IAB interview

The

Accountant

A VRL publication Es tablishEd 1875: thE profEssion’s oldEs t nEws sourcE

02-03 NEWS

n druckman takes on trucost challengen calls increase for isa adoption in Europen audit firm registration under review

04 INTERVIEW: GHOLAMHOSSEIN DAVANI

the iranian accounting profession has been developing as rapidly as the profession in western countries in recent years. an industry figure speaks with carolyn canham about the state of the industry and its global successes and ambitions

08-09 FEATURE: TAIWAN

taiwan’s accounting profession is beset by regulatory changes and fierce competition. but improved relations with china could lead to more opportunities

10-15 COUNTRY SURVEY: UNITED KINGDOM

it’s all about the financial crisis for the uK’s professional accounting bodies again this year and no doubt that topic will remain good for at least the next 12 months. the crisis is affecting the institutes in different ways, but all are positive the relevance of their qualifications remains true

October 2009 Issue 6071

PEOPLE

Profession braces for EC endorsement news

STANDARD-SETTING

The world will be watching next month to see how the International Accounting Stand-ards Board’s (IASB) new financial instruments classification and measurement standard is received in Europe.

The rules will replace part of IAS 39 – Financial Instruments Recognition and Meas-urement, a standard so contentious it has been discussed and criticised by European national leaders and the G20.

Once the standard is released, it will be in the hands of European politicians to decide whether it will be applied in the EU.

Europe triggered a worldwide trend to adopt IFRS when it mandated the use of the standards for listed companies from 2005.

But European Financial Reporting Adviso-ry Group chair Stig Enevoldsen said recently that if Europe does not endorse the classifica-tion and measurement standard, the question could be asked ‘is Europe still using IFRS?’

Several high profile figures in the UK pro-fession have said the EC could easily move either way. An indicator towards the EC not endorsing the standard is the chilly reception to the IASB’s work from European finance ministers, particularly those from France and Germany. Indicators towards EC endorse-ment include pressure from the G20 for a single set of global standards and news the US Securities and Exchange Commission is working on its proposed road map for IFRS adoption with renewed purpose.

IASB chairman David Tweedie addressed EU finance minsters recently, saying the board has made changes since the exposure draft that respond to concerns from the EC.

The changes include allowing reclassifica-tion of financial instruments when business models change, which the EC says is essen-tial.

Another EC concern that has been addressed was extended use of fair value measurement. Tweedie said the new standard will probably result in financial institutions that undertake traditional banking activities applying less fair value accounting.

The IASB has a delicate balance to strike in terms of pleasing Europe and maintaining independence. November will be an interest-ing month. <

Carolyn Canham

Jimmy Buffet’s Changes in Latitude, Changes in Attitude is one of Robert Harris’s favourite songs and the title the new chairman of the world’s largest accounting body chose for his inauguration speech.

Harris focused on four main points as he embarked on his one-year term as chair of the American Institute of Certified Public Accountants (AICPA): globalisation, sustain-ability, re-regulation of financial services, and getting more CPAs actively involved in the profession.

Sustainability and the globalisation of the CPA profession, particularly in terms of accounting standards, have been two areas the US has lagged on, but this is changing.

At the highest level of politics, former US President George W Bush is infamous for his denial of issues such as climate change, while awareness of these issues is growing under the Obama administration.

Sustainability is also high on Harris’s agen-da and he told The Accountant the AICPA is taking a leadership role by becoming involved in the Prince of Wales’ Accounting for Sus-tainability project.

“There are no official rules on how an organisation would report sustainability. The CPA profession can play a critical role by cre-ating the measures and furnishing the proof that businesses can be profitable and, at the same time, environmentally responsible,” Harris said.

The US is the last of the world’s major economies with no firm timeline for allowing or mandating the use of IFRS for large listed companies. This too, could soon change.

“It’s essential to have a date certain for future adoption if the United States is going to gather any real momentum towards adopt-ing IFRS,” Harris said.

The US Securities and Exchange Com-mission’s draft road map for IFRS adoption envisioned US adoption by 2014. But Harris said AICPA membership surveys have shown the majority think it would take three to five years to adopt IFRS and 2015 is a more real-istic date.

Harris said convergence in other areas, such as auditing standards and regulation, is also important.

Audit oversight reliance between the EU and the US hit a snag recently, with the EC excluding the US from a proposal that audit regulators in EU member states co-operate with certain other national regulators in the exchange of audit working papers.

One condition was reciprocity, which the US cannot grant due to national law. Harris said the Public Company Accounting Over-sight Board is working with US politicians and foreign counterparts to find a solution.

“There is correcting language in pending legislation in the House of Representatives that would expand the production of audit information and provide for exchanges with foreign counterparts,” Harris added.

AICPA veteranHarris has a lengthy history of service with the AICPA, including time on the board of directors and the governing council. He was chair of the National Accreditation Commis-sion between 2003 and 2008, and has been involved with committees covering issues as diverse as women’s initiatives, disability insur-ance, state legislation and finance.

Harris is also managing director of Harris, Cotherman, Jones, Price & Associates, a local CPA firm based in Vero Beach, Florida. <

Carolyn Canham

New AICPA president welcomes changing times in the US

Robert Harris, AICPA

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The Accountant October 2009

www.WorldAccountingIntelligence.com

One of the UK’s foremost figures in account-ing for sustainability has taken on a new challenge leading an environmental data company.

Paul Druckman is a past president of the Institute of Chartered Accountants in Eng-land and Wales, chairman of the Federa-tion of European Accountants sustainability policy group and chairman of the executive board of the Prince of Wales Accounting for Sustainability project.

Adding to his raft of positions, he recently became chairman of environmental data com-pany Trucost. Trucost maintains a data base with information on 4,500 global companies, including the world’s largest.

There are two sides to the business. One is selling the data and services based on the data to investors; the other is providing the data to companies so they can see their own environmental footprints and impacts.

Druckman said he believes Trucost occu-pies a niche spot in the market.

“There are no other organisations doing what we do,” he told The Accountant. “There are other organisations that provide data, but it is not the same concept because we are maintaining, validating, standardising and monetising the data that we have.

“We have the data and the model to have a complete environmental footprint, it’s more than just about carbon. Some companies are doing different pieces of that, but not the overall complete set.”

Environmental performanceTo date, much of Trucost’s emphasis has been on the investor side of the business, for exam-ple informing investors who want to know if a fund is low carbon.

“[Trucost can find] the best performing companies or the worst performing compa-nies in terms of their environmental impact,” Druckman said. “If you want to build a low carbon fund, how do you know which com-panies are low carbon? It may not be that you only invest in the lowest, but at least you will see the ranking and make an informed deci-sion.”

The company is making inroads into the public sector as well as the corporate sector.

“We have contracts on the supply chain side with local authorities and health care organisations,” Druckman explained.

“Some of them have incentives to do that through government schemes and incentives. Others just want to be best practice.”

Druckman’s role at Trucost combines the

three areas of specialisation he has developed during the past 10 years – technology, sus-tainability and the accounting profession.

First, Trucost is essentially a technology solution. Second, its provision of environmen-tal data hits the sustainability mark. Finally, Trucost converts non-financial environmental information into financial information.

“Trucost has the ability to make the accounting profession understand what all this is about because of the quantitative nature of the data,” Druckman explained.

Druckman said this financial data is a raw material that businesses can use to build sus-tainability issues into financial models.

“It has always been possible [to embed sustainability into investment decision mak-ing], but it is still a big learning curve for an accountant,” Druckman added.

“Accountants in normal practice must start looking at these externalities rather than just the financial return because they need to understand that the world is changing and there are other pressures on the behaviour of a company that will affect its value, and not just in an altruistic sense. Now here is some-thing they can actually grab hold of and use with a clearer understanding.”

Druckman said one opportunity for Tru-cost is to move beyond being a separate data source and become embedded in what other organisations do.

“Accounting software houses could have Trucost environmental data associated with their accounting systems,” Druckman said.

“Going back to the accounting side of it, there is no reason why management accounts should not now include an environmental footprint.” <

Carolyn Canham

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The

Accountant

NEWS

SUSTAINABILITY

Druckman takes Trucost challenge

Paul Druckman


3

October 2009 The Accountant

www.WorldAccountingIntelligence.com NEWS

PEOPLE

Schapiro voices support for global accounting standardsthe chairman of the us securities and Exchange commission (sEc) has said she remains committed to the goal of a global set of high-quality accounting standards.speaking at an international organization of securities commissions conference in switzerland this month, Mary schapiro said the financial crisis has highlighted the importance of implementing and enforcing high quality and consistent accounting standards around the world.“i remain committed to the goal of a global set of high-quality accounting standards,” she said. “i also believe that there are issues that will be critical to address as we at the sEc consider the input we have received on last year’s proposed road map on the role of international standards in the us.”

