BRIDGING THE EXPECTATION GAP: CHANGING DIMENSIONS OF AN
ACCOUNTANT’S ROLE
ICAI Diamond Jubilee Conference
James Sylph, Executive Director Professional Standards, FCA, IOD International
Federation of Accountants
4 July 2009
Introduction
Good morning. I would like to thank you for inviting me to speak on this wonderful occasion, and
to say how very pleased I am to be here today.
As you may know, the ICAI was one of the founding member bodies of the International
Federation of Accountants, IFAC, and has always been one of our key members. So it is even
more gratifying to offer my personal congratulations on ICAI’s Diamond Jubilee.
I also bring greetings and congratulations from IFAC’s President, Bob Bunting, and Chief
Executive, Ian Ball, who cannot be here today.
I’m here to look ahead this morning, and speak to you about the changing dimensions of the
accountant’s role. In other words, I will speak about what is expected of our profession today and
tomorrow, and how we can better live up to those expectations.
In the course of my remarks, I will tell you about a few things that the International Federation of
Accountants (IFAC) and the standard-setting Boards that operate its auspices are doing to help
professional accountants keep the public interest in mind as they function as accountants and
auditors.
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Today’s Profession
I’m sure I don’t have to tell you that the accounting profession has changed dramatically in the six
decades since the ICAI’s founding. Sixty years ago, the globalization of business hadn’t been
realized and accounting and auditing issues were very much local matters.
In the last decade, many environmental changes have affected almost every aspect of the
accounting profession. Like many of its member bodies IFAC has been a proactive participant in
these changes. We have worked alongside a range of stakeholders, including regulators, addressing
a wide variety of circumstances in which professional accountants’ services are used.
IFAC uses its significant international resources to accomplish this, and to be able to make sound
recommendations at the international level that are also responsive to global needs. IFAC member
bodies contribute their resources and expertise, including much technical expertise, through
representation on our various boards, committees and other bodies. These resources sustain the
work undertaken by many of those boards, and also IFAC’s extensive relationships with other
global leadership bodies. In relation to all these efforts, we do acknowledge today the ongoing role
played by representatives from the Indian accounting profession.
In December 2007 IFAC published a report called “Regulation of the Accountancy Profession”,
from which I quote:
“… the Sustainability of the accountancy profession depends upon the quality of the services
provided by its members and on the profession’s capacity to respond effectively and efficiently
to the demands of the economy and society”
In the year and a half since IFAC issued this report our profession has continued to experience
many significant challenges, both globally and in individual countries, requiring the profession to
keep abreast of, and even take a leadership role to assist with the enormous task of steering the
volatile global economy of today in the direction of greater stability.
Fundamental to this leadership role are three key perspectives which are at the very forefront of
our minds in today’s environment:
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
Maintaining public confidence in professional accountants and auditors, and services they
provide for the public;

Recognizing and prioritizing the public interest throughout a wide range of professional
services, including many that are externally regulated. Most particularly, I speak about the
standards of ethical and professional conduct and performance that our profession holds
itself to;

Understanding and responding to the needs and pressures of the current global
environment, and striving to apply our professional knowledge and experience to assist our
clients or employer organizations to achieve their business or financial goals.
For certain, today we are a profession that plays a major role in the global financial system and the
global economy. Our roles and responsibilities are as diverse as the many stakeholders we interact
with. They range from being:

trusted advisors for small and medium clients on a range of matters from the basic to the
highly specialized;

financial managers, who have a core role in the financial operation of a range of entities in
both the public and the private sector;

financial information preparers, who are at the heart of producing and preparing the
financial information needed by entities operating in the credit lending and capital markets,
and in the private and public sectors; and finally,

independent providers of assurance opinions, including audit opinions, on a wide range of
subject matter including periodic financial statements that are a central part of regulating
corporate entities.
Challenges for preparers and auditors of financial information
Professional accountants who prepare and audit financial information have experienced a
significant, and still ongoing, stream of changes. These relate to:

the regulatory environment for financial reporting and auditing;
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
new standards on ethics, financial reporting, auditing and assurance;

