THE PROFESSION: A NEW HORIZON
Fermín del Valle, Deputy President
International Federation of Accountants
Instituto de Censores Jurados de Cuentas National Congress on Auditing
Bilbao, Spain – October 25, 2006
Good afternoon. It is a pleasure for me to be here today with you in the inauguration of
the National Congress on Auditing.
On a personal note, it is always a marvelous opportunity to visit Spain, the country where
my grandfather was born, and for this reason it is especially close to my heart. It is
amazing how the places of our origins forge and inspire a sense of identity and affection.
It is also a joy for me to have the possibility to visit such a special and admirable city
such as Bilbao.
In fact, I think that it is particularly symbolic that we are meeting, exchanging opinions,
analyzing the future of the accounting profession, its challenges and the answers that it
must have to those challenges, in a city that knew how to correctly redefine itself when it
was necessary. Bilbao re-won and strengthened its vitality by centering on culture and
converting itself into a city dedicated to services and also by turning itself over to
environmental and urban renewal. I believe that Bilbao offers a brilliant example of how
to face tendencies and adapt to the context, difficulties and changes.
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We can see this city in the same light as its country, together with all of their citizens, as
a model of interpretation to think about the challenges facing the accounting profession
and also to take advantage of the opportunities presented to us.
I want to thank the Instituto de Censores Jurados de Cuentas and in particular it’s
President, Don José María Gassó, for the invitation extended to me and allowing me to be
here today in contact with all of you.
The slogan for this plenary session is “the profession on a new horizon.” This implies that
the profession is moving. And when we are moving, we are always exposed to the
vicissitudes of the road.
There can always be a stone in the road. One can trip over it if distracted. One can stop
and let him or herself be detained by the obstacle. One can see the rock as a purposeful
threat. One can simply overcome that obstacle or one can pause above it and use it as an
opportunity to extend his or her vision of the horizon and also to build a bridge to move
even farther. In any case, the difference is not the stone, but rather the attitude of the
person.
I will begin by giving you good news: today, society is convinced, more than ever, that
the accounting profession and, in particular, auditing is essential for the proper
functioning of the capital and financial markets and for the proper functioning of the
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economy. Today, there is a clear conviction that auditing is a key link in the chain in the
production of financial information and therefore has an important function in the public
interest.
The great challenge unfolding for us all is to intelligently define the conditions, so that
quality is given, and given efficiently.
The audit directive has provided a reasonable regulatory framework for Europe. Among
the definitions adopted by the directive throughout the member states, I would like to
point out the decision to adopt the international auditing standards, once they will have
been developed following the due process, with public oversight and transparency, and
have been generally accepted internationally, contributing to the high level of credibility
and quality of the annual or consolidated accounts and will have added to the European
public interest.
IFAC, through the International Audit and Assurance Standards Board (IAASB), has
been working impeccably so that all of the above mentioned conditions are achieved and
the standards adopted by the European Commission.
The decision has been taken to accelerate the Clarity Project to finish it before the end of
2008, instead of 2011, as was estimated in the original plan.
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The Consultative Advisory Group of the IAASB has been made stronger to permit a fluid
and significant contribution on behalf of the users of the standards.
IFAC has successfully implemented the reform and the Public Interest Oversight Board
(PIOB) is achieving its duty to oversee the public interest activities of IFAC. In March of
this year, the PIOB approved the due process and the work processes of the different
standards setting boards, among them the International Audit and Assurance Standards
Board. In May, the Public Interest Oversight Board issued its first public interest report,
in which in reference to the transparency and the quality of the nominating process for
the members of the standards setting boards of IFAC, it reported that, “The PIOB
concluded that the IFAC Nominating Committee had operated with a high level of
professionalism and had sought to make high quality choices with a sense of fairness,
balance, and objectivity.”
A few days ago, in the conference of the Fédération des Experts Comptables
Européens, Commissioner Charlie McCreevy communicated his satisfaction, which of
course is shared by IFAC, for the recent understanding about governance issues of the
International Auditing and Assurance Standards Board and the Public Interest Oversight
Board and has expressed that this will allow the Commission to move closer to the
adoption of ISAs. He also confirmed that he thinks that the two EU observers should
become full members of the Public Interest Oversight Board. 3
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Therefore, all of the conditions are being fulfilled to seal the adoption of the International
Standards on Auditing on the behalf of the European Commission. And this is very good
news for Europe and for the rest of the world.
In relation to the auditing standards, in particular, with respect to their use by small and
medium enterprises, I think it is worth mentioning that IFAC, through the Small and
Medium Practices Committee, estimates that for the middle of 2007 they will publish a
Guide for the application of the International Standards on Auditing for the audits of
small and medium enterprises. It will be without a doubt very useful, considering the
number and the importance of these businesses in all economies of the world. It will
facilitate a practical implementation of the principle that an audit is an audit and that it is
not convenient to consider the existence of different sets of auditing standards according
to the size of the entities being audited.
The auditing directive leaves considerable room with respect to other areas for the
decisions of the member states in the transition process of national legislation and ruling.
I would like to refer today to two of these areas: public oversight, in particular, quality
control, and the independence of the auditor.
The European Directive establishes that each member state should organize an effective
system of public oversight of auditors and auditing firms and define, for this, certain
principles.
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The principal objective of the oversight mechanism should be to protect the public
interest. The key element of the oversight function is independence with respect to the
accounting profession, whether it is achieved exclusively through the resources of the
oversight body or through monitoring and directing of activities of other organizations,
including professional organizations.