ASSURANCE

IAASB launches consultation on greenhouse gas standardthe international auditing and assurance standards board (iaasb) is seeking views on the development of a new assurance standard on green house gas (GhG) statements. the project seeks to enhance the consistency and quality of performance by practitioners on assurance engagements to report on this information, whether produced for regulators, legislators or investors.Assurance on a Greenhouse Gas Statement asks a series of questions addressing such matters as the form of assurance report that users would find most useful, the nature and extent of requirements, how a standard should best integrate with regulatory requirements, and technical aspects of applying the assurance process to GhG emissions.an exposure draft is scheduled for release next year.

FAIR VALUE

IASB and FASB hold out hope for fair value convergencethe international accounting standards board and the us financial accounting standards board were unable to resolve their differing opinions on the extent that financial instruments are measured at fair value at a meeting in the us this week.according to us media reports, the boards agreed to explore ways to facilitate easy comparisons if the rules in ifrs and us Gaap differ.iasb chair david tweedie also claimed that if the rules are not identical by 2010 they should be “appreciably together”. <

NEWS BRIEFS

The close of an EC consultation on the adop-tion of ISAs in Europe has heralded increased statements in their favour.

The UK Auditing Practices Board (APB) issued 33 clarified ISAs as audit standards for the UK and Ireland on 13 October, becoming one of the first major jurisdictions to do so.

APB chairman Richard Fleck said the new ISAs are more rigorous and clearer than exist-ing auditing standards in any country.

“The APB hopes that these standards will be mandated for use within the European Union in the near future,” Fleck added.

The Committee of European Securities Reg-ulators (CESR) also supports the introduction of ISAs in Europe.

CESR has said there is growing interna-tional acceptance of ISAs and many potential benefits of harmonised auditing standards in the EU.

CESR supports a European endorsement process but says this should be used with pre-caution and changes made only in “highly rare circumstances”, otherwise it could erode the coherence of the standards and their inter-national acceptability.

The Institute of Chartered Accountants in England and Wales (ICAEW) is also in favour of mandating ISAs in Europe. How-ever, ICAEW executive director Robert Hodgkinson said the institute disagrees with

an endorsement process that allows for “add-ons or carve-outs”.

Hodgkinson said if there is a “seed of doubt” regarding what exact standards have been used, it can have an adverse effect on the ability to take an audit report at face value.

The EC consultation suggested three options for the scope of an adoption: only the statu-tory audits of listed companies; the statutory audits of all limited companies except small companies; or, all statutory audits in the EU.

The ICAEW wants ISAs applied to all audits.

“Having two or more sets of standards would make it expensive for the audit market and also a bit confusing because inevitably one will be thought of as better than the other and certain audits will be seen as second rate,” Hodgkinson said.

Hodgkinson said infrastructure must be in place to ensure audits are not unnecessarily onerous.

“It is about making sure that the training, software, commercial packages and working paper packages are there for firms that can’t afford to develop their own,” he explained.

Hodgkinson said while the standards them-selves are important, having the practical tools needed to deliver audits is just as vital. The ISAs come with this complete package. <

Carolyn Canham

India’s audit regulator plans to limit the number of audit firms a network can be affiliated with in a post-Satyam shake-up that could have wide implications for the Big Four. This follows questions over the extent of PricewaterhouseCoopers (PwC) affiliates’ involvement in the Satyam accounting fraud.

Global networks such as PwC are affiliated with multiple audit firms registered in the country to overcome Indian laws that restrict the number of partners a firm may have to 20. There are nine offices in India affiliated with PwC. These operate in partnership but are mostly structured as separate legal enti-ties. Many carry variations of the name Price Waterhouse.

The Institute of Chartered Accountants of India’s (ICAI) proposal is to allow only two registered audit firms from the “same entity”.

This would affect all the Big Four networks.The proposal is designed to prevent global

networks from washing their hands of errone-ous work carried out by affiliated firms.

Opponents of the ICAI proposal argue that firms will set up new partnerships under dif-ferent names and the rules could restrict the ability of large audit firms to serve their cli-ents, having a detrimental effect on capital markets.

The Indian government recently said it could take action within a couple of months against the firms Price Waterhouse Banga-lore, Price Waterhouse New Delhi and Price Waterhouse Kolkata, four Price Waterhouse Bangalore auditors and two former Satyam Computer Services employees implicated in the Satyam accounting scandal. <

Arvind Hickman and Nicholas Moody

Calls increase for ISA adoption in Europe following EC consultation

Audit firm registration under review

AUDIT

SATYAM


4



the relationship between Iran and the West has produced news headlines for decades. The most contentious recent issues have been the republic’s nuclear

programme and election results disputed loud-ly both at home and abroad. But in the face of high-level political wrangling, Iran’s account-ing profession is moving ever more closely in step with the rest of the world.

The Iranian Accounting Association (IAA) is holding Iran’s second international account-ing conference in December, following a suc-cessful inaugural event in 2008.

Conference board member Gholamhos-sein Davani says the issues on the conference agenda are similar to those reverberating around the rest of the world. Specific areas to be covered include accounting education, international accounting standards, corporate governance, corporate social responsibility and capital markets development.

Accounting education is one area where Iran has particularly close international ties. Davani lists at least three Iranian accounting professors teaching in the US and the UK, including University of Memphis professor Zabihollah Rezaee, who is expected to appear at the upcoming conference.

The IIA is one of three professional account-ing bodies in Iran. The oldest is the Iranian Institute of Certified Accountants (IICA), which was established in 1972 by a group of Iranians who were members of UK accounting institutes. The IICA is member of the Interna-tional Federation of Accountants (IFAC).

The second is the official Iranian Associa-tion of Certified Public Accountants (IACPA), which was established by the government in 1999 and is an associate member of IFAC. The third is the IAA, which Davani compares with the American Accounting Association in its role of promoting excellence in accounting education, research and practice.

The IACPA currently has about 1,600 members. As of January 2008, it listed 173 registered member firms.

Davani estimates there are about 45 active audit firms and the fee income of the largest in 2008 was about $1.5 million. This minute size reflects a profession that is heavily govern-ment-controlled and in need of development.

Of the world’s 10 largest accounting net-works, just four have member or correspond-ent firms listed on their global websites. None of the Big Four do.

Davani is managing partner of Dayarayan Auditing & Financial Services, an RSM Inter-national correspondent firm, which Davani says has been the top ranking firm in terms of fee income twice in the past five years.

Davani explains that prior to the Islamic Revolution in 1979, all the large international organisations were represented in Iran. But following the revolution, many private enter-prises were confiscated or came under direct government supervision. Subsequently, three audit organisations were formed within the public sector to audit and performing statu-tory services for these newly state-owned enterprises.

A 1983 Act of Parliament merged the three organisations and an earlier government audit organisation to form the Audit Organization.

Today, the Audit Organization is a finan-cially independent legal entity affiliated with the Ministry of Economic Affairs and Finance. Davani says its revenue forms about 50 per-cent of the Iranian audit market’s total reve-nue, which in 2008 was about $100 million.

Davani says audit fees in Iran are very low and the market needs support to help it devel-op.

“Iranian auditors have demonstrated, through the development of audit and consult-ing practices and tax services lines, that they will continue to invest in new service capabili-ties when they see demand,” Davani says.

However, he warns if audit policy does not

change in line with wider privatisation proc-esses the nation will find it hard to compete globally.

“Demand for certified public accountants in Iran is progressive and the future outlook for auditing and professional services depends on opening the market to foreigners and inter-national accounting firms,” Davani says, add-ing there are many opportunities for the local profession to partner with foreign investors to help build the Iranian economy.

He estimates the Iranian audit market has the potential to be worth more than $200 mil-lion.

The Audit Organization is also the official standard setter, authorising the audit and accounting standards that the profession must follow. Davani says accounting standards are about 95 percent in line with IFRS.

One critically important role for the audit and accounting profession moving forward is fostering accountability, transparency and responsibility. Davani says accountability in Iran is unfortunately weak as 90 percent of the economy is in the hands of government.

“I believe all governments try to run away from accountability and transparency, espe-cially when they are not accountable.