being responsive to a variety of stakeholder needs and wants for more and different types
of reporting and assurance.
These challenges are found in an environment where financial reporting is infinitely more complex
than before and accountability arrangements are increasingly being made explicit in laws and
regulations relating to corporate governance.
Increased demands are also being made on directors on boards of corporate entities, who must be
able to read and understand financial statements that they assume direct responsibility for. Chief
financial officers also bear increased responsibility for preparation of financial information that
recognizes the interests of public investors and other key stakeholders.
At IFAC, we have been vocal in emphasizing the need for development of an international
competency framework for preparation of financial statements, to make clear the competencies
that are needed to prepare financial information. This is vital to the public interest, whether it
involves the public or private sector, large or small entities, national or multi-national settings; or
occurs in developed or emerging economies.
Yes, our profession certainly has come a long way—with all the significant responsibilities these
various roles entail. There is one further area that I would like to highlight as being of particular
contemporary concern — and where IFAC is taking a lead role to encourage and assist change
through the efforts of our profession.
Public Sector Financial Reporting
The accounting profession also faces quite new challenges in the setting of the ‘global economic
crisis’ and public sector accounting. As national governments take what are often political
decisions to ‘bail out’ distressed businesses, they become majority or sole owners of large pools of
assets and liabilities previously accounted for by private sector entities. Those assets and liabilities
must now be accounted for in a public sector entity’s balance sheet.
Accordingly, proper use of accrual-based accounting, in line with the basis used in private sector
public-interest entities, becomes critically important. If it is not applied, governments and
taxpayers must face the possibility that government balance sheets may fail to properly measure
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and reflect the true value of assets and liabilities so acquired. This could severely undermine the
relevance of public sector and government accounts, with adverse implications for a country’s
taxpayers for generations to come.
Undoubtedly the current economic environment demonstrates more sharply than ever how
important use of full accrual accounting is in today’s public finance environment. It demands that
members of our profession, who understand the implications of accrual accounting, underline this
important aspect of government financial accountability. Concerted effort is needed to explain the
need for change from use of the inadequate cash basis of accounting to the accrual basis which will
produce accurate accounting results.
Key Elements of Our Profession’s Future Sustainability
Let me touch on some of IFAC’s perspectives and achievements in three areas that are key to our
profession’s future sustainability:
(i)
First, there is the regulation of the accounting and auditing profession;
(ii)
Next, I will cover the setting international standards on auditing and their potential to
influence auditing practice in a global sense;
(iii)
Finally, I will mention the work done on setting international ethical standards for
professional accountants, and IFAC’s efforts to encourage use of those standards by our
profession in individual countries.
Regulation of the Accounting and Auditing Profession
Over the years many of our profession’s core activities and functions have become increasingly
more subject to regulation by external parties.
There are many examples of this happening, but those of key relevance in my presentation to you
today are those that involve preparation of financial information, most especially for public
reporting purposes; and audits of those entities that are classed as being of a ‘public interest’
nature, including large corporate entities.
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For many years, our profession was ‘self-regulating’. Today, that regulatory model no longer has
general acceptance; killed once and probably for all by the corporate scandals of earlier in the
decade—including Parmalat, Royal Ahold and Enron to name just a few.
A key driver of this change is recognition by both global and national regulators that it is
absolutely essential that those involved in the preparation and assurance of information for public
reporting purposes must be held to high standards of integrity, competence and performance, as a
basis for having and maintaining public confidence in the quality of those services.
Similarly, there should be appropriate arrangements for oversight of the quality of the work of
preparers and assurers of financial information that engender public confidence. Establishment of
suitable institutional arrangements to achieve these purposes is an investment in the profession’s
future.
Recognizing the fundamental importance of the profession’s interface with regulatory systems,
IFAC has devoted much attention to understanding what institutional arrangements are needed for
the profession to play its role to achieve these overarching goals1.
A global consensus view has emerged that whatever shape or form these arrangements might take,
as a minimum:

They should be properly responsive to the public interest at a global level;

They should clearly demonstrate legitimacy and independence of the activities being
regulated, and from interests directly associated with those activities. They must also meet
the quality of being transparent to all relevant stakeholders; and

