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Transparency and
disclosure
3rd Meeting of the Latin America Corporate Governance Roundtable
Mexico City - April 10, 2002
Ana María Elorrieta
PwC
© 2001 PricewaterhouseCoopers. PricewaterhouseCoopers refers to the individual member firms of the world-wide PricewaterhouseCoopers organisation. All rights reserved.
What do markets, investors and stakeholders
want?
Access to high quality information that is:
• Comparable and
comprehensive
prepared under common financial
reporting principles, full disclosure
• fair
represents economic reality,
balance discussion of risks
• considered
results from good governance
• reliable
audit to high standard
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Financial reporting
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Financial Reporting - Why IAS?
• The only international framework
• New Board structure in place
• Due process
• Interpretations
• Translations, practice aids
• Principles not rules
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Financial Reporting - Why IAS?
• Comparability
Common recognition and measurement
principles
• Full disclosure
“Financial statements should not be
described as complying with IAS unless
they comply with all the requirements of
each applicable standard”
• Fair presentation
“transactions accounted for in accordance
with their substance and economic reality
and not merely their legal form”
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IAS in some Latin American countries
Argentina
•Rules similar to IAS approved by the professional body, applicable as from
July 1, 2002
•Certain minor differences will remain.
Brazil
•Regulators and professional bodies support harmonisation through local
rules
•There is a project at the Congress to create the Brazilian Accounting
Commission
•New accounting standards in accordance with IASs.
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Colombia
•Government required by law (2000) to promote harmonisation
•Feasibility study conducted by university
Chile
•Regulators and professional body support gradual harmonisation
•IAS concepts apply in the absence of local rules
•New standards are generally IAS compliant
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Ecuador
•IAS’s are translated and adopted as local GAAP
•Time lag due to translation and approval by regulator
Paraguay
•IASs have been adopted by the Professional Council
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Peru
•IAS have been adopted as the Peruvian GAAP by the Government
professional body. The IAS’s need to be approved by CNC
•IAS 1 to 38 and SIC 1 to 16 have been approved for 2001 Financials. SIC 17
and IAS 40 are mandatory as from 2002. IAS 32 (revised in 1998), 39 and 41
are mandatory from 2003
Uruguay
•The IAS’s approved by a technical commission are mandatory. Some IASs
and IAS interpretations are still not mandatory
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•Panamá and Costa Rica have officially adopted IAS in 2001. However the
adoption is still partial in certain industries.
•El Salvador has scheduled full adoption in 2004
•Guatemala in 2002.
•Nicaragua and Honduras has postponed full adoption to 2003/4.
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Corporate governance
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Auditing
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Auditor Independence
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Independence
 Most inherent value of the auditing
profession
 Appearance Vs. essence
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Conceptual approach adopted by IFAC
Code of Ethics
 Threats to independence
 Safeguards
 Circumstances and relationships that may
create threats to independence and the
safeguards that may be appropriate to
eliminate and reduce, including financial
interests, relationships with clients,
provisions of non-audit services to audit
clients.
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Rotation of audit firm
In South America:
Brazil, Bolivia, Ecuador and Paraguay
Apparent benefit
• Independence of auditors
Disadvantages
• Reduction in quality due to lack of
cumulative client knowledge, reduction of
investments in audit training and industry
specialization
• Increase audit costs without a
corresponding increase in benefits
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Scope of services - Framework proposed
 Services that directly supports high
quality audit: audit services, tax services,
risk management and control services.
 Other services based on study of threats
and safeguards.
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Safeguards
 Client acceptance procedures
 Independence policies
 Rotation of audit partner
 Concurring partner review
 Consultations
 Segregation of personnel involved in
audit and non-audit services
 Internal disciplinary an review
processes
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Standards on Auditing
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Audit and assurance
 Financial statements audited in
accordance with internationallyrecognised framework.
 Audit quality enhanced by deeper
knowledge of the business.
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International Standards on Auditing
 Change the name to International
Auditing and Assurance Standards
Board (IAASB)
 Increase the Board size to 18
 5 members from FoF, 10 from Member
Bodies and 3 public members
 Meetings to be held in public
 Increase staff resources
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ISAs in Latin American countries
Argentina: in the agenda for 2002, including independence rules. Difference
in auditor’s report
Brazil:
no significant differences but Brazilian standards are too generic
in some areas and could result in differences in application.
Independence rules in the accounting body’s agenda for 2002.
Ecuador, Peru and Uruguay: already adopted for audits of financial
statements
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Conclusions
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Conclusion
In terms of financial reporting
 Improve quality of reporting standards,
adopting International Accounting
Standards
Corporate Governance
 Good corporate governance to support
quality information
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Conclusion
In terms of auditing
 Common goal: audit quality
 Independence is a state of mind: adopt a
principle approach, the Independence
Standard in the IFAC Code of Ethics
 Raise local auditing standards to
International Standards on Auditing
 Independent oversight
 Discourage rotation of audit firm
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Thank you!
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