organization responsible for certification requires individuals to provide proof of completion of practical experience for certification.
3.06.4 Experience leading to qualification as a certified accountant is conducted under the direction of a mentor who is either an experienced member of a professional association in good standing OR is certified and licensed by the appropriate government body and in good standing.
3.06.5 The professional body or government organization maintain a system for assessing and approving the practical experience environment before commencement of practical experience by the candidate.
3.06.6 There is an established monitoring system that provides for monitoring and reporting of the practical experience obtained.
3.06.7 A periodic review of the competences required by professional accountants is conducted to help ensure that the practical experience gained is relevant and appropriate.
3.06.8 The experience leading to qualification as an AUDIT PROFESSIONAL is required to be obtained with an organization that can provide suitable audit experience under the guidance of an engagement partner.
101
Accountancy Development Index (ADI) Questionnaire Revised
3.06 Practical Experience Requirements ­ OVERALL OPINION
Is not required Is Required For Is Required For Is Required For Is not required for attaining certification
for attaining Attaining Attaining certification but Certification and Certification and Certification and is currently there is little or there is a there is a high no medium level of level of being proposed/ discussed
3.06A A Practical Experience Attaining implementation implementation implementation
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Requirement for Auditors exists which is compliant with the most up to date version of IFAC IESs*.
3.06B A Practical Experience Requirement for Accountants exists which is compliant with the most up to date version of IFAC IESs*.
3.07 Continuing Professional Development ­ OBSERVATIONS
3.07.1 Continuing Professional Development (CPD) classes/courses are provided by the YES
NO
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j
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n
professional body, universities, government body, and or/other institution.
3.07.2 Certified individuals required to complete at least 120 hours or equivalent learning units of relevant professional development activity in each rolling three­year period, of which 60 hours or equivalent learning units should be verifiable; and they must complete at least 20 hours or equivalent learning units in each year OR Under the output­based approach the professional accountant is required to demonstrate the maintenance and development of relevant competence by periodically providing evidence that has been: (a) objectively verified by a competent source; and (b) measured using a valid competence assessment method.
3.07.3 The attainment of the appropriate type/number of CPD monitored by an established process.
3.07.4 Certification can be withdrawn for not attaining the appropriate number of hours AND/OR type of CPD.
102
Accountancy Development Index (ADI) Questionnaire Revised
3.07 Continuing Professional Development ­ OVERALL OPINION
Does not exist Does exist and Does exist and Does exist and Does not exist
but is currently there is little or being proposed/ discussed
3.07A There is a Continuing no there is a there is a high medium level of level of implementation implementation implementation
j
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j
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j
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j
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j
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n
Professional Development Requirement for Accountants which is compliant with the most up to date version of IFAC IESs*.
3.07B There is a Continuing Professional Development Requirement for Auditors which is compliant with the most up to date version of IFAC IESs*.
103
Accountancy Development Index (ADI) Questionnaire Revised
IFAC International Education Standards (IESs) ­ DEVELOPMENT
Please respond with your level of agreement to the statement below to note your country's development in
accounting and auditing education, certification and CPD.
STRONGLY Within the last 3 years, the STRONGLY DISAGREE
AGREE
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DISAGREE
AGREE
country's Accounting and Auditing Education has incorporated substantial improvements based on international standards and best practices intended to serve the public interest.
Within the last 3 years, the country's Accounting and Auditing Certification has incorporated substantial improvements based on international standards and best practices intended to serve the public interest.
Within the last 3 years, the country's Accounting and Auditing CPD has incorporated substantial improvements based on international standards and best practices intended to serve the public interest.
To better serve the public interest, the country's present system of accounting and auditing education requires substantial changes founded on international standards and best practices.
To better serve the public interest, the country's present system of accounting and auditing certification requires substantial changes founded on international standards and best practices.
To better serve the public interest, the country's present system of accounting and auditing CPD requires substantial changes founded on international standards and best practices.
104
Accountancy Development Index (ADI) Questionnaire Revised
FOOTNOTES *If your country uses national standards or guidelines for accounting/auditing education and certification which are substantially similar to IFAC IESs (These may be based off an older version of IESs, may have some modifications, may be converging toward IES, etc.) ­ please mark either "Does exist and there is little or no implementation" OR "Does exist and there is a medium level of implementation", depending on the level of implementation, degree of similarity to IFAC IESs and level of convergence. 4.0 International Public Sector Accounting Standards (IPSAS)
(Please make sure to read the Footnotes listed below for applicable questions) 4.01 Public Sector Accounting Environment ­ OBSERVATIONS
YES
NO
4.01.1 The law includes public sector accounting standards.
j
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n
4.01.2 A process is written into law that provides for updates to public sector accounting j
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standards.
4.01.3 The government requires public sector entities to prepare financial information using the accrual bases.
4.01.4 Public sector accounting standards apply to State Owned Enterprises (SOEs).
4.01 Public Sector Accounting Environment ­ OVERALL OPINION
Does exist in Does exist in Does exist in Does not exist Does not exist in our our country's in our country's statutory framework
country's statutory statutory our country's our country's statutory statutory framework but is framework and framework and framework and currently being proposed /discussed
there is little or there is a there is a high no medium level of level of implementation implementation implementation
4.01A The most recent, up­to­
j
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date version of International Public Sector Accounting Standards (IPSAS) are the standards required for public sector accounting*.
105
Accountancy Development Index (ADI) Questionnaire Revised
4.02 Comprehensiveness and Transparency of Public Financial Management System ­ OBSERVATIONS
YES
NO
4.02.1 A classification system exists for tracking government spending.
j
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j
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n
4.02.2 Public sector entity budgets include the administrative, economic, and functional j
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(b) Explanation of budget implications of new policy initiatives.
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n
4.02.5 The organizational and business knowledge component of budget documentation j
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classifications of expenditures.
4.02.3 Functional classifications are in conformity with United Nations Classifications of Functions of Government (COFOG) standard and sub­functional levels.
4.02.4 The annual budget documentation (the annual budget and budget supporting documents), as submitted to the legislative branch for scrutiny and approval includes:(a) Summarized budget data for both revenue and expenditure according to the main heads of the classifications used.
includes information on the current business environment.
4.02.6 The level of unreported extra­budgetary expenditures is fully incorporated into annual budget and end­of­year financial statements.
4.02.7 Income/expenditure information on donor­funded projects is fully incorporated into annual budget and end­of­year financial statements.
4.02.8 There is transparency and objectivity in the horizontal allocation of government funds among sub­national governments.
4.02.9 Reliable information on allocations is made available to sub­national governments in a timely manner.
4.02.10 Fiscal data from sub­national governments is consolidated for the general government according to sectoral categories.
4.02.11 The central government effectively monitors and manages the fiscal risks with national implications arising from autonomous government agencies and public enterprise activities.
4.02.12 A complete set of annual budget documents can be obtained by the public through appropriate means when it is submitted to the legislative branch.
4.02.13 In­year budget execution reports are made available to the public through appropriate means within one month of their completion.
4.02.14 Government year­end financial statements are made available to the public through appropriate means within six months of completed audit.
4.02.15 All external audit reports on central government consolidated operations are made available to the public through appropriate means within six months of completed audit.
106
Accountancy Development Index (ADI) Questionnaire Revised
4.02 Comprehensiveness and Transparency of Public Financial Management System ­ OVERALL OPINION
Does not exist Does exist and Does exist and Does exist and Does not exist
but is currently there is little or being proposed/ discussed
4.02A Budget and fiscal risk no there is a there is a high medium level of level of implementation implementation implementation
j
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oversight is comprehensive.
4.02B Fiscal and budget information is accessible to the public.
4.03 External Audit of Government Year End Financial Statements ­ OBSERVATIONS
YES
NO
4.03.1 A Supreme Audit Institution (SAI)is operational in your country.
j
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n
4.03.2 The audit scoped of government year end financial statements includes the reliability of j
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financial statements.
4.03.3 The audit scope of government year end financial statements includes the regularity of transactions.
4.03.4 The audit scope of government year end financial statements includes the functioning of internal control and procurement systems.