“However, I think under-developed coun-tries must support accounting and auditing to fight with corruption and develop transpar-ency to stabilise accountable and responsibil-ity,” he says. <

INTERVIEW: GHOLAMHOSSEIN DAVANI

practice in audit firms 44%

do not practice 30%audit organization employees 16%

sole practitioners 10%

source: The Accountant

n IACPA MEMBERSHIP 2009

Breakdown of the IACPA’s 1,600 members

“I think under-developed countries must support accounting and auditing to fight with corruption and develop transparency to stabilise accountability and responsibility”Gholamhossein davani

After the revolutionthe iranian accounting profession has been developing as rapidly as the profession in western countries in recent years. industry figure Gholamhossein davani speaks with Carolyn Canham about the state of the industry, its global successes and ambitions for the future


5


www.WorldAccountingIntelligence.com NEWS

A further delay in the implementation of Sec-tion 404(b) of the Sarbanes-Oxley Act (SOX) for small public companies is a negative move with few benefits, one US firm has warned.

At the same time, the US Institute of Man-agement Accountants (IMA), which 18 months ago was calling for the requirements to be waived or completely redesigned for small public companies, is pleased with the way they have been made more scalable.

The Securities and Exchange Commission (SEC) this month delayed the SOX imple-mentation deadline to fiscal years ending on or after 15 June 2010 for the smallest US pub-lic listed companies – those with public floats of less than $75 million – to allow extra time to design, implement and document internal control systems before auditors are required to attest to their effectiveness.

An assurance partner of a large East Coast firm believes the delay is unnecessary and embarrassing to firms who had encouraged clients to become SOX-ready by the end of this year.

“It did not make much sense to me because most companies have been complying on an internal basis as they have been doing man-agement assessments for the past two years,” Marcum assurance partner-in-charge Gregory Giugliano said. “We also lose a little faith with our clients as we have been encouraging them to start this and then it gets delayed again.”

The exemption period for small compa-nies was previously due to end for fiscal years ending on or after 15 December 2009, which means most small listed companies had either prepared for implementation or chosen to de-register their listing.

The SEC extended the date so it could com-plete a study on whether additional guidance provided to company managers and auditors in 2007 was effective in reducing the costs of compliance.

More relevantBruce Pounder chairs the IMA’s small busi-ness financial and regulatory affairs commit-tee. He said the IMA is happy with the addi-tional guidance provided in 2007 because it made the internal and external audits of internal controls over financial reporting more scalable and risk-based. The guidance helps management and auditors to establish what is important to stakeholders and adjust procedures accordingly.

Giugliano estimates client audit fees increase

by between 20 percent and 40 percent due to SOX implementation, and additional cost can vary from $10,000 to $200,000.

“Clients also have to absorb internal expenses, which can include internal staff time or the use of external consultants,” he said.

The added costs are one reason Pounder said small companies that have not yet com-plied with 404(b) must act now.

“There is going to be a new cost hit, there is no question about it and one of the things that came out in an SEC study released earlier this month about the cost and benefits of 404 compliance is the costs are clearly proportion-ately higher for smaller companies than for larger companies,” Pounder said.

“It is absolutely a bigger issue for smaller companies to think about how they are going to pay for this, where the money is going to come from and how they can make sure this is not a financial disaster.”

Companies preparing for compliance must also evaluate whether they are happy with their current external auditor as the same auditor must be used for 404(b) requirements, Pounder added

“If you are thinking about changing audi-tors, now is the time to do that, before you get into the more involved requirements for 404(b),” Pounder said.

Grant Thornton US national managing partner of public policy and corporate govern-ance Trent Gazzaway also warned companies against delaying implementation any longer.

“An organisation’s efforts to prepare for compliance often uncovers costly inefficien-cies and potentially damaging risks. Compa-nies that wait for another delay could also be delaying opportunities to make enhancements that could improve their bottom lines,” he said.

Gazzaway’s comments follow a recent sur-vey of senior financial executives by Grant Thornton that found 74 percent of respond-ents thought small listed companies should not be forced to comply with Section 404(b).

Marlene Hutcheson, a partner at Las Vegas-based firm De Joya Griffith & Company, believes the extension is positive.

“Some filers were (also) thinking of ceasing being a reporting company because they were not ready but with the extension some of these companies will rethink and may revisit their business plan to incorporate becoming SOX compliant and continue to file,” she said. <

Nicola Maher and Carolyn Canham

Opinion divided over SOX delay for small companies in the US

REGULATION

STANDARDS

EFRAG to fast track financial instruments advicethe European financial reporting advisory Group (EfraG) will fast track endorsement advice on a new global accounting standard for classifying and measuring financial instruments. the decision is based on a European commission request to have a standard in place for listed companies to apply for 2009 year end reports. the international accounting standards board’s project to replace ias 39 financial instruments – recognition and Measurement has three phases and the board plans to issue this first standard early next month. EfraG plans to finalise Ec endorsement advice by 17 november.

STANDARDS

Islamic finance group plans framework updatethe accounting and auditing organisation for islamic financial institutions (aaoifi) plans to update standards on the conceptual framework for financial reporting and accounting for investments for the international islamic finance industry. Exposure drafts were expected to be distributed before the end of october.“aaoifi has developed the updated standards to further support the expansion of islamic finance industry and promote international best practices,” aaoifi secretary general Mohamad nedal alchaar said.

STANDARDS

Mixed response to IFRS in UStwo in five us chief financial officers and senior comptrollers do not believe us companies should ever have to use ifrs, according to new research from Grant thornton us. another 39 percent said us companies should start using ifrs in three to five years. only 7 percent want to start using it immediately. the biannual study surveyed 846 chief financial officers and senior comptrollers from 21 september to 2 october.

STANDARD-SETTING

FASB initiates non-for-profit groupthe us financial accounting standards board is to create a not-for-profit advisory committee (nac). the nac will seek comment from the not-for-profit sector on existing guidance, current and proposed technical agenda projects, and longer-term issues affecting those organisations. the 12 to 15 member committee will be formed from the not-for-profit sector early next year, with its first meeting taking place in the middle of 2010. <

NEWS BRIEFS


6


www.WorldAccountingIntelligence.comREGION ROUND-UP

• American Institute of Certified Public Accountants (AICPA) president and chief executive Barry Melancon has told the US President’s Economic Recovery Advisory Board that a comprehensive tax reform is needed.

“The dynamic American economy is rebounding slowly and, we believe, is bur-dened by an unnecessarily cumbersome and somewhat outdated income tax system,” Melancon said.

“In particular, we see significant problems for small businesses arising from the increas-ing complexity of the tax law.”

The AICPA said the US Congress is likely to take up tax reform as a major legislative challenge beginning in January.

• The US Federal Accounting Standards Advisory Board (FASAB) has issued a new standard for estimating the historical cost of general property, plant and equipment.

Statement of Federal Financial Account-ing Standards (SFFAS) 35 amends SFFAS 6 and 23 and clarifies that reasonable esti-mates of original transaction data historical cost may be used to value general property, plant and equipment.

The FASAB is responsible for setting accounting standards for the US Federal Government.

• The national average salary for US finance and accounting positions is expect-ed to decline less than 1 percent next year,

according to a survey from recruiters Ajilon.

Chief financial officers and treasurers are among the positions that will witness a sharp wage decrease, with the national aver-age salary expected to drop almost 8 percent next year, compared with 2009.

The survey was compiled by combin-ing national salary data from hundreds of Ajilon’s staff recruiting for finance and accounting positions at companies in 75 major markets across North America.

• The US Public Company Accounting Oversight Board (PCAOB) has changed the effective date of new rules that require reporting by registered public accounting firms and provide for succeeding to the reg-istration status of a predecessor firm.

The postponement will allow the PCAOB to resolve technical issues related to deploy-ing its new online system for processing and publishing filings on the new forms.

It will not affect the timing of the first annual reports required from registered firms, which will still be due on 30 June 2010 for the 12 months ending 31 March 2010.

• Almost three-quarters of US execu-tives want the US Securities and Exchange Commission (SEC) to approve its proposed IFRS road map or a modified version of it, according to a survey by Deloitte US.

The study found 51 percent of respond-

ents thought the SEC should approve the proposed road map but consider pushing back the mandatory deadline by a year, and 19 percent believe the SEC should approve its proposed road map “as is”.

Opinions were split on the approach to convergence.

Thirty-nine percent of respondents want-ed the International Accounting Standards Board and Financial Accounting Standards Board to achieve as much convergence as possible between now and 2011, and then focus on IFRS conversion.

The same number wanted the two groups to extend the convergence plan over the next 5 to 10 years.

