SPECIFIC ISSUES IN SMPs
By: Sylvie Voghel, Chair of IFAC SMP Committee
Latin American and Caribbean Regional Conference: Contabilidad y
Responsabilidad para el Crecimiento Económico Regional (CReCER)
Mexico City, Mexico – June 14, 2007
Good afternoon ladies and gentlemen.
Before I start I would just like to say what a privilege and a pleasure it is for me to
be able to participate on this panel. I wish to focus my comments on the work of
the IFAC Small and Medium Practices (SMP) Committee that I chair in helping
meet the needs of SMPs in this region.
Let me first articulate what my committee suspects are the main issues
confronting SMPs in Latin America and the Caribbean.
First the issue of the relevance of international standards of accounting,
assurance, education and ethics to SME/SMP. Some believe these standards
are written primarily with large entities in mind resulting in over-regulation of
SME/SMP. For example, we fear new auditing standards may undermine the
viability of SME audits and SMPs.
Secondly there is the issue of the capacity of SMP/SME to efficiently implement,
and comply with, these standards. Small practitioners lack specialist in-house
resources and suffer from professional isolation.
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Thirdly SMPs are faced with acute problems – increasing competitive pressures,
a decreasing amount of staple regulatory work, and operational problems such
as staff recruitment and retention and effective networking.
My committee has developed a strategy and operational plan to tackle
these issues and help SMPs in this region.
It is important to note that the SMP Committee Strategic and Operational Plan for
the years 2007-2010 is the result of extensive consultation with all relevant
stakeholders, a key component of which is our annual global IFAC SMP Forum.
This year’s forum will be held in Malta on October 30. We hope that
representatives from this region will attend.
Our strategy takes a two-pronged approach to helping SME/SMP converge and
comply with international standards of accounting, assurance, education, and
ethics whilst ensuring SMPs remain profitable and sustainable.
First, we are helping to shape the form and content of those standards, largely
through direct input to the standard-setting process, so as to enhance their
relevance to SME/SMP.
Second, we are providing practical support to SMPs, mainly through the
provision of implementation guidance and web-based information resources, so
as to raise their capacity to efficiently implement international standards and to
be competitive, client-focused and profitable.
Let me now explain how we are seeking to improve the relevance and cost
effectiveness of international standards for SME/SMP by directly inputting
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to the standard-setting process. We are stressing the need for the
international standard setters to develop succinct, relevant and understandable
standards. These standards should be universally applicable, consistently
implemented, and ensure that the benefits exceed the costs for SMP/SME.
Perhaps the most important element of our work program is inputting to the
standard setting of the IAASB. We have some broad policy positions
underpinning this input. We believe an audit is an audit. We believe in having a
single set of high quality auditing standards. And we believe that these standards
should permit the auditor a reasonable degree of flexibility to exercise their
professional judgment in deciding how best to achieve the audit objective. It is
vital these standards are equally applicable across all audits - regardless of size,
complexity and jurisdiction of the client. The challenge for those drafting is to
think simple and straightforward. We believe this will avoid disproportionate
burdens on, and so safeguard the viability of, SME audits.
We provide input, largely in the form of comment letters, to the development of
virtually every standard and at virtually every stage of its development.
One project we have been closely following is the Clarity project as described by
John Kellas earlier today. It promises to greatly improve the understandability of
ISAs and make them easier to translate. But requirements will inevitably
increase. On the whole we have been satisfied with the redrafted ISAs. However,
our input alone will not be enough.
We encourage IFAC member bodies,
practitioners and others in this region to review the EDs of these redrafted ISAs
and tell the IAASB how they think they will affect the SME audit.
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We also note a global trend towards exempting SMEs from the audit
requirement. For SMEs that elect not to have an audit we see a role for another
assurance service. As a result we are assisting the IAASB investigate the role of
alternative assurance services.
Our input is a considerable undertaking. In 2006 my dedicated team reviewed
over 3000 pages of IAASB material and submitted over 30 comment letters. And
this was all done at minimal cost via the intranet, email and conference calls by
volunteers and according to very tight deadlines.