4.03 External Audit of Government Year End Financial Statements ­ OVERALL OPINION
Does not exist in our country's statutory framework
Does not exist Does exist in Does exist in Does exist in in our country's our country's our country's our country's statutory statutory statutory framework but is framework and framework and framework and currently being there is little or proposed/ discussed
4.03A An independent, external statutory no there is a there is a high medium level of level of implementation implementation implementation
j
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n
j
k
l
m
n
j
k
l
m
n
j
k
l
m
n
j
k
l
m
n
j
k
l
m
n
j
k
l
m
n
j
k
l
m
n
j
k
l
m
n
j
k
l
m
n
j
k
l
m
n
j
k
l
m
n
j
k
l
m
n
j
k
l
m
n
j
k
l
m
n
audit is required for year end government financial statements.
4.03B A year­end audit of government financial statements is conducted by a country's Supreme Audit Institution.
4.03C A year­end audit of government financial statements is conducted in accordance with auditing standards of the International Organization of Supreme Audit Institutions (INTOSAI).
107
Accountancy Development Index (ADI) Questionnaire Revised
4.04 Programs for Public Sector Accounting ­ OBSERVATIONS
YES
NO
j
k
l
m
n
j
k
l
m
n
j
k
l
m
n
j
k
l
m
n
4.04.1 Education/training programs for public sector accounting focus on IPSAS and their proper application.
4.04.2 Education/training programs for public sector accounting cover both the cash and accrual basis of reporting.
4.04 Programs for Public Sector Accounting ­ OVERALL OPINION
Does not exist Does exist and Does exist and Does exist and Does not exist
but is currently there is little or being proposed/ discussed
j
k
l
m
n
4.04A Government hosts training no there is a there is a high medium level of level of implementation implementation implementation
j
k
l
m
n
j
k
l
m
n
j
k
l
m
n
j
k
l
m
n
seminars for government employees to educate them regarding public sector accounting and financial management.
4.05 Public Sector Monitoring and Enforcement ­ OBSERVATIONS
YES
NO
j
k
l
m
n
j
k
l
m
n
j
k
l
m
n
j
k
l
m
n
j
k
l
m
n
j
k
l
m
n
j
k
l
m
n
j
k
l
m
n
4.05.1 The entity responsible for monitoring and enforcement of IPSAS is adequately staffed with professionals trained in IPSAS.
4.05.2 The entity responsible for monitoring and enforcement is adequately funded to monitor and enforce.
4.05.3 The entity responsible for monitoring and enforcement of government filing and public disclosure laws is adequately staffed with knowledgeable professionals.
4.05.4 The entity responsible for monitoring and enforcement of government filing and public disclosure laws is adequately funded.
4.05 Public Sector Monitoring and Enforcement ­ OVERALL OPINION
Does not exist in our country's statutory framework
Does not exist Does exist in Does exist in Does exist in in our country's our country's our country's our country's statutory statutory statutory framework but is framework and framework and framework and currently being there is little or proposed/ discussed
4.05A Compliance with IPSAS statutory no there is a there is a high medium level of level of implementation implementation implementation
j
k
l
m
n
j
k
l
m
n
j
k
l
m
n
j
k
l
m
n
j
k
l
m
n
j
k
l
m
n
j
k
l
m
n
j
k
l
m
n
j
k
l
m
n
j
k
l
m
n
standards is actively monitored and enforced.
4.05B There is monitoring and enforcement of government compliance with (a) filing, and (b) public disclosure laws.
108
Accountancy Development Index (ADI) Questionnaire Revised
4.0 International Public Sector Accounting Standards (IPSAS) ­ DEVELOPMENT
Please respond with your level of agreement to the statement below to note your country's development in
the area of IPSAS.
STRONGLY Within the last 3 years, the STRONGLY DISAGREE
AGREE
j
k
l
m
n
j
k
l
m
n
j
k
l
m
n
j
k
l
m
n
j
k
l
m
n
j
k
l
m
n
j
k
l
m
n
j
k
l
m
n
DISAGREE
AGREE
country's Statutory Framework for Public Sector Accounting and Auditing has incorporated substantial improvements based on international standards and best practices.
To better serve the public interest, the country's present public sector accounting requires substantial changes founded on international standards and best practices.
FOOTNOTE *If your country uses national standards for public sector accounting which are substantially similar to IPSAS (These may be based off an older version of IPSAS, may have some modifications, may be converging toward IPSAS, etc.) as its method for public sector accounting ­ please select either "Does exist in our country's statutory framework and there is little or no implementation" OR "Does exist in our country's statutory framework and there is a medium level of implementation", for your response based on the level of implementation, degree of similarity to IPSAS and proximity of your country's standards to complete convergence. 5.0 International Financial Reporting Standards (IFRS)
(Please make sure to read the Footnotes listed below for applicable questions) 109
Accountancy Development Index (ADI) Questionnaire Revised
5.01 International Financial Reporting Standards ­ OBSERVATIONS
YES
NO
j
k
l
m
n
j
k
l
m
n
j
k
l
m
n
j
k
l
m
n
(b) This entity is adequately staffed.
j
k
l
m
n
j
k
l
m
n
(c) This entity is adequately funded.
j
k
l
m
n
j
k
l
m
n
5.01.3 As required by the most up­to­date version of IFRS, companies are required to: (a) j
k
l
m
n
j
k
l
m
n
(b) Disclose accounting policies, changes in accounting estimates and errors.
j
k
l
m
n
j
k
l
m
n
(c) Apply the concept of deferred taxation.
j
k
l
m
n
j
k
l
m
n
(d) Account for, present and disclose financial instruments.
j
k
l
m
n
j
k
l
m
n
(e) Apply the concept of asset 'impairment' in their IFRS financial statements.
j
k
l
m
n
j
k
l
m
n
(f) Determine fair values of financial assets and financial liabilities.
j
k
l
m
n
j
k
l
m
n
5.01.1 The law identifies a process that provides for timely updates to financial reporting standards.
5.01.2 An entity has been established with (a) responsibility for monitoring and enforcing IFRS compliance.
Prepare consolidated financial statements.
5.01 International Financial Reporting Standards ­ OVERALL OPINION
Does not exist in our country's statutory framework
Does not exist Does exist in Does exist in Does exist in in our country's our country's our country's our country's statutory statutory statutory framework but is framework and framework and framework and currently being there is little or proposed/ discussed
5.01A Financial statements are j
k
l
m
n
statutory no there is a there is a high medium level of level of implementation implementation implementation
j
k
l
m
n
j
k
l
m
n
j
k
l
m
n
j
k
l
m
n
prepared in accordance with the most up­to­date version of International Financial Reporting Standards (IFRS)*.
5.02 Private Sector Monitoring and Enforcement ­ OBSERVATIONS
YES
NO
Is the entity responsible for monitoring and enforcing IFRS compliance adequately staffed?
j
k
l
m
n
j
k
l
m
n
Is the entity responsible for monitoring and enforcing IFRS compliance adequately funded?
j
k
l
m
n
j
k
l
m
n
110
Accountancy Development Index (ADI) Questionnaire Revised
International Financial Reporting Standards (IFRS) ­ DEVELOPMENT
Please respond with your level of agreement to the statement below to note your country's progress in the
area of IFRS during this past year
STRONGLY Within the last 3 years, the STRONGLY DISAGREE
AGREE
j
k
l
m
n
j
k
l
m
n
j
k
l
m
n
j
k
l
m
n
j
k
l
m
n
j
k
l
m
n
j
k
l
m
n
j
k
l
m
n
DISAGREE
AGREE
country's corporate financial reporting has incorporated substantial improvements based on international standards and best practices intended to serve the public interest.
To better serve the public interest, the country's present corporate financial reporting requires substantial changes founded on international standards and best practices.
FOOTNOTES *If your country requires companies to report financial information in compliance with national accounting standards which are substantially similar to IFRS (These may be based off an older version of IFRS, may have some modifications, may be converging toward IFRS, etc.)­ please select either "Does exist in our country's statutory framework and there is little or no implementation" OR "Does exist in our country's statutory framework and there is a medium level of implementation", as your response based on the level of implementation, degree of similarity to IFRS and proximity of your country's standards to complete convergence. 6.0 Ethics and Discipline
(Please make sure to read the Footnotes listed below for applicable questions) If more than one Code of Ethics is in existence for professional accountants and/or auditors, please identify
the Code of Ethics you are using (as described in the Instructions to the ADI) to answer the questions below :
111
Accountancy Development Index (ADI) Questionnaire Revised
6.01 Ethics and Discipline ­ OBSERVATIONS
YES
NO
j
k
l
m
n
j
k
l
m
n
6.01.2 A formal process for updating the country's Code of Ethics exists.
j
k
l
m
n
j
k
l
m
n
6.01.3 An entity or organization has been given the responsibility for monitoring and enforcing j
k
l
m
n
j
k
l
m
n
j
k
l
m
n
j
k
l
m
n
j
k
l
m
n
j
k
l
m
n
6.01.1 A Code of Ethics for accountants and auditors (e.g., professional accountants working in a private sector business, professional accountants working in the public sector, external auditors, etc.) has been adopted.
compliance with the Code of Ethics.