• More than 47 percent of Canadians who hold the chartered financial analyst designa-tion are not very confident that they have a full understanding of what the impact of IFRS will be on the companies they invest or follow, according to a survey by PricewaterhouseCoopers Canada. Twenty percent were not at all confident.

Canada is due to complete its transition to IFRS by January 2011. <

• The Hong Kong Institute of Certified Public Accountants (HKICPA) will continue to liaise with Hong Kong’s Financial Report-ing Council (FRC) and Ernst & Young (E&Y) during investigations into the Big Four firm’s auditing of Akai Holdings.

Last month, Hong Kong police searched E&Y’s local offices and seized original work-ing papers in connection with the suspected forgery of Akai’s audit documents.

The Big Four firm was in court last month facing allegations it was negligent in its audits of Akai from 1997 to 1999.

E&Y settled with the liquidator of the Chinese consumer electronics company for an undisclosed amount and suspended one of its partners after finding some of the docu-ments in the audits of Akai could “no longer be relied on”.

The HKICPA said once sufficient evidence emerged from the FRC and police investiga-tions to show that institute members may have been involved in the falsification of

documents, it would initiate its disciplinary process.

• The Korean Institute of Certified Pub-lic Accountants will train accounting staff at central government agencies and public organisations as part of an agreement with the Ministry of Strategy and Finance.

The agreement was signed after Korea adopted accrual accounting and double-entry bookkeeping for governmental accounting on 1 January 2009.

The institute said more than 1,000 people have signed up for the training but due to budget constraints, only 740 will be able to participate.

They include accounting personnel from 48 major government agencies.

• New Zealand has become one of the first countries to apply the full set of clarified International Standards on Auditing (ISAs), according to the local professional account-

ancy body. For audits of financial statements covering periods beginning on or after 1 October 2009, auditors complying with New Zealand auditing standards will also be able to assert compliance with ISAs.

New Zealand Institute of Chartered Accountants general manager for standards and advocacy Bruce Bennett said this change will complete a process of strengthening auditing and financial reporting in New Zea-land that began in 2005.

“Over the past four years, we have been progressively adopting the international standards and educating our members on these new standards,” he said. <

asia -pacific

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www.WorldAccountingIntelligence.com REGION ROUND-UP

• Supervision of the financial sector in Europe is set to be revamped through the for-mation of a series of new regulatory organi-sations. The EC has adopted draft legisla-tion that aims to reinforce financial stability throughout the EU, identify systematic risks at an early stage and foster cohesion and co-operation in emergency situations.

The legislation will create a new European Systemic Risk Board (ESRB) to detect risks to the financial system as a whole.

It would also set up a European System of Financial Supervisors, composed of national supervisors and new authorities to oversee the banking, securities, insurance and occu-pational pensions sectors.

Three new European supervisory authori-ties will be created by transforming existing committees. The Committee of European Banking Supervisors will become the Euro-pean Banking Authority, the Committee of European Insurance and Occupational Pensions Committee will become the Euro-pean Insurance and Occupational Pensions Authority and the Committee of European Securities Regulators will become the Euro-pean Securities and Markets Authority.

In addition to assuming the existing func-tions of the committees, the new authorities will be responsible for developing proposals for technical standards; resolving cases of disagreement between national supervisors, where legislation requires them to co-operate or agree; and contributing to ensuring con-sistent application of technical community rules.

• The UK Audit Practice Board (APB) has issued updated guidance on the auditing of complex financial instruments. The updated practice note (PN) 23 modernises an earlier version created in 2002.

It is aimed at assisting auditors address current considerations that are relevant in the audit of financial statements of entities that use complex financial instruments.

The guidance widens the scope of PN 23 to cover other complex financial instruments, as well as derivatives, as many of the audit considerations are the same, the APB said.

• A recent survey of UK accountants found 86 percent regularly work past normal work-ing hours and 52 percent do so every day.

The study, by online accounting provider e-conomic, also found 38 percent of respond-ents regularly work past 10pm, and 22 per-cent of those that have children said it is quite normal for them to not get home in time to see their children before bedtime.

The most popular response when asked what single thing would most improve their work life balance was ‘less work for a higher margin’ and 28 percent thought they were over-worked and under-paid.

The e-conomic survey was conducted this month among 2,000 accountants.

• Des Hudson has been appointed chair-man of the Taxation Disciplinary Board by the Chartered Institute of Taxation (CIOT) and the Association of Taxation Technicians. Hudson is currently chief executive of the Law Society of England and Wales and was previously chief executive of the Institute of Chartered Accountants of Scotland. His four-year term begins on 1 November 2009.

• There is no case for any significant changes in the UK’s governance rules in the wake of the financial crisis, according to a recent study by the Institute of Chartered Accountants of England and Wales (ICAEW) Foundation.

The report, Getting it Right, found that over the past few years more effort has been made to strengthen risk identification proc-esses and ensure board committees spend more time overseeing risk management.

Most of the non-financial company boards are satisfied that their risk management is working well thus there is no need for new governance structures and processes.

• The Institute of Chartered Accountants in England and Wales has launched a register that is intended to give courts greater confi-dence in the evidence presented by members of the accounting profession. The forensic accountant and expert witness accreditation scheme was developed in response to pres-sure from the UK Government for improved credibility of evidence presented to the legal system.

• The UK Financial Reporting Council (FRC) has updated guidance to assist direc-tors of UK companies when making assess-ments of going concern. The guidance is based on three principles: the process direc-tors should follow when assessing going con-cern; the period covered by the assessment; and the disclosures on going concern and liquidity risk.

The guidance takes into account feedback from market participants on a series of docu-ments published by the FRC in the past 12 months. <

• Claims the Indian government has tightened its control over the Institute of Chartered Accountants in India (ICAI) and diluted the power of the institute’s president have been refuted by the institute.

Earlier this month, Indian media reports suggested one rule change, approved by the ICAI’s financial committee, would require all financial issues at the ICAI to be cleared consensually by members of the committee. The committee is made up of three govern-ment nominees, the president and the vice-president.

Previously, the ICAI president had the authority to approve spending. The ICAI said there has been no change in the com-

position of the finance committee since last year. The rumours of efforts to curb the ICAI presidential powers follow criticism from ICAI past president Sunil Talati about reckless spending by current ICAI president Uttam Agarwal. Last month, Talati called for a rethink of the extensive powers granted to ICAI presidents when they take office.

• The Institute of Chartered Accountants in England and Wales (ICAEW) and the Institute of Chartered Accountants of Bang-ladesh (ICAB) have signed a memorandum of understanding (MoU) to work together to develop the accounting and auditing profes-sions in Bangladesh. The two institutes will

continue their work to develop a new ICAB qualification, look at examination require-ments allowing members of one body to access membership of the other, co-operate on developing membership support and liaise on technical matters. The agreement between the two bodies was signed on 26 October by ICAEW president Martin Hagen and ICAB president Nasir Ahmed. <

afric a, MiddlE Eas t, south asia

EuropE


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www.WorldAccountingIntelligence.comFEATURE: TAIWAN

taiwan’s accounting profession has entered a challenging period follow-ing the recent announcement of a timetable for the adoption of IFRS

and an approaching deadline for accounting firms to decide their public liability status.

New standards and changes in tax laws are expected to generate additional work for accountants, yet there is increasing com-petition among the large number of small practices due to a trend for manufacturing clients to move operations out of Taiwan.

The Big Four and mid-sized accounting firms are poised to benefit from improved relations between Taiwan and Mainland China following the election of the Taiwan Nationalist Party (Kuomintang) president Ma Ying-Jeou last year on a pro-growth platform.

Ma, a Hong Kong-born former mayor of Taipei, won votes with plans for economic expansion after years of relatively slow eco-nomic growth under former president Chen Shui Bian, who failed to develop co-opera-tion with Beijing.

Warming relations between Taiwan and China have lifted Taiwan’s economic out-look since the beginning of this year and given the local stock market an important boost.

Taiwan’s estimated 2,100 accountants could see a 25 percent increase in demand for their services within the next three years, according to the local newspaper Economic Daily News. The report forecasts a further 5 percent increase during this period if another 250 companies list on the Taiwan Stock Exchange in response to government tax incentives and other initiatives to per-suade Taiwanese companies in China to list in Taiwan.

Big Four dominanceThe Big Four audit about 84 percent of Tai-wan’s public listed companies, according to the National Federation of CPA Associa-tions of the Republic of China (NFCPAA). Medium-sized accounting firms audit the remainder as local regulations specify audit firms must employ a minimum of three CPAs to audit a public company.