Presently, my committee is inputting to the IAASB Strategy Review. We have
encouraged the IAASB to consider various things. Firstly institute some form of
cost-benefit analysis for proposed new or revised standards and to have
increased participation by SMPs on the IAASB and its project task forces.
Secondly assist with the implementation of standards. A “cooling off” period of up
to 3 years with no new or revised standards may be required to aid translation,
assimilation, and consistent implementation.
We also input to the IESBA. The SMP Committee is inputting to the development
of the Code of Ethics for Professional Accountants. Of late we have been
inputting to the proposed revisions to Section 290 on Independence. Some
proposals are welcome and justified. But others we have questioned. For
example, SMPs and their clients stand to be severely adversely affected by
mandatory partner rotation for the audit of entities of significant public interest
and by new restrictions on the provision of tax services. We are not convinced
these proposals are in the public interest.
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Presently, we are inputting to the IESBA Strategic Review. We are encouraging
the IESBA, just like we are the IAASB, to have a moratorium on changes to the
Code and some form of cost-benefit analysis for any proposed changes.
Of great concern to us is the fact that SMPs and SMEs rarely get involved in the
international standard-setting process. We have to find a way of getting them
involved. I welcome your ideas on how this can be done.
Finally let me turn to our initiatives aimed at increasing the capacity of
SMPs to efficiently comply with international standards and remain
profitable.
These fall into two categories - the development of implementation guides and
web-based resources.
First implementation guides. In response to the high demand for guidance on
how to implement ISAs on SME audits we have commissioned the development
of the ISA Guide. It is important to note that this is non-authoritative guide not a
standard. It will include practical “how to” guidance on how to implement the
standards, including an integrated case study throughout.
IFAC will assume full copyright in the ISA Guide and an electronic version will be
distributed to all IFAC member bodies free of charge. Our member bodies in this
region will be able to use the content of the ISA Guide for their own local
adaptations and as a basis for developing products derived from the guide, so
called
derivative
products
such
as
audit
software,
checklists,
forms,
questionnaires, and training materials.
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A global advisory panel, which includes representation from this region, is
helping to review the drafts. We plan to issue it in the fourth quarter of this year.
Updates will follow.
The ISA Guide will not be the complete solution. But it will help SMPs perform
high quality SME audits in an efficient and cost effective manner. In addition,
IFAC is looking at ways of facilitating the development of suitable derivatives at
affordable prices. This may entail maintaining an online catalogue of suitable
products.
In the long run the SMP Committee has visions of developing a suite of
explanatory guides offered freely to all IFAC member bodies. Of course
realization of this vision will depend upon the availability of resources,
collaboration with others, and the support of our constituents.
On the immediate horizon is a Quality Control Guide. In October last year we
issued a request for proposal for commissioning the development of a QC Guide.
We will soon analyze the proposals to determine the best solution. The QC
Guide will help SMPs apply the firm level quality control standard, International
Standard on Quality Control 1, thereby enhancing the quality of their assurance
services to SMEs. Subject to finding a suitable solution we hope to publish the
guide in Q3 2008.
On the more distant horizon is a Practice Management Guide. The guide will
include chapters on topics such as human resources, marketing, and client
relationship management and as such seek to improve the operational efficiency
of SMPs as well as make them more responsive to the needs of their clients.
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Second we are assisting SMPs via web-based resources. Last October IFAC
launched IFACnet, an internet search engine tailored specifically for accountants.
IFACnet provides free access to a wide range of materials and guidance
developed by IFAC and participating member bodies. IFACnet was recently
expanded to serve SMPs by the inclusion of member body websites with
significant practice related material. Soon this search engine will be extended to
non-member body websites. It will also be the centre piece of the resources on
the soon to be launched “International Center for SMPs” on the IFAC website.
Future developments being considered include an online communications centre
for SMPs which could be used both to facilitate SMPs communicating with one
another and to gather input and views from SMPs on proposed new standards.
Let me sum up. SMPs play a crucial role in supporting SMEs in this region. Our
plan is intended to help SMPs do this more effectively. But the key to the plan’s
execution is effective collaboration - with member bodies, regional accountancy
organizations and others. I look forward to hearing the views of my fellow
panelists on how we can make this happen.
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