GLOBALIZATION, CONVERGENCE AND THE PRINCIPLES
THAT GUIDE THE ACCOUNTANCY PROFESSION
By: Fermín del Valle
President, International Federation of Accountants
12th World Congress of Accounting Historians
Istanbul, Turkey – July 21, 2008
Good morning, ladies and gentlemen. I am honored to participate in the 12th World Congress
of Accounting Historians here in Turkey. I am pleased to be back in Istanbul, which I had the
pleasure of visiting in November 2006 for the 16th World Congress of Accountants. This city
is the perfect location for a global discussion centering on history and business, as this is a
place where civilization and commerce have some of their deepest roots.
I would like to extend my appreciation to Dr. Oktay Güvemli for inviting me to speak to you
today.
As many of you are aware, IFAC is the global organization for the accountancy profession
and is comprised of 157 members and associates in 123 countries and jurisdictions,
representing more than 2.5 million accountants in public practice, industry, commerce,
education, and government.
While IFAC itself is very young – we celebrated our 30th anniversary last year – the history
of the accountancy profession stretches back centuries. The military museum where we are
meeting is featuring a special exhibition on accounting from the Ottoman Empire, including
documents on the Merdiban, or Stairs, method of accounting that was used as the state
accounting system in the Middle East for more than 1,000 years.
The tradition of a deeply committed accountancy profession in this country continues today. I
would like to acknowledge IFAC’s two member bodies here in Turkey: the Expert
Accountants’ Association of Turkey and the Union of Chambers of Certified Public
Accountants of Turkey. In addition, I would like to recognize and thank the two Turkish
members who currently serve as IFAC volunteers: Omer Duman who is a member of the
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International Public Sector Accounting Standards Board, and Masum Turker who is a
member of the Small and Medium Practices Committee.
History is important. It is important because it is a source of knowledge. History is a source
for learning and a driver of evolution. If we need to understand something, we need to
observe its beginning and its development.
In order to create a clear and promising path for our future, we need to consider and
understand our past. History helps us understand who we are and where we are standing. We
live in a time of rapid change, a time of progress, where we sometimes prefer to define
ourselves in terms of where we are going, not where we come from.
But history does matter. Our view of history shapes the way we view the present, and,
therefore, it contributes to our ability to find solutions for existing problems and challenges.
The writer and historian David Crabtree defines history as the facts about the past that are
significant and true. This simple definition contains two words packed with meaning which
must be understood in order to understand history.
The first word is “significant.” History is the process of simplifying. Of all that could be said
about an event or a process, what is most important or most significant? The goal of history is
to identify the knowledge about the past that best captures the essence of values, skills,
passions or achievements.
And these facts have to be “true” in the sense they are well supported by research,
investigation and reliable sources. History confines itself to facts, and to the relation of actual
events. The dignity of history consists in describing events with truth and accuracy and in
presenting human agents and their actions in an interesting and instructive form. The first
element in history, therefore, is truthfulness.
Since I am not a historian, I will not talk to you today about past history. Instead, I will focus
on why, I believe, today we are experiencing a very special time in the history of accounting
and auditing and what the near future may hold.
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I think that two significant issues are shaping the future of accounting and auditing: the
achievement of convergence and the return to a principles-based approach in the development
and use of professional standards.
Global convergence
What we are witnessing around the world is a rapidly spreading affirmation that convergence
to a single set of global, principles-based auditing and accounting standards is an idea whose
time has come.
It is a time when convergence plays an important role, and the use of commonly accepted
international standards worldwide is being recognized by everyone as a true need, as
something that will contribute significantly to the proper functioning of the financial and the
capital markets and, consequently, will improve the world’s economic growth and stability.
In the past year or two, many countries and jurisdictions have reached the conclusion that
convergence is essential to consistent financial reporting, believing, in turn, that it fosters
investments and global economic competitiveness.
One event that will undoubtedly be registered in the history of the accountancy profession as
significant in 2007 is the United States Securities and Exchange Commission’s adoption of
rules to accept, from foreign private issuers in their filings with the Commission, financial
statements prepared in accordance with International Financial Reporting Standards (IFRSs)
as issued by the International Accounting Standards Board (IASB) without reconciliation to
generally accepted accounting principles (GAAP) as used in the United States.
No less important in our current history have been the decisions that were taken by countries
like Australia, New Zealand, India, China, Canada, Brazil and others to converge with IFRSs
or International Standards on Auditing.
This progress is actually not a surprise to IFAC. I am proud to tell you that IFAC was a
champion of convergence long before the concept was popular and well before it was called
convergence. Surely history will acknowledge IFAC’s role and contribution in this area.