Big Four firms employ about 18 percent of CPAs in Taiwan. Second-tier accounting firms employ about 15 percent of CPAs and sole proprietors account for the remaining 67 percent.

Taiwan’s planned adoption of IFRS will present accounting firms, especially sole practitioners, with new challenges.

In May, Taiwan’s Financial Supervisory Commission (FSC) announced a two-phase timetable for listed and non-listed companies to adopt IFRS.

Local companies listed on the Taiwan Stock Exchange or the Gre Tai Securities Market and financial institutions under FSC’s supervision must adopt IFRS by 2013.

Non-listed companies, credit co-operatives, credit card companies and insurance compa-nies must adopt IFRS by 2015.

The Taiwanese government previously hes-itated on IFRS adoption due to uncertainty over whether the US would adopt the interna-tional standards.

The Big Four encouraged the government to proceed due to increased foreign shareholding in Taiwanese companies, which has resulted in demands for higher standards of financial reporting. However, small businesses opposed IFRS adoption, saying they do not have the resources to meet the requirements.

“IFRS has recently become a hot topic between the government, academics and prac-ticing accountants,” says Roger Shih, an inter-national affairs and audit committee member at Taipei Provincial CPA Association, one of

the three bodies that form the NFCPAA.Amendments to Taiwan’s Certified Public

Accountants Law that were passed on 1 Janu-ary 2008 are expected to boost the quality of accounting services and bring Taiwanese accounting rules in line with international standards.

One amendment aims to ensure auditors play their part in preventing corporate fraud similar to that which occurred in the collapse of hardware manufacturer Procomp Infor-matics in 2005 and the Rebar Group in 2006-2007.

But the most important change clarifies accounting firm liability. This could cause a wave of mergers among small and medium accounting firms as they seek to achieve the economies of scale needed to operate viable practices. These mergers would be a new phe-nomenon in Taiwan where most businessmen want to retain their autonomy.

Final details of the amendments are still being sorted out between the FSC and NFCPAA, but the revised law is expected to have a greater impact on mid-tier and small firms than the Big Four.

“Under the new CPA Law, accounting firms are allowed until the end of 2009 to decide which status they will take,” Shih remarks. “Accounting firms are waiting, no one has made any announcements yet. They are think-ing of their taxation exposure as they could be liable to pay business tax. At present account-ants just pay personal income tax.”

The NFCPAA is currently campaigning for the government to waive business income tax.

Neighbourly relationsMeanwhile, Taiwan’s policy of developing closer relations with China is encouraging the growth of closer ties between the Taiwanese and Chinese accounting professions.

This process is expected to continue as economic co-operation between Taiwan and the mainland expands. An economic co-oper-ation agreement between the two countries is due to be signed this year.

The government is also reviewing Taiwan’s taxation system, including corporate tax rates and incentives. Corporate tax will be reduced

Warming relations bring promisetaiwan’s accounting profession is beset by challenging regulatory changes and fierce competition. but David Hayes discovers improved relations with china could lead to a more fertile business environment and new opportunities

“At present it is not possible for Taiwanese and mainland accounting firms to join or merge, but some accounting firms in Taiwan and China have co-operation arrangements for client referral, information sharing and other matters”roger shih nfcpaa


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www.WorldAccountingIntelligence.com FEATURE: TAIWAN

from 25 percent to 20 percent from 1 January 2010 as part of government efforts to attract investment to Taiwan and encourage Taiwan-ese companies to list their China operations in Taiwan.

Cross-border tiesThe Big Four and some mid-tier account-ing firms in Taiwan and China already offer cross-border services to clients with business activities in both territories. Development of ties by Taiwan and China’s accounting professions is one of the topics discussed by NFCPAA and its CPA association members during regular meetings with the Chinese Institute of Chartered Public Accountants (CICPA) and the provincial CPA organisa-tions across China.

“At present it is not possible for Taiwan-ese and mainland accounting firms to join or merge, but some accounting firms in Taiwan and China have co-operation arrangements for client referral, information sharing and other matters,” Shih explains. “Some Tai-wanese accounting firms doing this are linked to a mid-tier international practice.”

The Taiwanese government has no restric-tion on Taiwanese accounting firms’ relations with mainland Chinese accounting firms but

the Taiwanese government does not accept Chinese accounting firms’ audit reports except from the Big Four, Shih says.

Of Taiwan’s estimated 2,100 CPAs, about 1,800 work in the capital, Taipei. Most of the remaining 300 are in Kaohsiung.

Almost 95 percent of CPAs are thought to be in public practice. The Ministry of Finance, Ministry of Justice and other gov-ernment departments employ a combined total of about 100 accountants. Relatively few qualified CPAs work for industrial or commercial organisations.

As a large number of manufacturing com-panies have moved operations from Taiwan to China during the past decade, the account-ing profession’s workload has declined.

“There is an oversupply of accountants in Taiwan,” Shih notes.

“Sole practitioner accounting firms now do various jobs – they consult for private compa-nies, do tax work, also personal finance, teach in schools and other things.

“They do not specialise in one area. They do many things.”

Another reason competition among accounting practices has intensified is accountants in Taiwan share the accounting market with bookkeeping specialists who do

bookkeeping, tax work and accounting.“They cannot do audit but they can do

consulting for tax and accounting. Their market share is growing as they are cheaper than accountants,” Shih explains.

Many bookkeepers are early retirees from government departments who have good connections with government agencies and find it easy to attract private clients.

“Their clients think they can solve prob-lems for them because of their connections in government. Since 2003 they must be licensed. They were not licensed before,” Shih says.

Qualification requirementsMost prospective accountants study account-ing at local universities. About 40 universities offer accounting courses. Graduates then join an accounting firm for a minimum of two years in an accounting related position to get a CPA licence. The final CPA exam pass rate is about 16 percent each year.

With a pass rate that low, the profession may be over staffed and under-worked, but at least there are no floods of new entrants.

The profession will be looking forward with hope that the improved business envi-ronment will give them room to grow. <

The Taiwanese accounting profession is represented by three associations operat-ing under an umbrella federation. There are local government plans to consolidate this into one body, but this is receiving opposi-tion from China.

The umbrella organisation is the Nation-al Federation of CPA Associations of the Republic of China (NFCPAA), which was founded in Nanjing, China, in 1946.

The three groups the NFCPAA is com-prised of are the Taiwan Provincial CPA Association, Taipei City CPA Association and Kaohsiung City CPA Association.

CPA members pay an annual fee to the associations, which in turn fund the NFCPAA. There is no government fund-ing. The three associations also appoint del-egates to the NFCPAA’s committees.

The Taiwan Provincial CPA Association was set up in 1950 and covers the whole of Taiwan including the capital, Taipei, in the north and the second-largest city, Kaohsi-ung, in the south.

Following two decades of economic development that caused rapid growth in Taipei and Kaohsiung, Taipei CPA Associa-tion was set up in 1970 followed by Kaoh-

siung CPA Association in 1979. Practising CPAs must register with two of the three associations, which allows them to practice either in Taipei and other areas excluding Kaohsiung, or Kaohsiung and other areas excluding Taipei.

CPAs must register with all three associa-tions to practice throughout the whole of Taiwan.

The role of NFCPAA includes oversee-ing the education of accountants and acting as a communications channel between the accounting profession and the government.

The associations provide staff for serv-ice centres in the offices of the Ministry of Finance, the Ministry of Economic Affairs, the Taipei and Kaohsiung national tax administration offices, and the main nation-al tax administration offices throughout Taiwan.

Practising accountants are regulated by the Commercial Department of the Ministry of Economic Affairs. In addition, the gov-ernment’s Financial Commission controls CPAs that audit listed companies. Conse-quently, some accountants are regulated by two organisations.

The Taiwanese government has plans to

reorganise the accounting profession’s cur-rent structure, replacing the NFCPAA and three CPA associations with a single unified body representing Taiwan’s accounting pro-fession. However, this remains stalled due to opposition from Beijing.

“It is impossible to merge as we have to have relations with China’s accounting pro-fession and China wants to deal with three local accountant associations in Taiwan and not one island-wide body,” explained Roger Shih, an international affairs and audit com-mittee member at Taipei Provincial CPA Association.

Staying in favour with the Chinese profes-sion is important as the Taiwanese organisa-tions undertake joint activities with the Chi-nese Institute of CPAs (CICPA) and want this to continue, Shih said.

The NFCPAA meets with the CICPA annually and also meets regularly with CICPA provincial associations.