6.01.4 Investigations have been conducted into suspected cases of a breach of the Code of Ethics.
6.01.5 A professional accountant or auditor has lost the license to practice due to a breach of the Code of Ethics.
6.01 Ethics and Discipline ­ OVERALL OPINION
Does not exist Does exist and Does exist and Does exist and Does not exist
but is currently there is little or being proposed/ discussed
6.01A Professional j
k
l
m
n
no there is a there is a high medium level of level of implementation implementation implementation
j
k
l
m
n
j
k
l
m
n
j
k
l
m
n
j
k
l
m
n
accountants/auditors are required to comply with a Code of Ethics which is identical to the most recent up to date version of the IFAC Code of Ethics*
Ethics and Discipline ­ DEVELOPMENT
Please respond with your level of agreement to the statement below to note your country's development in
Ethics.
STRONGLY AGREE
j
k
l
m
n
j
k
l
m
n
j
k
l
m
n
j
k
l
m
n
j
k
l
m
n
j
k
l
m
n
j
k
l
m
n
j
k
l
m
n
DISAGREE
Within the last 3 years, the STRONGLY DISAGREE
AGREE
country's Code of Ethics has incorporated substantial improvements based on international standards and best practices intended to serve the public interest.
To better serve the public interest, the country's present code of Ethics and ethical requirements requires substantial changes founded on international standards and best practices.
112
Accountancy Development Index (ADI) Questionnaire Revised
FOOTNOTES *If your country uses a National Code of Ethics which is substantially similar to the IFAC Code of Ethics (This may be based off an older version of the IFAC Code of Ethics, may have some modifications, converging toward the IFAC Code of Ethics etc.) ­ please select either "This element does exist and there is little or no implementation" or "This element does exist and there is a medium level of implementation" based on the level of implementation, degree of similarity to the IFAC Code of Ethics and proximity of your country's Code to complete convergence. If your country maintains multiple systems for investigation and discipline, and appeals please identify the
system you are using (as described in the Instructions to the ADI) to answer the questions below:
Please select the appropriate conclusion to this sentence based on your country's experience:
My country's system of Investigation, Discipline and Appeals is based upon...
j Country law
k
l
m
n
j The concept of self­regulation by the profession
k
l
m
n
j A combination of country law and the concept of self­regulation by the profession
k
l
m
n
j Other
k
l
m
n
113
Accountancy Development Index (ADI) Questionnaire Revised
6.03 Investigation Process ­ OBSERVATIONS
YES
NO
6.03.1 A board or committee exists for performing investigations.
j
k
l
m
n
j
k
l
m
n
6.03.2 This board or committee is adequately staffed with professionals trained to perform j
k
l
m
n
j
k
l
m
n
j
k
l
m
n
j
k
l
m
n
j
k
l
m
n
j
k
l
m
n
j
k
l
m
n
j
k
l
m
n
j
k
l
m
n
j
k
l
m
n
6.03.7 These provisions and processes are publicly available.
j
k
l
m
n
j
k
l
m
n
6.03.8 Board or committee members must be independent from the subject of investigation j
k
l
m
n
j
k
l
m
n
j
k
l
m
n
j
k
l
m
n
6.03.10 Investigations occur when there are: (a) Criminal activities.
j
k
l
m
n
j
k
l
m
n
(b) Instances of fraud.
j
k
l
m
n
j
k
l
m
n
(c) Instances of gross professional negligence.
j
k
l
m
n
j
k
l
m
n
(d) Instances of less serious professional negligence that, cumulatively, may indicate j
k
l
m
n
j
k
l
m
n
(e) Acts or omissions likely to bring the accountancy profession into disrepute.
j
k
l
m
n
j
k
l
m
n
(f) A breach of professional standards (including ethical requirements).
j
k
l
m
n
j
k
l
m
n
(g) Substandard work.
j
k
l
m
n
j
k
l
m
n
6.03.11 Investigations which require disciplinary action are promptly turned over to a separate j
k
l
m
n
j
k
l
m
n
investigations.
6.03.3 This board or committee is adequately funded to manage the process and to investigate the actions of individuals.
6.03.4 The types of misconduct which may bring about investigative actions are publicly available.
6.03.5 This board or committee may impose penalties for non­compliance with the investigation process.
6.03.6 The provisions and processes for investigating certified accountants and/or auditors are codified in laws OR spelled out in association codes.
and from anyone connected with or interested in the matter investigated.
6.03.9 An investigation can commence when information is received from reliable sources that indicate the possibility of misconduct.
unfitness to exercise practicing rights.
disciplinary committee.
6.03 Investigation Process ­ OVERALL OPINION
Does not exist Does exist and Does exist and Does exist and Does not exist
but is currently there is little or being proposed/ discussed
6.03A A process of investigation exists as a part of the country's system of investigation and discipline.
114
j
k
l
m
n
j
k
l
m
n
no there is a there is a high medium level of level of implementation implementation implementation
j
k
l
m
n
j
k
l
m
n
j
k
l
m
n
Accountancy Development Index (ADI) Questionnaire Revised
6.04 Discipline Process ­ OBSERVATIONS
YES
NO
j
k
l
m
n
j
k
l
m
n
j
k
l
m
n
j
k
l
m
n
j
k
l
m
n
j
k
l
m
n
j
k
l
m
n
j
k
l
m
n
j
k
l
m
n
j
k
l
m
n
j
k
l
m
n
j
k
l
m
n
j
k
l
m
n
j
k
l
m
n
6.04.1 A separate disciplinary committee exists to make disciplinary decisions on referrals from the investigation committee.
6.04.2 The types of misconduct which may bring about disciplinary actions are publicly available.
6.04.3 Members of the investigative committee are disallowed from sitting on both the investigative committee and the disciplinary committee at the same time for the same case.
6.04.4 The disciplinary committee is independent from the accused and from the work which has been called into question.
6.04.5 The disciplinary committee consists of accountants, auditors and non­accountants and auditors.
6.04.6 Provisions and processes for disciplining certified accountants and/or auditors are set in laws OR association codes?
6.04.7 The provisions and processes for disciplining certified accountants and/or auditors are publicly available.
6.04 Discipline Process ­ OVERALL OPINION
Does not exist Does exist and Does exist and Does exist and Does not exist
but is currently there is little or being proposed/ discussed
6.04A A process for disciplining j
k
l
m
n
j
k
l
m
n
no there is a there is a high medium level of level of implementation implementation implementation
j
k
l
m
n
j
k
l
m
n
j
k
l
m
n
professionals exists as part of the country's system of investigation and discipline.
6.05 Appeals Process ­ OBSERVATIONS
6.05.1 An appeals body exists which is separate from both the disciplinary committee and the YES
NO
j
k
l
m
n
j
k
l
m
n
j
k
l
m
n
j
k
l
m
n
j
k
l
m
n
j
k
l
m
n
j
k
l
m
n
j
k
l
m
n
investigative committee.
6.05.2 No person who has served on the investigative or disciplinary boards may serve on the Appeals Board.
6.05.3 Appeals Board members are required to be independent from the accused and others who are considered in the case.
6.05.4 A reasonable time limit for resolving a case (entire process) is mandated in the law and/or rules and regulations.
115
Accountancy Development Index (ADI) Questionnaire Revised
6.05 Appeals Process ­ OVERALL OPINION
Does not exist Does exist and Does exist and Does exist and Does not exist
but is currently there is little or being proposed/ discussed
6.05A A process for appealing j
k
l
m
n
no there is a there is a high medium level of level of implementation implementation implementation
j
k
l
m
n
j
k
l
m
n
j
k
l
m
n
j
k
l
m
n
disciplinary decisions is a part of the country's system of investigation and discipline.