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IFAC is so committed to the goal of convergence that this is reflected in its mission
statement. Well before many in the business community were working with a global mindset,
IFAC recognized that a single set of high quality international standards is essential to raising
the quality and uniformity of practice by professional accountants throughout the world.
In our early days, we referred to “harmonization” of standards but moved to the word
“convergence,” because it better conveys what IFAC is working to achieve: many interested
parties moving simultaneously towards the same point: the worldwide use of a consistent set
of high quality professional standards.
IFAC’s four independent standard-setting boards – the International Auditing and Assurance
Standards Board (IAASB), the International Accounting Education Standards Board,
International Ethics Standards Board for Accountants, and the International Public Sector
Accounting Standards Board – are committed to developing international standards that raise
the level of practice and promote reliable and high quality financial reporting worldwide.
IFAC’s commitment to convergence also includes promoting the use of the accounting
standards developed by the IASB.
In fact, IFAC showed great foresight in adhering to a global perspective back in the 1970s
and 1980s, because the phenomenon of globalization was just around the corner. In the
1990s, as the world increasingly “flattened” and barriers to trade and investment collapsed,
the need for a more common business language with consistently applied standards became
ever more necessary. We witnessed the tripling of the global equity market value of all
publicly traded securities and saw even the smallest companies begin to adopt structures that
would enable them to participate and compete in the global marketplace.
While these developments presented the accountancy profession with unique challenges, the
ongoing development and adoption of international standards enabled us to effectively
respond and contribute to strengthening economic growth and development around the globe.
Today, support for global convergence is nearly unanimous and crosses regional, cultural and
professional boundaries. The results of IFAC’s Global Leadership Survey of the leaders of
professional accountancy organizations, conducted in late 2007, showed that nearly all
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respondents believed that convergence was key to economic growth and development in their
respective countries. In responding to our survey, they ranked convergence to International
Standards on Auditing (ISAs), set by the IAASB, at the same high level of importance as
convergence to IFRSs set by the IASB. The respondents to the Global Leadership Survey
recognized that convergence strengthens auditing and accounting standards and results in
improved financial reporting, which is so critical to establishing investor confidence and to
creating vibrant capital markets.
Members of IFAC are not alone in supporting convergence.

The World Federation of Exchanges has endorsed the IAASB’s processes for standard
setting and recognizes the importance of ISAs.

The Financial Stability Forum has identified ISAs and IFRS as two of the 12 key
standards for sound financial systems and deserving of propriety implementation
depending on country circumstances.

And the World Bank uses ISAs and IFRSs as the benchmarks for its ROSCs (Reports
on the Observance of Standards and Codes) for assessing the quality of national
auditing and accounting standards.
Convergence is a most important and, I believe, a most achievable goal and the more quickly
we move on this, the greater the chance for success is. However, it is also important to be
aware that there is still a long road to be traveled in order to achieve the goal of global
convergence. Our aspirations should be beyond the scope of equivalence and mutual
recognition and we should recognize that we have much to do to move further down the path.
IFAC’s work supporting and promoting convergence
Because IFAC understands there is much to be gained from convergence, and because
developing a strong accountancy profession is central to our mission, we are working in
numerous ways to support and promote adoption of high quality international standards in all
countries and jurisdictions around the world. Let me briefly outline three of IFAC’s actions in
this regard.
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First, the IAASB’s Clarity project aims to ease the process of convergence to ISAs, making
them easier to translate and to implement. Besides, this project supports the historic tendency:
to achieve simplicity. The IAASB expects to complete all 35 ISAs as final standards,
redrafted under the Clarity project, by the end of 2008. These standards will be effective for
financial periods beginning on or after December 15, 2009. IFAC believes the Clarity project
is crucial to removing any barriers to convergence to international auditing standards.
I am convinced that the Clarity Project, as its subsequent impact on the formulation of the
future auditing standards, will be recognized as one of the significant milestones in the
history of auditing.
IFAC also works to promote convergence through its Member Body Compliance Program.
This program was established to support IFAC’s members and associates in meeting the
requirements for IFAC membership, which are set out in the Statements of Membership
Obligations, or SMOs. As part of the Compliance Program, IFAC members and associates
completed self-evaluation questionnaires designed to assess whether and how they are
complying with SMOs, which require them to promote, incorporate and assist in
implementing international standards issued by IFAC’s independent standard-setting boards
and the IASB, and to have in place quality assurance and investigation and discipline
programs.
