International Federation of Accountants Update on IFAC and its Role with SMPs Szymon Radziszewicz IFAC Technical Manager, Compliance Program 18 November 2008

Global organizations for the accountancy profession with 157 members and associates in 123 countriesGlobal organizations for the accountancy profession with 157 members and associates in 123 countries Supports the global development of the professionSupports the global development of the profession Encourages compliance and convergenceEncourages compliance and convergence Promotes values of integrity, transparency and expertisePromotes values of integrity, transparency and expertise IFAC Today IFAC

Independent Standard-Setting Boards International StandardsInternational 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 RepresentationRepresentation –Small and Medium Practices Committee –Professional Accountants in Business Committee –Developing Nations Committee Compliance Advisory PanelCompliance Advisory Panel –Evaluates whether IFAC members are complying with the requirements to maintain their membership in IFAC IFAC

Percentage of Small and Medium Businesses by Region SMP INFLUENCE 97% 99.7% 95% 99% 75% 97%

Characteristics of SMPs Demonstrates one or more of the followingDemonstrates 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 standardsRelevance of international standards –Auditing standards more detailed and revisions in the last few years –Financial reporting standards more complex Regulations and audit qualityRegulations and audit quality Increased competitive pressureIncreased competitive pressure Small and medium practices have fewer resourcesSmall and medium practices have fewer resources IFAC

How is IFAC Assisting? Composition of standard-setting boards and projectsComposition of standard-setting boards and projects –More SMPs IFAC is exploring ways to provide implementation supportIFAC is exploring ways to provide implementation support Raising awareness about the needs of professional accountants in developing and emerging economies a priorityRaising awareness about the needs of professional accountants in developing and emerging economies a priority IFAC

IFAC SMP Committee Overview IFAC SMP Committee Overview Canada USA Brazil Finland Germany Italy Malta Spain Turkey UK Nigeria Tunisia Chair – Sylvie Voghel (Canada) 18 members Resources – one full-time senior technical manager Israel China Hong Kong SAR India Malaysia

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”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 impactStandard-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 conferenceHost annual SMP conference –Hong Kong, Malta, Nigeria Develop tools for SMPsDevelop 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!Not a substitute for the ISAs! –Designed to help SMPs efficiently, effectively and consistently apply ISAs Translations: Chinese, Czech, Romanian, Russian, Spanish, othersTranslations: Chinese, Czech, Romanian, Russian, Spanish, others Plan for an update 2010Plan for an update 2010 Available for freeAvailable for free IFAC

Use of graphics, tables, consider points

Sample Chapter Layout

IAASB and the ISA Clarity Project Objective: To improve clarity of ISAs and consistency of applicationObjective: To improve clarity of ISAs and consistency of application All issued ISAs part of a “Clarity” reviewAll issued ISAs part of a “Clarity” review Structural improvementsStructural 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, 2009All will have an effective date of December 15, 2009 IFAC

IAASB and the ISA Clarity Project BeforeBefore “The auditor should make inquiries of management, internal audit and others to determine whether they have knowledge of…fraud affecting the entity.” “The auditor should make inquiries of management, internal audit and others to determine whether they have knowledge of…fraud affecting the entity.” Redrafted requirements:Redrafted requirements: “The auditor shall make inquires of management… fraud affecting the entity” “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…” “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 estimatesHighlights 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 marketsEspecially relevant to audits of entities that have investments in financial instruments especially those in illiquid markets Reminds auditors of their obligationsReminds auditors of their obligations IFAC

18 IAASB Future Strategy Stability for 2 yearsStability for 2 years Process for assessing the effectiveness of the implementation of new standardsProcess for assessing the effectiveness of the implementation of new standards Explore concept of alternative assurance servicesExplore 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”? IFAC

Code of Ethics Ethical compliance a hallmark of the accounting professionEthical compliance a hallmark of the accounting profession Key projects of the IESBAKey projects of the IESBA –Clarity project –Conflicts of interest –Fraud and illegal acts IESBA Implementation Materials for SMPsIESBA Implementation Materials for SMPs –To help SMPs apply independence section of Code of Ethics (2009) IFAC

Other Useful Guides Quality Control Guide (SMPC)Quality Control Guide (SMPC) –Assist smaller size practices in developing and implementing quality controls Practice Management Guide (SMPC)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 SMEsBusiness Planning Guide: Practical Application for SMEs Defining and Developing an Effective Code of Conduct for OrganizationsDefining and Developing an Effective Code of Conduct for Organizations Internal Controls – A Review of Current DevelopmentsInternal Controls – A Review of Current Developments Internal Control From a Risk-Based PerspectiveInternal Control From a Risk-Based Perspective IFAC

Importance of IFAC Members Continue to be responsive to changeContinue to be responsive to change Focus on education and trainingFocus on education and training Raise awareness to key stakeholders about the needs of the professionRaise awareness to key stakeholders about the needs of the profession Seek input from their membersSeek input from their members IFAC

See for:See for: –IFACnet portal –News –Resources (relevant links, free publications, discussion board, etc.); Possible future developments:Possible future developments: –Global firm directory –Online networking between SMPs (& SMEs) Provision of Practical Support Web-based Resources – International Center for SMPs IFAC

Provision of Practical Support Web-based Resources - IFACnet See Customized web search engine providing access to resources of IFAC, its member bodies, and othersCustomized web search engine providing access to resources of IFAC, its member bodies, and others Possible future developments:Possible future developments: –Menu of key search terms –Improved language capability IFAC

How Can You Get Involved? Effective communication is criticalEffective communication is critical Visit IFAC SMP website and sign up for our eNewsVisit IFAC SMP website and sign up for our eNews Raise awareness of IFAC activities:Raise awareness of IFAC activities: –To other accountancy bodies; –To other SMPs and SMEs; and –To others – students, donor agencies, regulators etc Provide feedbackProvide feedback IFAC

International Federation of Accountants