Ethics & Development ­ DEVELOPMENT
Please respond with your level of agreement to the statement below to note your country's development in
the area of investigation, discipline and appeals.
STRONGLY Within the last 3 years, the STRONGLY DISAGREE
AGREE
j
k
l
m
n
j
k
l
m
n
j
k
l
m
n
j
k
l
m
n
j
k
l
m
n
j
k
l
m
n
j
k
l
m
n
j
k
l
m
n
j
k
l
m
n
j
k
l
m
n
j
k
l
m
n
j
k
l
m
n
j
k
l
m
n
j
k
l
m
n
j
k
l
m
n
j
k
l
m
n
j
k
l
m
n
j
k
l
m
n
j
k
l
m
n
j
k
l
m
n
DISAGREE
AGREE
country's system of investigation has incorporated substantial improvements based on international standards and best practices intended to serve the public interest.
Within the last 3 years, the country's system of discipline has incorporated substantial improvements based on international standards and best practices intended to serve the public interest.
Within the last 3 years, the country's system of appeals has incorporated substantial improvements based on international standards and best practices intended to serve the public interest.
To better serve the public interest, the country's present system of investigation requires substantial changes founded on international standards and best practices.
To better serve the public interest, the country's present system of discipline requires substantial changes founded on international 116
Accountancy Development Index (ADI) Questionnaire Revised
standards and best practices.
To better serve the public interest, j
k
l
m
n
j
k
l
m
n
j
k
l
m
n
j
k
l
m
n
the country's present system of appeals requires substantial changes founded on international standards and best practices.
7.0 Corporate Governance As it relates to Public Interest Entities* (PIEs)
(Please make sure to read the Footnotes listed below for definition of PIEs) 7.01 Material Financial and Non­Financial Disclosures ­ OBSERVATIONS
YES
NO
7.01.1 Annual disclosure of financial condition and results of operations is required.
j
k
l
m
n
j
k
l
m
n
7.01.2 Interim basis (semi­annually or quarterly) disclosure is required.
j
k
l
m
n
j
k
l
m
n
7.01.3 Disclosure includes the following: (a) Financial and management discussion and j
k
l
m
n
j
k
l
m
n
(b) Company objectives.
j
k
l
m
n
j
k
l
m
n
(c) Major share ownership and voting rights.
j
k
l
m
n
j
k
l
m
n
(d) Remuneration policy for members of the board and key executives.
j
k
l
m
n
j
k
l
m
n
(e) Information about board members including the qualifications, the selection process, other j
k
l
m
n
j
k
l
m
n
(f) Related party transactions.
j
k
l
m
n
j
k
l
m
n
(g) Foreseeable risk factors.
j
k
l
m
n
j
k
l
m
n
(h) Issues regarding employees and other stakeholders.
j
k
l
m
n
j
k
l
m
n
(i) Company governance structures and policies, in particular, the content of any corporate j
k
l
m
n
j
k
l
m
n
j
k
l
m
n
j
k
l
m
n
j
k
l
m
n
j
k
l
m
n
analysis of operations.
company directorships and whether they are regarded as independent by the board.
governance code or policy and the process by which it is implemented.
7.01.4 The law requires the principal executive officer or officers and the principal financial officer or officers, or persons performing similar functions, each to review financial statements and certify the representational faithfulness of each report.
7.01.5 There is monitoring and enforcement of compliance with company filing and public notification laws.
117
Accountancy Development Index (ADI) Questionnaire Revised
7.01 Material Financial and Non­Financial Disclosures ­ OVERALL OPINION
Does not exist in our country's statutory framework
Does not exist Does exist in Does exist in Does exist in in our country's our country's our country's our country's statutory statutory statutory framework but is framework and framework and framework and currently being there is little or proposed/ discussed
7.01A Timely and accurate j
k
l
m
n
statutory j
k
l
m
n
no there is a there is a high medium level of level of implementation implementation implementation
j
k
l
m
n
j
k
l
m
n
j
k
l
m
n
disclosure is required to be made by Public Interest Entities on all material financial and non­financial matters regarding the corporation.
7.02 Annual Audit by Independent, Competent, Qualified Auditors ­ OBSERVATIONS
7.02.1 The laws specify that an auditor is deemed not independent with respect to an audit YES
NO
j
k
l
m
n
j
k
l
m
n
j
k
l
m
n
j
k
l
m
n
j
k
l
m
n
j
k
l
m
n
j
k
l
m
n
j
k
l
m
n
j
k
l
m
n
j
k
l
m
n
j
k
l
m
n
j
k
l
m
n
j
k
l
m
n
j
k
l
m
n
client if a former partner, principal, shareholder, or professional employee of an audit firm accepts employment with a client when he or she has a continuing financial interest in the accounting firm or is in a position to influence the firm's operations or financial policies.
7.02.3 The laws state that public interest entities are required to create 'audit committees' which are either (a) responsible for hiring auditors, negotiating fees, and overseeing the audit process OR (b)responsible for recommending auditors which are then appointed directly by the shareholders at the general meeting.
7.02.4 The laws state that these audit committees be independent from the Board of Directors** and company officers.
7.02.5 The laws either require that fees for an external audit be publicly disclosed in financial statements OR regulate the percentage of non­audit income that a firm can receive from an audit client.
7.02.6 The laws state that the audit committee is responsible for overseeing the overall relationship with the external auditor including the nature of non­audit services provided by the auditor to the company.
7.02.7 The laws require that before the accountant is engaged by the audit client to provide services other than audit, review or attest services, the audit client's audit committee must expressly approve the particular engagement.
7.02.8 The laws state that audit engagements must be entered into pursuant to detailed pre­
approval policies and procedures established by the audit committee and the audit committee be informed on a timely basis of each service.
118
Accountancy Development Index (ADI) Questionnaire Revised
7.02 Annual Audit by Independent, Competent, Qualified Auditors ­ OVERALL OPINION
Does not exist in our country's statutory framework
Does not exist Does exist in Does exist in Does exist in in our country's our country's our country's our country's statutory statutory statutory framework but is framework and framework and framework and currently being there is little or proposed/ discussed
7.02A An annual audit is required j
k
l
m
n
statutory j
k
l
m
n
no there is a there is a high medium level of level of implementation implementation implementation
j
k
l
m
n
j
k
l
m
n
j
k
l
m
n
Does not exist Does exist in Does exist in Does exist in in our country's our country's our country's our country's statutory statutory to be conducted by an independent, competent and qualified auditor.
7.03 External Auditors are Accountable to Shareholders ­ OVERALL OPINION
Does not exist in our country's statutory framework
statutory framework but is framework and framework and framework and currently being there is little or proposed/ discussed
7.03A External auditors are j
k
l
m
n
statutory j
k
l
m
n
no there is a there is a high medium level of level of implementation implementation implementation
j
k
l
m
n
j
k
l
m
n
j
k
l
m
n
accountable to the shareholders and owe a duty to the company to exercise due professional care in the performance of the audit.
7.04 Channels for Disseminating Information Should Provide for Equal, Timely, and Cost­Efficient Access to
Relevant Users ­ OBSERVATIONS
7.04.1 All financial information is required by law to be delivered to shareholders within six YES
NO
j
k
l
m
n
j
k
l
m
n
j
k
l
m
n
j
k
l
m
n
j
k
l
m
n
j
k
l
m
n
months from the close of the year to be approved.
7.04.2 Information is required by law to be posted in a public registry within six months of the close of the year.
7.04.3 The laws require ongoing disclosure which mandates disclosure on an 'immediate basis' (as soon as possible) in accordance with International Organization of Securities Commissions (IOSCO) Principles for ongoing disclosure and material development reporting.
119
Accountancy Development Index (ADI) Questionnaire Revised
7.04 Channels for Disseminating Information Should Provide for Equal, Timely, and Cost­Efficient Access to
Relevant Users ­ OVERALL OPINION
Does not exist Does exist and Does exist and Does exist and Does not exist
but is currently there is little or being proposed/ discussed
7.04A Channels exist for j
k
l
m
n
j
k
l
m
n
no there is a there is a high medium level of level of implementation implementation implementation
j
k
l
m
n
j
k
l
m
n
j
k
l
m
n
disseminating information in a manner which provides for equal, timely, and cost­efficient access to relevant users.