“Most of the issues we discuss are how we should co-operate in business to serve Taiwanese companies in China; also, the tax situation, labour laws, customs regulations and other matters, and their impact on busi-ness,” Shih said. <

n TAIWAN

The changing shape of the profession


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www.WorldAccountingIntelligence.comCOUNTRY SURVEY: UNITED KINGDOM

the recession has dominated the activi-ties of the UK’s five major professional services bodies for the second year in a row.

But while the tough economic times have dealt some challenges to the profession, they have also provided the institutes with increased opportunities to develop public policy agendas and make their voices heard on issues relating to business and the economy at large.

All five institutes have international pres-ences and the Association of Chartered Cer-tified Accountants (ACCA), the Chartered Institute of Management Accountants (CIMA) – and increasingly the Institute of Chartered Accountants in England and Wales (ICAEW) – are more global than national bodies.

Consequently, their international activities have featured prominently in The Account-ant’s UK country surveys for many years. This year, however, The Accountant will feature a global survey in December (issue 7073) so this month’s report will focus on activities and issues affecting the UK.

Higher public awarenessThe institutes report that one benefit of the eco-nomic crisis has been increased public aware-ness of the importance of professionalism and the value of professional qualifications.

The Chartered Institute of Public Finance and Accountancy (CIPFA) was the only insti-tute whose UK membership figures dropped compared with last year’s survey – down a fraction of a percent to 13,281.

CIMA reported UK membership growth of 4 percent to 57,162 and the ACCA and the Institute of Chartered Accountants in Scot-land (ICAS) grew their UK membership by 3 percent to 61,303 and 15,304 respectively. The ICAEW’s UK membership grew by half a percentage point to 112,738.

ICAEW chief executive Michael Izza notes that in addition to the institute’s membership ending 2009 at an all-time high, resignations and members not paying fees were at an all time low.

“In an environment where I am sure a lot of people were looking very hard at whether or not they wanted to pay their fees, they voted with their wallets to continue,” Izza says.

“When people are concerned about their jobs they obviously want their professional qualification looking nice and shiny, but the other thing I take away from this, and from all the discussions that I have with members, is they are pleased with what we are trying to do strategically in terms of making this trans-formation from being a national to an interna-tional body and raising our profile.”

Mixed resultsThere were more mixed results from the insti-tutes in terms of student growth in the UK. The ICAEW experienced very strong growth, up 12 percent to 14,560.

Izza says there is more demand than ever from students and the critical constraint is places available.

“In 2008, we had about 9,000 graduates who approached us who we were unable to help find spaces and it won’t be any different this year,” he explains.

Another positive for the ICAEW this year was Ernst & Young UK began training with it again. For several years the Big Four firm has been putting its trainees through the ICAS qualification.

“[Ernst & Young] are at the moment using both the ICAEW and ICAS and we will have to see how that goes moving forward. But we were very pleased that they took the decision and it is clearly a positive move for us in a challenging year,” Izza says.

Ernst & Young now has more than 50 UK employees training with the ICAEW. The network also trains with the ICAEW in some overseas locations. The other UK Big Four firms all train with the ICAEW.

ACCA UK student numbers grew 3 percent to 71,689 since last year’s survey, while the other three organisations experienced drops. CIMA’s UK student numbers were down less than 1 percent to 53,836, CIPFA was down 3 percent to 2,836 and ICAS was down 7 per-cent to 3,702.

The Accountant’s UK surveys have shown a slight decline in CIPFA student numbers each year since 2006 but chief executive Steve Freer says this does not represent a decline in demand for the qualification.

He explains that while fluctuations do

reflect the number of people who are signing on as the students; they also reflect the number of people “dropping off the other end”.

“Sometimes our numbers go down simply because we have had a set of excellent exami-nation results,” he says.

Freer says new student registrations are up this year compared with last year.

“In the current climate we regard that as a pretty positive result,” he adds.

Freer says CIPFA’s member numbers are also complicated as while they reflect the number of new people qualifying, retirements must also be taken into account and these reflect historical admittance.

“Forty years ago was a big period of growth for CIPFA so although we have been doing very well with members qualifying, that is competing with a strong outflow,” Freer explains.

ICAS chief executive Anton Colella calls the drop in ICAS student numbers a “sign of the times”, while CIMA chief executive Charles Tilley says there has been fewer new students due to the financial crisis.

“When you look at the levels of unemploy-ment in the UK and the speed with which that is going up, although I’m not being compla-cent about [CIMA’s new student numbers], I think they are okay,” he says.

n UK

UK membership, 2005-2009


More of the sameit’s all about the financial crisis for the uK’s professional accounting bodies again this year, and no doubt that topic will remain good for at least the next 12 months. Carolyn Canham discovers the crisis is affecting the institutes in different ways, but all are confident the relevance of their qualifications remains true


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www.WorldAccountingIntelligence.com COUNTRY SURVEY: UNITED KINGDOM

CIMA, in partnership with professional education provider BPP, has initiated a new programme to assist recent graduates who have been unable to find full-time work.

Called Yes You Can, the programme allows students in the UK who graduated from uni-versity at the end of the most recent academic year and are working less than 20 hours a week to undertake CIMA training and exams at half the normal price.

The programme represents a departure from normal proceedings in the UK where candi-dates for the CIMA programme traditionally had to be working in a finance function.

Yes You Can is one of many programmes and initiatives the UK institutes have intro-duced to assist students and members through the recession. For example, both the ACCA and the ICAEW set up micro-websites. ACCA UK director Wyn Mears says the ACCA’s offering looks to guide members through the challenges of being made redundant and the pressures on their businesses as a result of los-ing clients and contracts.

CIPFA is a unique organisation in the UK, being the only professional accountancy body that specialises solely in the public sector. Freer says the institute found itself in a particularly interesting position this year as public finances have “been in very sharp focus”.

Most CIPFA members work in public sector organisations and are anticipating significant funding reductions following next year’s UK general election, irrespective of the outcome.

To help members deal with this, CIPFA has been developing a guide that looks at a number of different economic scenarios, con-sidering how long the recession may last, how deep it may be and what impact these factors could have on public finances.

Managing through the crisisThe institute has also been trying to identify the levers organisations can pull in order to effectively manage through what Freer says is going to be the “most difficult period for public sector organisations in our lifetime, cer-tainly in our working lifetime”.

The financial crisis has provided the insti-tutes with greater opportunity to enter public debates.

Izza says that as the crisis unfolded in the past 12 months, the ICAEW has been asked at various stages to get involved. This has includ-ed evaluating the crisis as it unfolded, suggest-ing corrective actions and justifying what the profession did or didn’t do at various stages.

An example of something the profession did well was demonstrate an improvement in audit quality and financial reporting fol-lowing the scandals at Enron and Worldcom, while one area it could improve is its ability to “see into the future”, particularly for financial institutions where situations can change very quickly, Izza says.

“In the UK, the audit profession has offered to talk to the financial regulators to see how additional things might be added to the audit that could perhaps be more helpful,” Izza says, adding that these discussions are ongoing.

“Nothing is happening very quickly,” he continues. “One of the things we are con-cerned about as a professional body sitting here in the City of London, is that nine months ago there were lots of discussions taking place about the changes that needed to be made, the lessons we must learn from the financial crisis, but all of a sudden we seem to be going back to business as usual before any of these changes have come into effect.

“That is very worrying because people who

are older than I am and who have seen this kind of thing before will say that the seeds of the next crisis are sown in the solutions to the last.”

The ICAEW developed two new faculties in the past two years, the Financial Services Faculty and the Financial Reporting Faculty. Izza says these groups “really came into their own” in terms of contributing to debate.

“I would not have liked to have been in the position we found ourselves in 2009 if we hadn’t had those groupings constituted with the member support around them because we were being asked to comment in very short order on some quite technical things,” Izza says.

Other activities the ICAEW undertook to support members and students hit by the cri-sis included working with HR departments to support those being made redundant, and in the case of students, finding them new roles as quickly as possible.

Another member request the ICAEW addressed was raising awareness that banks were changing the rules of lending to busi-nesses. The institute prepared a report on financing, concentrating specifically on SMEs, which it presented to the UK government and the Bank of England.

ICAS too has helped members deal with the changed lending environment. The institute supported members in practice who had to help their clients learn a new language of lending, and supported members in business to get a bet-ter understanding of the new lending reality.

The public policy agenda for the ACCA during the past 12 months included pushing for improvements to regulation surrounding governance. A specific issue the institute com-mented on was the Walker Review of Corpo-rate Governance of the UK Banking Industry, which the ACCA did not think addressed the root causes of bank failure. Mears says further

The financial crisis has had a variety of impacts on UK professional services insti-tutes’ continuing professional development (CPD) offerings.

