International Federation of Accountants Update on IFAC and its Role with SMPs Szymon Radziszewicz IFAC Technical Manager, Compliance Program 18 November 2008 IFAC IFAC Today • Global organizations for the accountancy profession with 157 members and associates in 123 countries • Supports the global development of the profession • Encourages compliance and convergence • Promotes values of integrity, transparency and expertise IFAC Independent Standard-Setting Boards • International Standards – International Auditing and Assurance Standards Board (IAASB) – International Ethics Standards Board for Accountants (IESBA) – International Accounting Education Standards Board (IAESB) – International Public Sector Accounting Standards Board (IPSASB) IFAC Committees • Representation – Small and Medium Practices Committee – Professional Accountants in Business Committee – Developing Nations Committee • Compliance Advisory Panel – Evaluates whether IFAC members are complying with the requirements to maintain their membership in IFAC SMP INFLUENCE Percentage of Small and Medium Businesses by Region 99.7% 99% 97% 75% 95% 97% IFAC Characteristics of SMPs • Demonstrates one or more of the following – Most of its clients are SMEs – Ordinarily does not audit listed entities – Majority of client work may non-assurance (non-audit) work – Has direct and hands-on quality control procedures IFAC SMP Challenges in the Environment • Relevance of international standards – Auditing standards more detailed and revisions in the last few years – Financial reporting standards more complex • Regulations and audit quality • Increased competitive pressure • Small and medium practices have fewer resources IFAC How is IFAC Assisting? • Composition of standard-setting boards and projects – More SMPs • IFAC is exploring ways to provide implementation support • Raising awareness about the needs of professional accountants in developing and emerging economies a priority IFAC SMP Committee Overview • Finland • Germany • Italy • Malta • Spain • Turkey • UK • Canada • USA • Nigeria • Tunisia • Brazil • Israel • China • Hong Kong SAR • India • Malaysia Chair – Sylvie Voghel (Canada) 18 members Resources – one full-time senior technical manager IFAC Small and Medium Practices Committee • Purpose: “…to identify and represent the needs of the constituents and, where applicable, to give consideration to relevant issues, pertaining to SMEs / SMPs” • Standard-setting impact – Input into the IAASB standard-setting process – “Think smaller audit practice” approach – Follow IASB’s proposed “IFRS for Private Entities” IFAC Small and Medium Practices Committee • Host annual SMP conference – Hong Kong, Malta, Nigeria • Develop tools for SMPs – Guide to Using International Standards on Auditing in the Audit of Small – and Medium – Sized Entities (“The ISA Guide”) – Based on ISAs effective as at December 31, 2006 IFAC The ISA Guide (December 2007) • Not a substitute for the ISAs! – Designed to help SMPs efficiently, effectively and consistently apply ISAs • Translations: Chinese, Czech, Romanian, Russian, Spanish, others • Plan for an update 2010 • Available for free Use of graphics, tables, consider points Sample Chapter Layout IFAC IAASB and the ISA Clarity Project • Objective: To improve clarity of ISAs and consistency of application • All issued ISAs part of a “Clarity” review • Structural improvements – Be clear about the objective of the standard and therefore its purpose for the audit process – Wording simplified where possible • All will have an effective date of December 15, 2009 IFAC IAASB and the ISA Clarity Project • Before “The auditor should make inquiries of management, internal audit and others to determine whether they have knowledge of…fraud affecting the entity.” • Redrafted requirements: “The auditor shall make inquires of management… fraud affecting the entity” “For those entities that have an internal audit function, the auditor shall make inquiries…” IFAC Staff Audit Practice Alert – Fair Value • Highlights areas within the ISAs that are particularly relevant to the audit of fair value accounting estimates • Especially relevant to audits of entities that have investments in financial instruments especially those in illiquid markets • Reminds auditors of their obligations IFAC IAASB Future Strategy • Stability for 2 years • Process for assessing the effectiveness of the implementation of new standards • Explore concept of alternative assurance services – Is there be an alternative to an audit? – What type of assurance would it provide given an audit provides “reasonable assurance”? 18 IFAC Code of Ethics • Ethical compliance a hallmark of the accounting profession • Key projects of the IESBA – Clarity project – Conflicts of interest – Fraud and illegal acts • IESBA Implementation Materials for SMPs – To help SMPs apply independence section of Code of Ethics (2009) IFAC Other Useful Guides • Quality Control Guide (SMPC) – Assist smaller size practices in developing and implementing quality controls • Practice Management Guide (SMPC) – TBD – Assist auditors in managing their practices, client acceptance process, HR etc IFAC Valuable to SMEs • Business Planning Guide: Practical Application for SMEs • Defining and Developing an Effective Code of Conduct for Organizations • Internal Controls – A Review of Current Developments • Internal Control From a Risk-Based Perspective IFAC Importance of IFAC Members • Continue to be responsive to change • Focus on education and training • Raise awareness to key stakeholders about the needs of the profession • Seek input from their members IFAC Provision of Practical Support Web-based Resources – International Center for SMPs • See http://www.ifac.org/SMP/ for: – IFACnet portal – News – Resources (relevant links, free publications, discussion board, etc.); • Possible future developments: – Global firm directory – Online networking between SMPs (& SMEs) IFAC Provision of Practical Support Web-based Resources - IFACnet • See http://www.ifacnet.com • Customized web search engine providing access to resources of IFAC, its member bodies, and others • Possible future developments: – Menu of key search terms – Improved language capability IFAC How Can You Get Involved? • Effective communication is critical • Visit IFAC SMP website and sign up for our eNews • Raise awareness of IFAC activities: – To other accountancy bodies; – To other SMPs and SMEs; and – To others – students, donor agencies, regulators etc • Provide feedback International Federation of Accountants www.ifac.org