7.05 Corporate Governance Framework should be Complemented by Information that Provides for Efficient
External Analysis ­ OBSERVATIONS
YES
NO
j
k
l
m
n
j
k
l
m
n
7.05.1 A corporate governance code of good practice exists.
7.05 Corporate Governance Framework should be Complemented by Information that Provides for Efficient
External Analysis ­ OVERALL OPINION
Does not exist Does exist and Does exist and Does exist and Does not exist
but is currently there is little or being proposed/ discussed
7.05A There is a provision of analysis or advice by analysts, brokers, rating agencies and others, that is relevant to decisions made by investors and free from material conflicts of interest that might compromise the integrity of their analysis or advice.
120
j
k
l
m
n
j
k
l
m
n
no there is a there is a high medium level of level of implementation implementation implementation
j
k
l
m
n
j
k
l
m
n
j
k
l
m
n
Accountancy Development Index (ADI) Questionnaire Revised
Corporate Governance As it relates to Public Interest Entities* (PIEs) ­ DEVELOPMENT
Please respond with your level of agreement to the statement below to note your country's development in
the area of Corporate Governance.
STRONGLY Within the last 3 years, the STRONGLY DISAGREE
AGREE
j
k
l
m
n
j
k
l
m
n
j
k
l
m
n
j
k
l
m
n
j
k
l
m
n
j
k
l
m
n
j
k
l
m
n
j
k
l
m
n
DISAGREE
AGREE
country's Corporate Governance regime has incorporated substantial improvements based on international standards and best practices intended to serve the public interest.
To better serve the public interest, the country's present Corporate Governance regime requires substantial changes founded on international standards and best practices.
FOOTNOTES *Public Interest Entities (PIEs) refers to entities that are of significant public relevance because of the nature of their business, their size or their number of employees, in particular companies whose securities are admitted to trading on a regulated market, banks and other financial institutions and insurance undertakings. **Please answer this keeping in mind the various forms of corporate governance permitted in your country. For example, the Italian traditional system of governance allows for three tiers, the Two tier model owes its basic structure to the German tradition, where the shareholders' meeting appoints a supervisory board, which then appoints a management board. In contrast, the one­tier model derives from the Anglo­American tradition. In this system the shareholders' meeting appoints the board of directors, which then appoints a number of directors to an audit committee entrusted with monitoring functions. 8.0 Professional Accountancy Association Institutional Capacity
As your country may have multiple professional associations, please identify the association you are using
(as described in the Instructions to the ADI) to answer the questions below :
121
Accountancy Development Index (ADI) Questionnaire Revised
8.01 Organizational Capacity ­ OBSERVATIONS
YES
NO
j
k
l
m
n
j
k
l
m
n
8.01.2 The PAA is governed by a Board of Directors.
j
k
l
m
n
j
k
l
m
n
8.01.3 There is a clear distinction between the responsibilities of board members and those of j
k
l
m
n
j
k
l
m
n
8.01.4 The PAA has a mission statement approved by the membership.
j
k
l
m
n
j
k
l
m
n
8.01.5 The PAA utilizes strategic planning techniques.
j
k
l
m
n
j
k
l
m
n
8.01.6 The PAA has permanent, well­trained staff.
j
k
l
m
n
j
k
l
m
n
8.01.7 Volunteers are recruited and active in the activities of the PAA.
j
k
l
m
n
j
k
l
m
n
8.01.8 The PAA has developed a strong membership.
j
k
l
m
n
j
k
l
m
n
8.01.1 The Professional Accountancy Association (PAA) maintains a written charter or constitution.
staff.
8.01 Organizational Capacity ­ OVERALL OPINION
The PAA does not maintain this The PAA does element, but not maintain this actions to obtain element
this element are being proposed or discussed
8.01A The PAA maintains the j
k
l
m
n
The PAA The PAA The PAA maintains this maintains this maintains this element and element and element and there is little or there is a there is a high no medium level of level of implementation implementation implementation
j
k
l
m
n
j
k
l
m
n
j
k
l
m
n
j
k
l
m
n
organizational capacity to function properly.
8.02 Financial Viability ­ OBSERVATIONS
YES
NO
8.02.1 There is an operational system of internal control and financial reporting and recording.
j
k
l
m
n
j
k
l
m
n
8.02.2 Annual financial audits of PAA's financial statements are conducted.
j
k
l
m
n
j
k
l
m
n
8.02.3 The results of these annual financial statement audits are available to the members and j
k
l
m
n
j
k
l
m
n
j
k
l
m
n
j
k
l
m
n
public (by request, through internet, etc.).
8.02.4 A significant percentage of professional association funding is derived from local sources (corporate, national government, individuals, earned income, etc.).
122
Accountancy Development Index (ADI) Questionnaire Revised
8.02 Financial Viability ­ OVERALL OPINION
The PAA does not maintain this The PAA does element, but not maintain this actions to obtain element
this element are being proposed or discussed
j
k
l
m
n
8.02A The PAA maintains The PAA The PAA The PAA maintains this maintains this maintains this element and element and element and there is little or there is a there is a high no medium level of level of implementation implementation implementation
j
k
l
m
n
j
k
l
m
n
j
k
l
m
n
j
k
l
m
n
financial viability.
8.03 Advocacy ­ OBSERVATIONS
YES
NO
j
k
l
m
n
j
k
l
m
n
j
k
l
m
n
j
k
l
m
n
8.03.1 The PAA maintains an active dialogue with Universities, Ministries of Education, etc. to influence subjects taught, courses provided, and topics covered in the areas of accounting, auditing and business knowledge.
8.03.2 The PAA monitors and engages legislatures and executive bodies in policy dialogue on the topics of accounting and auditing.
8.03 Advocacy ­ OVERALL OPINION
The PAA does not maintain this The PAA does element, but not maintain this actions to obtain element
this element are being proposed or discussed
8.03A The PAA conducts j
k
l
m
n
The PAA The PAA The PAA maintains this maintains this maintains this element and element and element and there is little or there is a there is a high no medium level of level of implementation implementation implementation
j
k
l
m
n
j
k
l
m
n
j
k
l
m
n
j
k
l
m
n
advocacy for the profession AND the professional association.
8.04 Service Provision ­ OBSERVATIONS
YES
NO
j
k
l
m
n
j
k
l
m
n
8.04.2 Reasonable fees are charged for services provided by the PAA.
j
k
l
m
n
j
k
l
m
n
8.04.3 The PAA has knowledge of the market demand for their services (through surveying j
k
l
m
n
j
k
l
m
n
8.04.1 The PAA provides services that meet the needs of its members (e.g., training programs, educational materials).
members, asking local businesses, etc.).
123
Accountancy Development Index (ADI) Questionnaire Revised
8.04 Service Provision ­ OVERALL OPINION
The PAA does not maintain this The PAA does element, but not maintain this actions to obtain element
this element are being proposed or discussed
j
k
l
m
n
8.04A The PAA provides services j
k
l
m
n
The PAA The PAA The PAA maintains this maintains this maintains this element and element and element and there is little or there is a there is a high no medium level of level of implementation implementation implementation
j
k
l
m
n
j
k
l
m
n
j
k
l
m
n
to its members.
8.05 Recognition ­ OBSERVATIONS
YES
NO
j
k
l
m
n
j
k
l
m
n
8.05.2 The PAA is currently an 'Associate' member of IFAC.
j
k
l
m
n
j
k
l
m
n
8.05.3 The PAA is currently applying for membership with IFAC.
j
k
l
m
n
j
k
l
m
n
8.05.4 The PAA is a member of an international professional accountancy association other j
k
l
m
n
j
k
l
m
n
j
k
l
m
n
j
k
l
m
n
8.05.1 The PAA is currently a 'Full' member of the International Federation of Accountants (IFAC).
than IFAC.
8.05.5 The PAA is a member of a regional professional accountancy association.
8.05 Recognition ­ OVERALL OPINION
The PAA does not maintain this The PAA does element, but not maintain this actions to obtain element
this element are being proposed or discussed
8.05A The PAA has attracted The PAA The PAA The PAA maintains this maintains this maintains this element and element and element and there is little or there is a there is a high no medium level of level of implementation implementation implementation
j
k
l
m
n
j
k
l
m
n
j
k
l
m
n
j
k
l
m
n
j
k
l
m
n
j
k
l
m
n
j
k
l
m
n
j
k
l
m
n
j
k
l
m
n
j
k
l
m
n
international recognition for its services, efforts and activities.