Chartered Institute of Management Accountants (CIMA) chief executive Charles Tilley said CIMA has experienced less take-up of its post-qualification CPD training.

“[While this] is disappointing, it is one of the things that always happens. Training is cut back before many other things, it is one of the easier cuts,” Tilley said.

The CPD members are required to complete to retain CIMA membership is assessed on an annual basis so Tilley can-not say whether members are fulfilling their

requirements as yet, but he said he suspects more self study is being done.

Alternately, the Institute of Chartered Accountants in Scotland has reported it is experiencing more demand for CPD cours-es relevant to the immediate issues mem-bers are facing.

Examples of relevant CPD include refreshing the CA training of members working in the financial services sector, who have faced the prospect of changing or potentially losing their jobs.

Institute of Chartered Accountants in England and Wales chief executive Michael Izza said the ICAEW has not noticed any drop in members undertaking CPD, or change in demand for CPD. <

n CONTINUING PROFESSIONAL DEVELOPMENT

CPD in the spotlight

n UK

UK student membership, 2005-2009


4


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changes to governance need to be investigat-ed. The ACCA believes it will take regulatory support and change to improve governance procedures.

Governance issues were also high on CIMA’s agenda and Tilley says there are three governance issues that need to be addressed going forward.

First, there should be consistency in govern-ance codes around the world; second, if there is principles-based governance, what sanctions are there if people don’t follow those prin-ciples; and third, regulators must effectively promote what good governance looks like.

Two other important issues the ACCA com-mented on were sustainability and the value of global co-operation and cohesion.

The ACCA has made submissions and cam-paigned on the need for a global solution and shared vision across the globe in the lead up to the Copenhagen Climate Change Summit.

The institute is also pushing for global solu-tions to accounting issues and Mears says the ACCA particularly welcomes the new IFRS for SMEs and the revamped ISAs that emerged from the International Audit and Assurance Standards Board’s Clarity Project.

While use of IFRS is mandatory for listed companies in the EU, non-public interest enti-ties must comply with the Fourth and Seventh Company Law Directives, which are currently under review.

If the EC determines that IFRS for SMEs does not comply with these directives, com-panies could be prevented from using them.

Despite this, the UK Accounting Standards Board has already proposed to introduce IFRS for SMEs in the UK as part of a three-tier reporting system.

The EC is consulting on use of IFRS for SMEs in Europe as part of its review of the Company Law directives and Mears is confi-dent the standards will not be outlawed.

“We think that the EU and its member states will be moving in that direction,” he says.

Education cyclesThe UK institutes are all at different stages of the endless cycle of updating their curricu-lums. CIMA launched an updated syllabus

this year and will be examining it for the first time in May. This process occurs every four to five years and on this occasion between 4,500 and 5,000 people responded to the prelimi-nary consultation.

CIMA also launched a new qualification level. There are now three levels of competen-cies that students can achieve before gaining the full CIMA qualification.

CIMA has also continued to build its Islamic finance offering, which it launched last year. Just this month an Arabic version of the qualification was launched in partnership with Middle East-based accounting body the Talal Abu-Ghazaleh Organization and Tilley says there are now about 500 students study-ing the qualification.

Other CIMA education developments included increased availability of material over the web. Students can now take CIMA’s test of professional competence in management accounting case study four times a year rather than twice, and on two of those occasions they can sit it on a computer.

ICAS is also moving its education more online. Colella explains the Scottish institute has taken a real step into e-enabled learning as part of CA training.

“This meant students are out of the work place less, they have more independent learn-ing,” he says.

Also, for the first time this year, ICAS stu-dents brought their own laptops to their final test of professional expertise assessment. Colella says the institute plans to continue extending e-enabled learning.

The most important development in CIP-FA’s education programme during the past year was the introduction of a new specialist qualification developed jointly with the Asso-ciation of Corporate Treasurers and called the International Treasury and Management Certificate.

The Institute of Chartered Accountants in England and Wales (ICAEW) is convening a meeting next month to investigate ways to help young people from disadvantaged backgrounds apply for internships in large accounting firms.

The endeavour is linked to the Alan Mil-burn report into fair access to the profes-sions, which was published in August this year and makes recommendations on how to open professional careers to as wide a pool of talent as possible.

The report found that the professions are becoming more socially exclusive over time.

One finding relevant to the accounting profession was that 70 percent of finance directors were independently schooled. This was second only to judges (75 per-cent) in terms of profession groups. The UK average is just 7 percent.

ICAEW chief executive Michael Izza

said the internship programme would be for young people who are bright academi-cally, so there would be no question about standards dropping.

“Getting internships can often be about who you know… you can be very bright, but you just don’t know how you get into one of the Big Four,” he explained.

Association of Chartered Certified Accountants UK director Wyn Mears said he hopes the government that takes power after next year’s UK general election will take on board the Milburn report and “hopefully recognise that there is a need to support professional and vocational quali-fications on a par with academic qualifica-tions”.

“It is pretty important in terms of social mobility and providing young people with opportunities to develop their careers and to contribute to business across the UK,” Mears said. <

n DIVERSITY

Addressing access to the profession

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n SECTOR COMPARISON: 2009

Accounting institutes in the UK



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n UKSurvey of accounting institutes: 2009

Chartered Institute of Management Accountants (CIMA) Association of Chartered Certified Accountants (ACCA)

CONTACT DETAILS

address 26 chapter street, london, sw1p 4np 29 lincoln's inn fields, london, wc2a 3EE

telephone +44 (0)20 7663 5441 +44 (0)20 7059 5000

fax +44 (0)20 7663 5442 +44 (0)20 7059 5050

E–mail – [email protected]

website www.cimaglobal.com www.accaglobal.com

KEY FIGURES

president aubrey Joachim (June 2009 – June 2010) brendan Murtagh

Executive director charles tilley (1) helen brand

annual turnover £42.6 million (2) £104.8 million (2)

MEMBER DETAILS

Number Percent Number Percent

total qualified members 76,368 100 134,748 100

Qualified members who are women 22,603 30 57,864 43

Qualified members based abroad 19,206 25 73,445 54

Qualified members 29 and under 58 (3) 1 13,067 10

Qualified members aged 30-39 42,804 (4) 56 56,384 42



Qualified members over 65 6,890 9 6,041 4

number of students 91,524 100 347,281 100

number of students who are women 40,927 45 172,096 50

number of students based abroad 37,688 41 275,592 79

Qualified members in public practice 1,368 2 35,895 27

Qualified members in business 52,930 69 74,541 (17) 43

Qualified members in public sector 14,806 19 13,317 10

Qualified members who are retired/honorary members 7,264 (7) 10 – –

Qualified members in other categories – – 10,995 (18) 20

MEMBERSHIP FEES

annual membership fee fellow £221; associate £210

£181

annual membership fee for those with practising certificates

– –

annual membership fee for non active members/retired, honorary

£44 –

annual membership fee for student members £90 £42

MUTUAL LINKS

regional/international affiliations cMa canada (8); icaa (9); cpa australia; aicpa (10); hKicpa (11); iiM calcutta (12); icMab (13); cicpa (14); iaMi (15); icwai (16)

see box (page 14)

overseas bodies with which reciprocal agreements are in place

cMa canada (8); icaa (9); cpa australia; aicpa (10); hKicpa (11); iiM calcutta (12); icMab (13); cicpa (14); iaMi (15); icwai (16)

see box (page 14)

notes: u/a = unavailable; (1) chief executive; (2) december 2008 financial year-end; (3) figure for members aged 25-34; (4) figure for members aged 35-44; (5) figure for members aged 45-54; (6) figure for members aged 55-64; (7) retired; (8) certified Management accountants canada; (9) institute of chartered accountants in australia; (10) american institute of certified public accountants; (11) hong Kong institute of certified public accountants; (12) indian institute of Management calcutta; (13) institute of cost and Management accountants of bangladesh; (14) chinese institute of certified public accountants; (15) institute akuntan Manajemen indonesia; (16) institute of cost and works accountants of india; (17) includes 16,467 members in financial services; (18) other includes 10,556 unemployed and 439 no data. source: The Accountant


14



“We are currently recruiting the first group of students to go through that and we are get-ting very a good take-up,” Freer says.

The ICAEW recently launched a forensic qualification that can be studied post-ACA. It is also developing a feeder qualification for insolvency. Neither of the qualifications were developed as a response to the financial crisis, but the introductions have been timely.