They must include an external process for monitoring and public oversight of the relevant
activities, which must itself be transparent in design and operation.
The profession in different countries has worked to develop, or to assist development of such
arrangements that are suited to individual country circumstances. In some cases the established
1
See IFAC’s published Policy Positions:
Regulation of the Accountancy Profession (December 2007)
Policy Position 3: International Standard Setting in the Public Interest (December 2008)
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arrangements may not necessarily fully conform to the global consensus view of what is ideal, in
the light of what is possible given countervailing influences and constraints.
What is critically important on the global stage is that the adopted arrangements should support the
credibility of the accounting profession, and its recognition on a cross-border basis.
It has become vitally important that auditors in different countries be able to operate in the global
environment. This requires the ability for different countries to be able to mutually ‘recognize’ the
domestic institutional arrangements that regulate auditors and the quality of audits.
These developments are important for India, given its growing and increasingly globalized
economy. The auditing profession here will increasingly need to be able to be called on by
overseas counterparts to provide services needed for multinational transactions such as business
acquisitions, and for audits of components of multinational enterprises.
In this setting, it is critical that overseas counterparts of auditors in India should be able to
‘recognize’ the quality of the Indian auditing profession’s institutional arrangements that support
or ensure the quality of audits. This is of key importance to the profession’s long-term
sustainability.
Notably, IFAC itself encouraged development of independent oversight for its own public interest
activities, a few years ago. Through reforms that began in 2003, IFAC has worked hard to lead by
example. Most notably, this included establishing the Public Interest Oversight Board (PIOB),
which monitors the work of IFAC’s public interest activity committees and boards.
Undoubtedly, this model has contributed well to restoring the credibility of the accounting
profession globally. Without that credibility, accountants and auditors would not be able to fill the
critical role they have in monitoring the world’s financial systems, including markets for capital
and financial services, and financial institutions.
Auditing Standards and Practice
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I am particularly proud of the role of IFAC and IAASB in the global convergence of auditing and
assurance standards. I know many of you heard my colleague Prof. Arnold Schilder, the IAASB
Chairman, speak about convergence during yesterday’s session, but given how important this topic
is for today’s profession, you must pardon me if I reemphasize some of the benefits these standards
have to offer.
While on this subject I also want to take this opportunity to congratulate India on its initiative to
converge to the ISAs by mid-2010, and also to adopt the International Financial Reporting
Standards in 2011. We share with you here today in applauding those decisions.
The IAASB has been working hard to increase public trust in the quality of auditing through
setting high-quality, globally recognized auditing standards. Four years ago the IAASB decided to
undertake a new way of looking at the standards and redraft them in a clearer way that will
enhance understanding, consistency of their implementation, and also facilitate their translation
into other languages.
We called this significant effort the Clarity Project, and it was completed earlier this year. As a
result, auditors worldwide now have access to 36 updated and clarified ISAs, and a clarified
International Standard on Quality Control. The set of standards is effective for audits of financial
statements for periods beginning on or after December 15, 2009. The statement from IOSCO
issued in June gives strong support to the body of ISAs and encourages regulators to accept them
not only for cross border filings but also for statutory audits within their own jurisdictions. I think
you will agree that this is a major coup.
The IAASB’s issuance of these standards isn’t of course by itself sufficient to influence auditing
practice. The full benefits of using the clarified ISAs can only be realized if the ISAs are adopted
in full, with no changes or only such minimal additions as might be needed to make them effective
in the legal environment of a particular country.
The twin goals of ensuring global acceptance and endorsement of the ISAs, and encouraging
international convergence with the clarified ISAs through adoption of the ISAs are among the
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IAASB’s key strategic goals. I know that Prof. Schilder has already explained to you in some
detail how the IAASB is going about achieving them.
I did mention that there are challenges, and a good example is the substantively revised standard,
ISA 600, Special Considerations – Audits of Group Financial Statements (Including the Work of
Component Auditors). This ISA establishes rigorous requirements for the auditor carrying out
group audits, and it is especially important in the context of recent corporate failures. Among other
things it addresses the requirements of auditors in settings where the auditor of a multinational
entity needs to rely on the work of other auditors. Typically, the other auditors are in countries
where the business components are located.
ISA 600 requires a group auditor to take full responsibility for the work done supporting the group
audit opinion, including the work done by auditors of component entities in the group. In this
setting, the group auditor is specifically required to evaluate the competence of a component
auditor, and the quality of their work to ensure it is of the standard needed for the purpose of the
group audit. Auditors of components will need to co-operate fully with the group auditor to enable
the latter to ensure the quality of work done for component entities meets the group auditor’s
requirements.
In this kind of interaction between auditors, there is no automatic assumption by the group auditor
about the competence and quality of other auditors’ work. This is a very important safeguard of
audit quality in multinational settings where regulations and standards for auditing can indeed