8.05B The PAA has attracted regional recognition for its services, efforts and activities.
8.06 Public Image ­ OBSERVATIONS
8.06.1 The PAA has an active campaign to increase public trust in the association and the YES
NO
j
k
l
m
n
j
k
l
m
n
j
k
l
m
n
j
k
l
m
n
j
k
l
m
n
j
k
l
m
n
accounting/auditing profession.
8.06.2 The PAA has good working relationships with local and national government counterparts.
8.06.3 The PAA publicizes their services, efforts and activities (calls the media, writes editorials in newspapers, etc.) to promote their public image.
124
Accountancy Development Index (ADI) Questionnaire Revised
8.06 Public Image ­ OVERALL OPINION
The PAA does not maintain this The PAA does element, but not maintain this actions to obtain element
this element are being proposed or discussed
j
k
l
m
n
8.06A The PAA maintains a The PAA The PAA The PAA maintains this maintains this maintains this element and element and element and there is little or there is a there is a high no medium level of level of implementation implementation implementation
j
k
l
m
n
j
k
l
m
n
j
k
l
m
n
j
k
l
m
n
positive public image.
8.0 Professional Accountancy Association institutional Capacity ­ DEVELOPMENT
Please respond with your level of agreement to the statement below to note your country's progress in
developing professional accountancy associations this past year.
STRONGLY AGREE
j
k
l
m
n
j
k
l
m
n
j
k
l
m
n
j
k
l
m
n
j
k
l
m
n
j
k
l
m
n
j
k
l
m
n
j
k
l
m
n
DISAGREE
Within the last 3 years, the STRONGLY DISAGREE
AGREE
country's PAA has incorporated substantial improvements based on international standards and best practices intended to serve the public interest.
To better serve the public interest, the country's present professional accountancy association requires substantial changes founded on international standards and best practices.
Global Financial Crisis Questions
125
Accountancy Development Index (ADI) Questionnaire Revised
From the list of 20 factors below, please choose the five factors which you believe contributed most to the
current global financial crisis for your country and rank them between 1 (greatest contributing factor) to 5.
Please only select 5 factors.
1
2
3
4
5
j
k
l
m
n
j
k
l
m
n
j
k
l
m
n
j
k
l
m
n
j
k
l
m
n
j
k
l
m
n
j
k
l
m
n
j
k
l
m
n
j
k
l
m
n
j
k
l
m
n
j
k
l
m
n
j
k
l
m
n
j
k
l
m
n
j
k
l
m
n
j
k
l
m
n
j
k
l
m
n
j
k
l
m
n
j
k
l
m
n
j
k
l
m
n
j
k
l
m
n
j
k
l
m
n
j
k
l
m
n
j
k
l
m
n
j
k
l
m
n
j
k
l
m
n
j
k
l
m
n
j
k
l
m
n
j
k
l
m
n
j
k
l
m
n
j
k
l
m
n
j
k
l
m
n
j
k
l
m
n
j
k
l
m
n
j
k
l
m
n
j
k
l
m
n
j
k
l
m
n
j
k
l
m
n
j
k
l
m
n
j
k
l
m
n
j
k
l
m
n
j
k
l
m
n
j
k
l
m
n
j
k
l
m
n
j
k
l
m
n
j
k
l
m
n
j
k
l
m
n
j
k
l
m
n
j
k
l
m
n
j
k
l
m
n
j
k
l
m
n
j
k
l
m
n
j
k
l
m
n
j
k
l
m
n
j
k
l
m
n
j
k
l
m
n
(l) Fair value accounting.
j
k
l
m
n
j
k
l
m
n
j
k
l
m
n
j
k
l
m
n
j
k
l
m
n
(m) Loss of confidence in j
k
l
m
n
j
k
l
m
n
j
k
l
m
n
j
k
l
m
n
j
k
l
m
n
j
k
l
m
n
j
k
l
m
n
j
k
l
m
n
j
k
l
m
n
j
k
l
m
n
j
k
l
m
n
j
k
l
m
n
j
k
l
m
n
j
k
l
m
n
j
k
l
m
n
j
k
l
m
n
j
k
l
m
n
j
k
l
m
n
j
k
l
m
n
j
k
l
m
n
(a) Poor prudential regulation over banks.
(b) Lack of consolidation in the supervision of banks.
(c) Lack of supervision over money market funds.
(d) Lack of oversight over private pools of capital.
(e) Lack of oversight over government sponsored enterprises.
(f) Weak financial regulatory structure.
(g) Weak role of the Central Bank in promoting and maintaining financial stability.
(h) Lack of international coordination among regulators and supervisory bodies.
(i) Weak regulatory standards for governance and risk management.
(j) Weak regulatory capital standards.
(k) Weak standards for liquidity risk management.
securitized credit markets.
(n) Poor functioning of rating agencies.
(o) Lack of oversight on Credit Default Swaps (CDS) and Over the Counter (OTC) Markets.
(p) Lack of an early warning system, prompt corrective actions, and orderly closings of troubled regulated banking organizations 126
Accountancy Development Index (ADI) Questionnaire Revised
and financial institutions.
j
k
l
m
n
j
k
l
m
n
j
k
l
m
n
j
k
l
m
n
j
k
l
m
n
j
k
l
m
n
j
k
l
m
n
j
k
l
m
n
j
k
l
m
n
j
k
l
m
n
(s) Lack of ethics.
j
k
l
m
n
j
k
l
m
n
j
k
l
m
n
j
k
l
m
n
j
k
l
m
n
(t) Lack of financial market j
k
l
m
n
j
k
l
m
n
j
k
l
m
n
j
k
l
m
n
j
k
l
m
n
(q) Opacity of structured product markets.
(r) Lack of openness regarding market activity and valuation information.
knowledge and financial literacy among investors.
127
Accountancy Development Index (ADI) Questionnaire Revised
From the list of 20 factors below, please select the five actions which you believe will most help to correct
the current global financial crisis for your country and rank them between 1 (greatest ability to correct the
global financial crisis) to 5. Please only select 5 factors:
1
2
3
4
5
j
k
l
m
n
j
k
l
m
n
j
k
l
m
n
j
k
l
m
n
j
k
l
m
n
j
k
l
m
n
j
k
l
m
n
j
k
l
m
n
j
k
l
m
n
j
k
l
m
n
j
k
l
m
n
j
k
l
m
n
j
k
l
m
n
j
k
l
m
n
j
k
l
m
n
j
k
l
m
n
j
k
l
m
n
j
k
l
m
n
j
k
l
m
n
j
k
l
m
n
j
k
l
m
n
j
k
l
m
n
j
k
l
m
n
j
k
l
m
n
j
k
l
m
n
j
k
l
m
n
j
k
l
m
n
j
k
l
m
n
j
k
l
m
n
j
k
l
m
n
j
k
l
m
n
j
k
l
m
n
j
k
l
m
n
j
k
l
m
n
j
k
l
m
n
j
k
l
m
n
j
k
l
m
n
j
k
l
m
n
j
k
l
m
n
j
k
l
m
n
j
k
l
m
n
j
k
l
m
n
j
k
l
m
n
j
k
l
m
n
j
k
l
m
n
j
k
l
m
n
j
k
l
m
n
j
k
l
m
n
j
k
l
m
n
j
k
l
m
n
j
k
l
m
n
j
k
l
m
n
j
k
l
m
n
j
k
l
m
n
j
k
l
m
n
j
k
l
m
n
j
k
l
m
n
j
k
l
m
n
j
k
l
m
n
j
k
l
m
n
j
k
l
m
n
j
k
l
m
n
j
k
l
m
n
j
k
l
m
n
j
k
l
m
n
(n) Rating Agency reforms.
j
k
l
m
n
j
k
l
m
n
j
k
l
m
n
j
k
l
m
n
j
k
l
m
n
(o) Greater oversight on Credit j
k
l
m
n
j
k
l
m
n
j
k
l
m
n
j
k
l
m
n
j
k
l
m
n
j
k
l
m
n
j
k
l
m
n
j
k
l
m
n
j
k
l
m
n
j
k
l
m
n
j
k
l
m
n
j
k
l
m
n
j
k
l
m
n
j
k
l
m
n
j
k
l
m
n
(a) Enhanced prudential regulation over banks.