The Compliance Program plays a major role in contributing to the overall quality of the
profession, and it does so in a way that is supportive and collaborative. Launched in
November 2003, the Compliance Program is now entering the third phase, which involves
member bodies and associates developing action plans based on policy recommendations
provided by IFAC Compliance staff. To encourage the development of effective and
responsive action plans, IFAC encourages its member bodies and associates to collaborate by
sharing their experiences and offering advice in the preparation and implementation of Action
Plans.
I would also like to emphasize that IFAC’s Member Body Compliance Program is an
international model of transparency. All responses to the self-assessment questionnaire are
posted on the IFAC website and the action plans, once agreed with the member body, will
also be posted on the site. Thus, anyone in any part of the world can readily obtain
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information about the state of the profession in the more than 120 countries represented by
IFAC members and associates.
I am absolutely convinced that the IFAC Compliance Program will remain in history as one
of the most ambitious and effective programs for the development of the accounting
profession and for the improvement of financial reporting systems.
Another way IFAC is working to promote international convergence is through increased
dialogue with those who oversee the financial and capital markets and, for that reason, have
key interests in the work of the profession. We are engaged in ongoing dialogue with
international regulators and organizations, including the International Organization of
Securities Commissions, the Basel Committee on Banking Supervision, the International
Association of Insurance Supervisors, the European Commission, the World Bank, and the
Financial Stability Forum. We also hold meetings with national regulators in countries that
IFAC officers and chairs of standard-setting boards visit. Regulators also participate on the
consultative advisory groups to IFAC standard-setting boards.
In recent years, IFAC has undertaken a number of reforms, including increased dialogue with
regulators and other organizations, to help ensure that its standard-setting activities reflect the
public interest and are fully transparent to those affected by the standards. One of the most
important developments, and one that history will also highlight as a relevant event, was the
establishment of the international Public Interest Oversight Board (PIOB) in March 2005 to
oversee IFAC’s standard-setting activities in the areas of auditing and assurance, ethics, and
education, as well as the IFAC Member Body Compliance Program. Earlier this year, the
PIOB completed its first three-year term, and its continuing oversight has helped to increase
confidence that IFAC’s activities are properly responsive to the public interest.
The return to principles and the search for simplicity
Along with the historic achievement of convergence, we are now also witnessing another
historic process: the return to principles and the search for simplicity.
I talk about a return to principles because the standards were first created as generally
accepted principles. Initially, they were the reflection of the criteria that had consensus
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among the professionals of a specific jurisdiction. It was that consensus that gave the
standards authority. And those basic standards were expressed as general principles. These
standards, on the other hand, were generated in each country, and they were strongly
influenced by each culture.
It is not easy now to determine how, in a relatively short period of time, in many countries
those general principles became a set of numerous and complex detailed rules.
Those who favor rules say the more specific the requirement, the more certain you can be
that, for example, similar transactions are accounted for in a similar manner. Rules limit the
preparer’s or auditor’s use of professional judgment and, in a litigious environment, can
initially provide a sense of protection. Regulators and oversight authorities tend to like rules
because they offer a specific means of measuring compliance.
On the other hand, the argument against rules is that no standard will fit all circumstances.
Since the practice of auditing and accounting is a technique, not a science, it is necessary that
professional accountants and auditors exercise their professional judgment. With the
principles-driven approach, the standards have some requirements written into them,
accompanied by guidance, that provide a framework within which the auditor or preparer
uses his or her professional judgment and interprets the standard in a given circumstance.
The facts and events of our profession’s recent past seem to indicate that the concept of
“principles-based standards” will be imposed. Underlying this development is the “search for
simplicity,” a basic principle in the definition of criteria and the elaboration of standards.
Looking ahead, I believe we can expect principles-based standards to become the global
benchmark. The world regulatory community has been endorsing IFRSs and major regulators
in the world are supporting ISAs. Globally, most major economies are already using
international standards or national standards based significantly on IFRSs and ISAs.
Last year, the SEC established an advisory committee to develop recommendations on
improving financial reporting in the US. In February 2008, the committee submitted a
number of proposals to the SEC in a progress report; the proposals included that the Financial
Accounting Standards Board move away from industry-specific guidance and instead focus
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on activity-based guidance. The committee also proposed that the SEC and US Public
Company Accounting Oversight Board adopt frameworks for reviewing the exercise of
judgment.
In this progress report, the committee recognized that detailed rules not only increase the
complexity of the financial reporting system, but they also permit the structuring of
transactions to achieve a particular accounting result, even if the results are inconsistent with
the economic substance of the transactions or the underlying purposes of the rules.
It is truly gratifying to witness such international affirmation of principles-based standards,
especially considering IFAC’s long commitment to this issue. This concept will necessarily
entail an increased use of professional judgment, and this, in turn, will lead to an increase in
the value of the old principle of uniformity, as a substantial requisite in the preparation and
presentation of financial information.