sometimes differ markedly.
I mention this example to illustrate to you how important international convergence with the ISAs
is. In this setting the clarity ISAs are expected to assist with resolving significant expectation gaps
as they clarify requirements for audits of financial statements regardless of the country in which
the audit is done.
What should be of particular interest here in India, as you move toward convergence with the
clarified ISAs, is that full adoption of the ISAs is critical if the quality of national auditing
standards is to equal to the quality of the ISAs.
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I imagine that many of you are thinking that this means more regulation of the auditing profession.
But my colleagues at IFAC and I are thinking that it means better regulation, based on standards
that emphasize clear objectives and requirements, strong principles and the need to exercise sound
professional judgment. The rigorous requirements the standards contain represent international
best practice in auditing.
Ethical Standards and Practice
Another of IFAC’s major areas of concern is ethical standards, which are central to
professionalism and performance quality in the accountant’s many roles. I know that your Code of
Ethics is very demanding on your members and we salute you for that.
In April the International Ethics Standards Board for Accountants (IESBA) approved the redrafted
IFAC Code of Ethics for Professional Accountants (‘the IFAC Code’), which is effective
worldwide from the first of January 2011.
Among the new features of the IFAC Code is the use of drafting conventions that enhance clarity
by making the requirements clearer, as well as the prohibitions where activities or circumstances
pose an unacceptable threat to compliance. It contains refined guidance on application of the
conceptual framework and use of the ‘threats and safeguards approach’ to achieve compliance with
the core ethical principles.
As for the benefits of using international standards, the question arises, “Will the IFAC Code result
in increased professionalism and quality in the activities of members of our profession?” We
believe wholeheartedly that it will.
Public trust is built up over time, slowly and cumulatively, and is fragile and easily damaged.
Stakeholders who use the services and products of professional accountants and their firms have
entered into what is essentially a ‘social contract,’ and are entitled to expect the highest level of
professionalism from professional accountants within IFAC member bodies.
Application of ethical standards in the various roles professional accountants undertake is often
very complex. It requires active consideration of the fundamental ethical principles of the
profession in the context of the relevant circumstances of the activities being undertaken. Most
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importantly the standards require accountants and auditors to be proactive in addressing situations
that pose a threat to compliance with those principles.
A professional culture and expectation of compliance with certain norms is essential to
maintaining the credibility of the accounting profession to the public.
The IFAC Code establishes widely accepted international standards and guidance that IFAC and
all its stakeholders believe necessary for the worldwide accounting profession to build and
maintain public trust, regardless of national, cultural, or regulatory environment. Accordingly,
adoption of the IFAC Code is crucially important.
The new revised and redrafted IFAC Code both strengthens and clarifies the mechanism by which
compliance with the widely accepted, fundamental ethical principles of our profession is to be
achieved.
Road to the Future: What Lies Ahead?
This morning I have spoken about a range of activities IFAC is involved with that the accountancy
profession will find helpful in dealing with some of the new expectations placed upon them—in
terms of three Cs—clarity, competency, and convergence—among other considerations.
In conclusion, I would like to speak for a moment about the significant new emphasis in the new
international regulatory environment for better monitoring and enforcement of compliance with
internationally accepted regulations and standards on a ‘cross-border’ basis. We must accomplish
this if we are to be able to more effectively foster and maintain global financial stability. The
effectiveness of reporting systems in financial stability is widely acknowledged as crucial, along
with cross-border oversight, monitoring and enforcement.
This emphasis signifies future development of levels of cooperation between national regulators
that have not been experienced to date. It is important that the national and international
components of the accounting profession be prepared for this change and work appropriately to
support the effort.
Development of assessment and monitoring capabilities will have an increasingly important role.
Two examples of self-assessment initiatives in current use are IFAC’s Compliance Program, and
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the joint World Bank and International Monetary Fund ‘Reports on Observance of Standards and
Codes (ROSC)’ initiative. The benefits of self-assessment, and use of support offered by the
institutions that have developed these capabilities, are clear and obvious, and countries should
avail themselves of these benefits and opportunities.
IFAC is assessing and participating in the extensive policy development work being undertaken by
global leadership bodies, such as the Financial Stability Board and its member institutions,
working towards global economic recovery.
The input and participation of the accounting
profession is critically important, not least because of the extensive variety of roles that
professional accountants play in all streams of business and non-business economic activity and
endeavor. IFAC’s ability to contribute meaningfully is very much a function of the resources it has
at its disposal through the international representation it is able to achieve, including the support of
its member bodies.
India’s contributions as a longstanding IFAC member body are very much recognized. We very
much look forward to working with the accountancy profession in India to achieve the
international convergence opportunities that the ICAI has already identified and resolved to
pursue.
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Thank you for your attention this morning.
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