(b) Increased consolidation in the supervision of banks.
(c) Greater supervision over money market funds.
(d) Greater oversight over private pools of capital.
(e) Greater oversight over government sponsored enterprises.
(f) Strengthened financial regulatory structure.
(g) Strengthened role of the Central Bank in promoting and maintaining financial stability.
(h) Increased international coordination among regulators and supervisory bodies.
(i) Stronger regulatory standards for governance and risk management.
(j) Strengthened regulatory capital standards.
(k) Stronger standards for liquidity risk management.
(l) Review and modification of fair value accounting.
(m) Actions to restore confidence in securitized credit markets.
Default Swaps (CDS) and Over the Counter (OTC) Markets.
(p) Development of a Resolution System for financial institutions.
(q) Increased transparency of 128
Accountancy Development Index (ADI) Questionnaire Revised
structured product markets.
(r) Greater sharing of market j
k
l
m
n
j
k
l
m
n
j
k
l
m
n
j
k
l
m
n
j
k
l
m
n
j
k
l
m
n
j
k
l
m
n
j
k
l
m
n
j
k
l
m
n
j
k
l
m
n
j
k
l
m
n
j
k
l
m
n
j
k
l
m
n
j
k
l
m
n
j
k
l
m
n
activity and valuation information.
(s) Greater implementation of Codes of Ethics and ethics training and education.
(t) Greater education and training for improving financial literacy and capital markets knowledge among investors.
Please select an answer to each question.
Does your country have adequate technical capacity to implement the reforms and actions YES
NO
j
k
l
m
n
j
k
l
m
n
j
k
l
m
n
j
k
l
m
n
j
k
l
m
n
j
k
l
m
n
needed to correct the effects of the global financial crisis in your country?
Does your country have adequate financial resources to implement the reforms and actions needed to correct the effects of the global financial crisis in your country?
Do you believe there needs to be greater global cooperation to combat the current global financial crisis?
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Accountancy Development Index (ADI) Questionnaire Revised
What (if anything) is currently being done in your country to combat the effects of the current global
financial crisis in your country? Please select as many of the following answers as apply to your country:
c (a) Enhanced prudential regulation over banks.
d
e
f
g
c (l) Review and modification of fair value accounting.
d
e
f
g
c (b) Increased consolidation in the supervision of d
e
f
g
c (m) Actions to restore confidence in securitized d
e
f
g
banks. credit markets. c (c) Greater supervision over money market funds.
d
e
f
g
c (d) Greater oversight over private pools of capital.
d
e
f
g
c (n) Rating Agency reforms.
d
e
f
g
c (o) Increased oversight of Credit Default Swaps d
e
f
g
(CDS) and Over the Counter (OTC) Markets. c (e) Greater oversight over government sponsored d
e
f
g
enterprises. c (p) Development of a Resolution System for financial d
e
f
g
institutions. c (f) Strengthened financial regulatory structure.
d
e
f
g
c (q) Increased transparency of structured product d
e
f
g
c (g) Strengthened role of the Central Bank in d
e
f
g
markets. promoting and maintaining financial structure stability. c (r) Greater sharing of market activity and valuation d
e
f
g
c (h) Increased international coordination among d
e
f
g
information. regulators and supervisory bodies. c (s) Greater implementation of Codes of Ethics and d
e
f
g
c (i) Stronger regulatory standards for governance and d
e
f
g
ethics training and education. risk management. c (t) Greater education and training for improving d
e
f
g
c (j) Strengthened regulatory capital standards.
d
e
f
g
c (k) Stronger standards for liquidity risk management.
d
e
f
g
financial literacy and capital markets knowledge among investors. c (u) Although nothing is currently underway, there are d
e
f
g
active discussions/ draft laws to reform some of the areas listed above. c (v) Nothing is being done and there are no d
e
f
g
discussions to make any of the above reforms. Questionnaire Comments
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Appendix D —Preface to the Statements of Membership
Obligations15
Introduction
Statements of Membership Obligations (SMOs or Statements) provide benchmarks to current and
potential IFAC members to assist them in ensuring high quality performance by professional accountants.
The Statements cover an IFAC member body’s obligations to support the work of IFAC, the work of the
International Accounting Standards Board, and obligations regarding quality assurance and investigation
and discipline.
The SMOs were approved by the IFAC Board for issue in March 2004 and ratified by the IFAC Council in
November 2004. Changes to the original SMOs are summarized in the Revisions section below.
Applicability
The SMOs form the basis of the IFAC Member Body Compliance Program. Member bodies are
required to perform ongoing self-assessments of their compliance with each of the SMOs
including an assessment of actual standards in place in comparison to the relevant IFAC and
IASB standards. Associates are also required to participate in the Compliance Program and
complete self-assessments to demonstrate their continuing progress toward membership.
Self-assessments are also required to be completed by the IFAC member body and associate
applicants to demonstrate their ability to comply with the SMOs. In applying these Statements
to existing associates and new applicants, IFAC will recognize the stage of development,
availability of resource, and scope of activities of each associate and its members.
Best Endeavors
These Statements require member bodies to use their best endeavors to meet the obligations.
A member body will have been considered to have used “best endeavors” if it could not
reasonably do more than it has done and is doing to meet the particular membership obligation.
15
International Federation of Accountants. April 2004 (Revised as of November 10, 2006).
Statements of Membership Obligations 1-7. Preface to the Statements of Membership Obligations. P13.
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Despite the general application of SMOs to member bodies and self-assessments also required
of associates, IFAC will take into account the relevance of individual SMO obligations to each
member body and associate in assessing its level of compliance. This recognizes the fact that
some member bodies and their members operate in different sectors of the profession and
some SMOs may not apply to them in their country.
In exceptional circumstances, a member body or associate may depart from the obligations
contained in these Statements, if doing so will fulfill its public interest duties more effectively.
The member body or associate should be prepared to justify the departure. A member body or
associate that fails to follow the obligations of these Statements, or justify satisfactorily why it
has departed from them, may be suspended or removed from membership.
When assessing compliance with SMOs, IFAC will consider projects and initiatives underway at
the standard setting level that could impact the structure or content of the applicable standards.
Due recognition will be given to the potential impact on national standard setting activities as
well as the associated timeframe required to accommodate changes in the structure and content
of standards. Member bodies and associates will not be assessed as non-compliant as long as
there is an agreed action plan and timetable for achieving compliance and progress against the
plan can be demonstrated.
It is important to understand that it is possible for member bodies and associates to comply
with the obligations of a SMO, even if government, regulators or other appointed authorities
carry out some or all of the functions specified in the SMO.
In such circumstances, the
obligation of IFAC member bodies and associates is to use their best endeavors to encourage
those entrusted with those functions to implement them in accordance with the provisions of
these Statements and to assist them in implementing those functions when appropriate.
Bold and Grey Lettering
The SMOs have been written using bold lettering to describe a member body’s obligations and
grey lettering to describe explanatory and other related material.
This means that in order to
understand and apply the obligations (identified in bold type), it is necessary to consider the
whole text of the SMO, including the explanatory and other material contained in the SMO.
SMO Contents
SMO 1 -Quality Assurance
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Subject Matter
SMO 1 is to be applied by member bodies of IFAC to quality assurance review programs for their
members performing certain audit engagements of financial statements. It applies whether the member
bodies carry out such programs on their own behalf, on behalf of the profession, or on behalf of
governments, regulators or other agencies, or whether the programs are carried out by another body.
Quality Control Standards
SMO 1 requires member bodies to establish and publish quality control standards and guidance requiring
firms to implement a system of quality control in accordance with the International Standard on Quality
Control (ISCQ) 1.
SMO 2 -International Education Standards for Professional Accountants and Other IAESB
Guidance
Subject Matter
SMO 2, sets out the obligations of member bodies of IFAC in relation to International Education
Standards for Professional Accountants (IES), International Education Practice Statements for Professional
Accountants (IEPSs) and International Education Information Papers for Professional Accountants (IEIPs)
issued by the International Accounting Education Standards Board (IAESB) of IFAC. It applies whether the
member bodies issue such standards, or whether the standards are issued by another body.