In this area, it is fundamental maintain sight of the primary objective, the reason for
being. As I said in the beginning, the quality of the audit is a key factor for the confidence
in financial information and of the capital and financial market system as a whole. Public
oversight is an important way of assuring the quality of audits.
Quality is ultimately the final and principal objective. It is clear that as much the
profession, as the oversight body, coincide in this central objective. In this issue, there are
no conflicting interests, but rather the contrary is true, the interests coincide.
The understanding of this reality is fundamental at the time of designing the oversight
system and delineating the relationship between the overseer and the overseen.
It is clear, then, that in this concurrence of objective, it is not the mere fulfillment of
requirements and formalities, but rather the true implanting of a culture of quality, that
will signify the measure of success for all: auditors and supervisors. The great beneficiary
will be the public that uses auditor services.
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In this sense it is interesting to remember that the IFAC Statement of Membership
Obligation (SMO) 1, related to quality control, establishes that each member body, in this
case the Instituto de Censores Jurados de Cuentas de España, should assure the existence
of an mandatory quality control program and that when these functions are managed, as
in this case, by an independent government body, it should assist in the implementation in
all that is appropriate and should obtain an understanding of the scope of such a program,
in such a way so that if all the aspects included in said SMOs are not satisfied, the
professional organization should establish a complementary program that covers all the
missing parts.
This is a very good demonstration that there are not different objectives, but rather a
shared final objective.
The principles and standards included in the SMO 1 constitute a very good base for the
design of the quality control program and can be very useful in the development and
implementation phases that, in the processes of transitioning the auditing directive to
legislation and local rules, will be faced next.
The current sections of the IFAC Code of Ethics related to independence were issued in
November 2001. The facts and the circumstances present since then have driven many
jurisdictions to perform actions tending to restore credibility in financial information, of
which many refer concretely to the independence requirements of the auditor. Hence, the
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International Ethics Standards Board for Accountants decided to confront the revision of
the corresponding section of the Code to determine which of the requirements should be
revised. A forum was held in October 2005 to obtain the comments and input for this
project. The topic has been considered high priority, it is being intensely worked on, and
with out a doubt an exposure draft will be issued in December of this year.
The objective of this rule, based in principles and developed under the approach of
threats and safeguards, updated now based on experience and the new market demands
can constitute a clear international reference.
If on the one hand, IFAC’s requirement of its member bodies is that they not apply
requirements less strict that the contents of the IFAC Code, then the ideal certainly is
world wide convergence in this area as well.
To conclude, I would like to refer briefly to the accounting standards.
Just as the rest of the European Union, Spain has adopted the International Financial
Reporting Standards (IFRSs) for the consolidated financial statements of listed entities.
It is my understanding that it is in the process of defining the applicable standards for the
rest of the cases. It is also my understanding that a consensus also exists, which of course
I share, that these standards should be harmonized with the IFRSs.
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Being as it is, allow me to make a suggestion. Think seriously about the possibility of
adopting IFRSs, in your case, introducing some exception if a founded justification
exists, and avoid the elaboration of your own a set of standards, as harmonized as it may
be. What’s more, the greater the degree of harmonization attempted to achieve, the less
sense it makes to have the superposition of sets of standards.
Under this same focus, the adoption of standards issued by the International Accounting
Standards Board (IASB) for small and medium enterprises should also be considered,
those that it is assumed will be consistent with the applicable IFRS to entities that should
have public accounts.
This not only unmistakably will assure consistency, but also will facilitate the future
process with respect to changes in the international standards. In addition, it would allow
for savings in resources that could be used in incrementing and strengthening the
participation of Spain in the elaboration process of international standards, whether it is
intervening directly in the IASB, having an active and opportune participation in the
analysis of drafts, or contributing with proposals to be integrated in the work agenda of
the IASB.
As you may have been able to appreciate from the examples I mentioned today, IFAC
continues working intensely to promote the global adoption of the international standards,
to facilitate and improve the applicability of the standards to small and medium
enterprises, to contribute to the development and the strength of the accounting
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profession around the world, and to improve the quality of financial and auditing
information.
We want to do accomplish this with the collaboration of our member bodies. We want to
ensure the existences of adequate channels for participation so that our activities can
benefit from all cultures and take the best from each.
Global convergence does not imply cultural change. Ortega y Gasset says that “culture is
a set of solutions that society gives to the problems of the era it lives.” If convergence
helps a culture have better solutions, this does not mean that the culture has to change, it
only implies adapting.
Spain can not be absent from this process. The Instituto de Censores Jurados de Cuentas
de España has a great deal to add to the global profession. Each country has its unique
values and talents, which if they are not added, are lost.
In relation to my last point, it pleases me to inform you that the Executive Committee of
IFAC has designated Carmen Rodríguez as member of the IESBA and this designation
has been approved by the PIOB.
I am convinced that Spain is in the conditions, and I would even say that it has the
obligation, to continue increasing its presence in the international environment.
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As far as all of you, I want to encourage you to continue working with your sights on the
new horizon, looking at the market and its needs, identifying and designing more
efficient methods to serve your clients, preparing to act with new technology and to take
the leadership in the preparation and revision of non-financial information and in the new
forms of accessing and using information, convinced of the value that you can add and
the contribution that you can make to the integral development of the society you live in.
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