The way forward
As the momentum for convergence and for principles-based standards continues to build and
become a reality, the language of our profession becomes a truly universal one. Thus, you can
see why this is a very special moment in accounting and auditing history.
This is not to say that our work is over or that the push for convergence is a part of the past. It
is, indeed, a necessary part of our future. IFAC well recognizes that additional progress needs
to be made. And this additional work is required by, on the one hand, the developed
economies, that have to accept being a part of an international process of standard setting
and, on the other hand, by the emerging economies, where it is necessary to work intensely
on the training and the guidance to effectively implement standards. All of us, including the
profession here in Turkey and around the globe, can be of assistance in this process. We must
look for and identify the role we can play in helping emerging economies to strengthen the
profession.
Moreover, we are only beginning this process of establishing principles-based standards and
searching for simplicity. We still have a long road ahead of us.
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In developing its strategy for the coming years, IFAC acknowledges that much work lies
ahead in addressing issues beyond convergence and simplicity.
The accountancy profession must also continue to work to achieve greater efficiency and
effectiveness and remain open to new approaches and further improvements, for example, in
financial reporting.
The quality and usability of financial reports was a key area of focus for a report that IFAC
released earlier this year on the financial reporting supply chain. The report – which surveyed
340 financial reporting supply chain participants worldwide, including investors, preparers,
company management and directors, auditors, standard setters, and regulators – found that
the quality and strength of financial reports and financial reporting have improved in recent
years as have corporate governance, the preparation of financial reports, and the audit of
financial reports. But the report also emphasized that investors and other stakeholders are still
finding it difficult to make sense of the figures in financial reports due to insufficient
narrative reporting or qualitative information on company strategy and other areas. As a
result, the recommendations for change included making the financial reporting information
more understandable, increasing communication among all financial reporting supply chain
participants, and including more business-driven information.
These findings were echoed in the referred interim report of the SEC advisory committee on
improving US financial reporting, which called for increasing emphasis on the investor
perspective in the financial reporting system.
IFAC is already working to address these concerns, having launched a new project to analyze
actions currently being taken to address the suitability of business reporting and to identify
areas for future development. This project will take the findings of the financial reporting
supply chain report to the next stage and deliver specific recommendations for further action
in enhancing the quality and usefulness of corporate reporting.
I have often expressed my belief that the future of the accountancy profession lies in its
ability to change, evolve and adapt to market demands. This includes technological demands
such as XBRL, the language for the electronic communication of business and financial data.
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The use of XBRL is seen as an important part of making financial reports more consistent,
interactive, and useful. This view is shared by a number of regulators, including the US
Securities and Exchange Commission, stock exchanges around the world, and national banks
in Belgium, Japan, Spain and elsewhere. It is very probable that in the next few years XBRL
will have a firm place in the history of accountancy.
If we act creatively in rethinking financial reporting, and in approaching many other
challenges, the accountancy profession will be better equipped to sustain itself and grow.
Looking to the future, we must be innovative and flexible – words, I know, that are not
popularly associated with accountants. Nonetheless, we have proven we can proceed with
innovation.
To further sustain this great profession, I believe that each and every professional accountant
must become its greatest advocate. We must not be shy about talking about our role in
creating an investment climate of trust, of contributing to economic growth and development,
and of serving as the corporate conscience for companies large and small. These are all roles
that we can and should be proud of. We must let others know how they, too, can fulfill these
and other roles in the international profession and provide them with the necessary training
and education so that they can succeed in fulfilling them.
Finally, as a unified global profession, we must come to agreement on strategic objectives
and actions and then align our activities. We need to identify and implement mechanisms that
facilitate effective communication, collaboration and consultation. And, the global
profession, acting in unison, needs to address issues of new and growing importance, such as
our role in environmental sustainability reporting.
Historians say that in order to consider our future, we must learn from our past. As we do
this, we see that IFAC and the accountancy profession have acted as pioneers in anticipating
the need for a more global business perspective. Celebrating our 30th anniversary last year
underscored our progress. Our predecessors had vision and they anticipated the future. They
made the right decisions and acted upon them. IFAC was focused on convergence and
principles-based standards before other organizations began to consider such issues. IFAC
was one of the first organizations working to develop international standards and urging the
accountancy profession to address crucial matters with a global mindset.
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I believe the accountancy profession can meet the challenges and opportunities of the coming
decades with a similar capacity for vision and change. Today, we continue to offer the world
an example of what can be accomplished.
And if we are effective, we can make a positive difference in the world.
Thank you for your attention.
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