SMO 3 -International Standards, Related Practices and Other Papers Issued by the IAASB
Subject Matter
SMO 3 sets out the obligations of member bodies of IFAC in relation to quality control, auditing and
assurance standards for its members. It applies whether the member bodies issue such standards, or
whether the standards are issued by another body.
SMO 4 – IFAC Code of Ethics for Professional Accountants
Subject Matter
SMO 4 sets out the obligations of member bodies of IFAC in relation to the IFAC Code of Ethics for
Professional Accountants (the IFAC Code) and other pronouncements issued by the International Ethics
Standards Board for Accountants (IESBA) of IFAC.
SMO 5 - International Public Sector Accounting Standards and Other IPSASB Guidance
Subject Matter
SMO 5 sets out the obligations of member bodies of IFAC in relation to International Public Sector
Accounting Standards (IPSASs) and other guidance issued by the International Public Sector Accounting
Standards Board (IPSASB) of IFAC.
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SMO 6 - Investigation and Discipline
SMO 6 is to be applied by member bodies of IFAC in the investigation and discipline of misconduct,
including, but not limited to, breaches of professional standards and rules by their individual members
(and, if local laws and practices permit, by their member firms). SMO 6 specifically acknowledges that legal
systems are very different from country to country. It also states reduced requirements that enable
member bodies to comply with SMO 6 in countries where the investigative and disciplinary process is
wholly or largely the responsibility of government or other outside agency.
SMO 7- International Financial Reporting Standards
Subject Matter
SMO 7 sets out the obligations of member bodies of IFAC in relation to International Financial Reporting
Standards (IFRSs) issued by the International Accounting Standards Board (IASB).
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Appendix E — ADI Frequently Asked Questions
1. What is the Accountancy Development Index (ADI)?
The Accountancy Development Index (ADI) is a quantitative measure of the level of development of a
country’s accountancy environment. Using international standards and best practices in the areas of
accounting and auditing, the ADI provides a numerical benchmark of a country’s position at a point in
time and its progress toward greater implementation of these standards and practices.
2. What is the purpose of the ADI?
The purpose of the ADI is to provide for the first time, a simple, comprehensive quantitative summary –
as opposed to lengthy qualitative descriptions- about a country’s accountancy environment that will be
available to donor agencies, regulators, professional associations, educators, and other capital market
participants.
3. What is the envisioned role of the ADI in development efforts?
The ADI’s easy-to-use form is envisioned to assist stakeholders achieve further country financial sector
growth by:
• Identifying a country’s implementation of internationally agreed upon standards and practices; and
• Providing analytical information regarding:
o
Country progress over time
o
Country progress as compared to other countries (peer or benchmark)
o
Trends in development
o
Effectiveness and efficiency of various accounting and auditing technical assistance
programs.
4. What is the methodology of the ADI?
The framework of the ADI is based upon the World Bank Accounting and Auditing Reports on the
Observance of Standards and Codes (A&A ROSC), International Federation of Accountants’ Statements
of Membership Obligations (SMOs), Principle Five of the OECD Corporate Governance and the USAID
NGO Sustainability Index. The ADI uses these sources to identify the eight pillars integral to the
development of a country’s accountancy environment: (1.0) Legal, Regulatory and Institutional
Framework, (2.0) Auditing, Assurance and Quality Control, (3.0) International Education Standards, (4.0)
International Public Sector Accounting Standards, (5.0) International Financial Reporting Standards, (6.0)
Ethics and Discipline, (7.0) Corporate Governance- Transparency & Disclosure, and (8.0) Professional
Accountancy Association Institutional.
135
5. With what organizations/persons is this project associated?
The ADI is a United States Agency for International Development (USAID) funded initiative
(www.usaid.gov) and part of the Benchmarking International Standards of Transparency and
Accountability (BISTA) Project (www.fdirisk.com). CARANA Corporation (www.carana.com) is the
implementing firm for this project and is facilitating this project in association with Leiden University of
The Netherlands (www.leiden.edu).
6. Why focus on accountancy?
Accountancy is one of the key elements in capital markets and overall economic growth of a country. As
the ultimate goal of accountancy and its provision of financial information is to enhance the economic
decision-making capacity of users, it functions to fairly and accurately illustrate the financial position and
operations of an entity, and provide information useful in investment and credit decisions, in assessing
cash flows, and in assessing an entity’s resources. Through the provision of this information and its impact
on economic decision-making, accountancy enhances corporate governance, competition, the functioning
of capital markets, trade, and anti-corruption efforts. As the ADI focuses on accountancy it brings greater
understanding of the status of the accountancy profession in a country.
7. Why does the ADI measure accountancy at the country level?
The goal of the ADI is to achieve a country level view of the degree of development of the accountancy
profession. This view was chosen because it is most relevant for donor agencies such as USAID and the
World Bank who measure and compare growth and development at the country level.
8. Why were IFAC SMOs, World Bank PEFA Reports, OECD Corporate Governance Principle
Five and the USAID NGO Sustainability Index used as the basis of the ADI?
The ADI design/research team selected those internationally recognized and understood standards
because they support or enhance the understanding of the state of the accountancy profession of a
country.
9. Why select professional body representatives to be respondents for the ADI?
Professional body representatives comprise a natural primary pool of expert respondents. These
individuals have an understanding and familiarity with the international standards and practices that form
the basis of the ADI.
10. Are there issues with having only one primary respondent from each country?
Although the ADI relies on one primary respondent from each country in gathering data, existing public
information in the form of World Bank Corporate Governance and Accounting/Auditing ROSCs, IFAC
Compliance Questionnaires, PEFA Reports, and other sources of public information provide an
independent check on the accuracy of the responses received. In addition, the ADI built a collaborating
136
network of expert correspondents to review country responses for their accuracy in reflecting a
country’s current situation.
11. How will the ADI achieve statistical soundness?
Utilizing appropriate weighting and data aggregation techniques in data compilation and adequate
sensitivity and uncertainty analysis in data presentation, the ADI will present an index that accurately
measures a country’s accountancy environment at a point in time and over time the ADI will provide a
consistent measure of progress for each country.
12. How will the ADI deal with issues of ‘parallel systems’ (i.e., more than one system of quality
assurance, certification, etc.) in a country’s accountancy environment?
Many countries have more than one system (with varying levels of quality) that performs the functions
measured by the ADI (quality assurance, accountancy education, investigation & discipline, etc.). For
example, it may be the case that in a country, both the government and the professional association
provide accountancy education; or, it may be the case that a country maintains more than one
professional association that performs investigation and discipline for professional accountants and/or
auditors. The question then becomes, which system should be evaluated when answering the ADI?
As the purpose of the ADI is to get an overall picture of the level of development of accountancy at the
country level, it is most relevant when answering questions to keep in mind the country system that is
applicable to the greater number of a country's professional accountants and/or auditors. An example of
how to determine the system to use when answering the ADI is provided below:
STEP 1- Identify the various systems available: In my country, both the Government and the Chamber of Auditors
perform quality assurance for professional auditors. Should I answer the ADI keeping in mind the Government's
system of Quality Assurance OR the Chamber of Auditors' system of quality assurance?
STEP 2 - Determine the System that Applies to the greater number of professional accountants and/or auditors:
Although there are two systems of quality assurance (the Government's and the Chamber of Auditors'), the
Chamber of Auditors' system only applies to the 25 members of the Chamber of Auditors, whereas the
Government's system applies to the 2,000+ professional auditors in my country.
STEP 3 - Identify the System to be Used to Answer ADI Questions: As the system that applies to the greatest
number of professional auditors is the Government system, this will be the system I will use to answer the ADI
questions. I will note this in the box at the top of Pillar 1.0 Quality Assurance where space has been provided for me
to identify the country system used in my answers.
137
13. What has the ADI team been doing to ensure that they take into consideration
international development issues, professional body and donor concerns, etc. when
constructing the ADI?
The ADI team has been meeting with a variety of different stakeholders from the accountancy and
international development community throughout the ADI construction process in order to solicit their
opinions and comments and include these in the design of the ADI.
14. What will happen to the ADI at the end of this project?
USAID BISTA project is currently working to locate an intellectual home for this project. It may be an
academic organization, a not for profit, a research facility or even another donor agency. The goal is to
create a well-developed pilot project that can then be handed over to another organization for further
refinement.
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Appendix F — Mapping ADI to World Bank ROSC
139