“Anyone from an insolvency background or corporate recovery is very busy at the moment and they will be very busy for another three or four years because many of the businesses that are struggling today are being kept alive by the banks,” Izza says.

“[The banks] will decide when they want to pull the plug and history tells us the peak time for insolvencies may well come three or four years post the end of the crisis.”

The ACCA has not made any education changes during the past year but plans to con-sult on some developments over the next 12 months. It cannot reveal any further details at this stage.

Other critically important developments within the next 12 months are political move-ments within the UK and Europe.

A UK general election must be held by next May and Izza, for one, is predicting a change in government. A high level of public dissatis-faction means that is a safe bet.

Mears says major political changes always impact on ACCA members, but he does not imagine major differences depending on who takes government.

“There aren’t that many differences these days between the fundamental approaches of the parties to business,” he explains.

The Conservatives, who are currently the favourites to form the next government, have announced plans to make changes to the UK banking regulator, the Financial Services Authority, and also revaluate the role of the FRC. Mears says he hopes public consulta-tions will precede any changes.

“It is not a decision that can be taken lightly and it is certainly not something that should be rushed into,” he explains.

Political changes are also afoot in Europe, as the member states attempt to push through the Lisbon Reform Treaty and jostle for com-missioner positions. The post with potentially the most impact for the accountancy pro-fession is the Internal Markets and Services Commissioner.

Mears suggests the ACCA’s role is becom-ing ever more important in European policy and politics because of its widening influence in some of the emerging states.

“We now have offices in countries such as Poland, the Ukraine, the Czech Republic, Romania and so on,” he explains.

“We are making a contribution for the best

interests of our members, employers and stu-dents from so many different countries from within the EU, so I think we have to be listened to... It is not just a UK organisation speaking, we are reflecting opinion for business and for accountancy across the whole EU.”

The ACCA’s growing presence in Central and Eastern Europe is set to aid what Mears predicts to be steady but encouraging growth in coming years for the institute.

Freer predicts a tough year for CIPFA mem-bers but he feels confident about their ability to “step up to the plate”.

“Balancing the budget is going to be a big challenge and an absolute top priority so accountants are going to be in the spotlight,” he says.

A second challenge will be implementing some of the cuts in public services, and Freer says it will also be critically important to build the financial capacity of public sector organi-sations so delivering better value for money, economy and efficiency are at the forefront of thinking in every decision.

On a lighter note, CIPFA will also celebrate its 125th anniversary in 2010.

ICAS will be pushing forward with more e-targeted communications and personalised communications with members.

“We will see more e-enabled learning come through, far more of our CPD will be delivered on line. We will see podcasts coming through next year and webinars appearing right across the spectrum of ICAS work,” Colella says.

Tilley predicts 2010 to herald “more of the same”.

“It is continuing to strengthen our individu-al markets, which is primarily about explain-ing the value of the management accountant both to the individual and the employer.”

More of the sameIt is not just CIMA that will be experiencing “more of the same” in 2010. Although predic-tions on the length and depth of the financial crisis vary, the fallout will be felt for years to come and the institutes will be called upon to support their members, students, and the pro-fession at large.

It will also be more of the same in terms of the institutes making their voices heard on public policy both in the UK and abroad, and on advocating the value of their qualifica-tions.

On other issues there is far less certainty. Politics will play a big part, with election out-comes in the UK and commissioner posts in Europe potentially having extensive and long lasting effects.

Many variables are out of the hands of the profession. The institutes must just continue to do what they always do – try and adapt as quickly and effectively as possible. <

n ACCA MUTUAL LINKS

Regional/international affiliations• accountants association in poland• association of accountants and auditors of

armenia• Expert and licensed accountants of romania• botswana institute of accountants*• certified General accountants’ association

of canada• chamber of auditors in the slovak republic• chamber of auditors of the czech republic• chamber of financial auditors of romania• dubai financial services authority• Eastern central and southern african federation

of accountants• Egyptian society of accountants and auditors• Ethiopian professional association of accountants

and auditors• federación argentina de consejos profesionales

de ciencias Económicas• fédération des Experts comptables Européens • hong Kong institute of certified public

accountants • ikatan akuntan indonesia• institute of certified public accountants in ireland• institute of certified public accountants of cyprus*• institute of certified public accountants of Greece*• institute of certified public accountants

of singapore*• institute of chartered accountants of barbados*• institute of chartered accountants of belize*• institute of chartered accountants of Guyana*• institute of chartered accountants of Jamaica*• institute of chartered accountants of sierra leone*• institute of chartered accountants of the

caribbean• institute of chartered accountants of trinidad and

tobago*• instituto Mexicano de contadores públicos• iranian association of certified public accountants• lebanese association of certified public

accountants• lesotho institute of accountants*• Macau society of certified practising accountants• Malaysian institute of certified public accountants• Malta institute of accountants*• Ministry of Economy and finance, cambodia• Kampuchea institute of certified public accountants and auditors• Ministry of finance of the socialist republic of

Vietnam*• tanzania national board of accountants and

auditors• ordre des Experts comptables de tunisie• public accountants Examination council of Malawi*• serbian association of accountants and auditors• singapore institute of certified public accountants • south Eastern European partnership on

accountancy development• swaziland institute of accountants*• ukrainian federation of professional accountants

and auditors• union of accountants of the czech republic• union of chambers of cpas of turkey• Vietnam accounting association• Vietnam association of certified public accountants• Zambia institute of chartered accountants*

notes: * = joint examination scheme partner bodies. source: The Accountant

4


15



n UKSurvey of accounting institutes: 2009

The Institute of Chartered Accountants of Scotland (ICAS)

The Institute of Chartered Accountants in England & Wales (ICAEW)

Chartered Institute of Public Finance and Accountancy (CIPFA)

CONTACT DETAILS

address ca house, 21 haymarket Yards, Edinburgh Eh12 5bh

chartered accountants' hall, po box 433, Moorgate place, london Ec2p 2bJ

3 robert street, london, wc2n 6rl

telephone +44 (0)13 1347 0100 +44 (0)20 7920 8100 +44 (0)20 7543 5600

fax +44 (0)13 1347 0105 +44 (0)20 7920 0547 +44 (0)20 7543 5700

E-mail [email protected] [email protected] [email protected]

website www.icas.org.uk www.icaew.co.uk www.cipfa.org.uk

KEY FIGURES

president douglas nisbet (apr 2009 to apr 2010) Martin hagen (Jun 2009 to Jun 2010) roger latham (to Jun 2010)

Executive director anton colella (1) Michael izza steve freer

annual turnover £15 million (2) £74 million (2) £40.5 million

MEMBER DETAILS

Number Percent Number Percent Number Percent

total qualified members 17,767 100 132,411 100 13,697 100

Qualified members who are women 4,987 28 31,778 24 3,938 29

Qualified members based abroad 2,463 14 19,673 15 394 3

Qualified members 29 and under 2,155 12 23,989 (4) 18 541 4

Qualified members aged 30-39 4,282 24 35,467 (5) 27 2,207 16



Qualified members over 65 2,855 16 18,579 14 1,832 14

number of students 3,736 100 16,165 100 2,885 100

number of students who are women 1,766 47 6,466 40 1,398 49

number of students based abroad 34 1 1,605 1 49 2

Qualified members in public practice 5,094 29 41,047 31 339 2

Qualified members in business 7,311 41 58,260 (8) 44 990 7

Qualified members in public sector 571 3 3,972 3 8,959 65

Qualified members who are retired/ honorary members

183 1 18,537 8 3,134 23

Qualified members in other categories 4,608 (3) 26 10,593 (9) 14 275 2

MEMBERSHIP FEES

annual membership fee Eu residents £382; outside Eu £222 £283 £275

annual membership fee for those with practising certificates

£434 £133 £225

annual membership fee for non active members/retired, honorary

£96 (4) £142 one-off payment for life £275 for retired members; £44

annual membership fee for student members one off payment £794 n/a £151

MUTUAL LINKS

regional/international affiliations ccab (10) fédération des Experts comptables Européens; international federation of accountants; Gaa (16);

ccab (10); cipfa (11); hKicpa (12); cicpa (13); icai (14); icap (15); Gaa (16)

fédération des Experts comptables Européens; international federation of accountants;

overseas bodies with which reciprocal agreements are in place

saica (18) icai (14); cica (17); saica (18); nZica (19); icaa (20); icaZ (21); icas (22)

cMa canada; cpa australia

notes: u/a = unavailable; (1) chief executive; (2) december 2008 financial year-end; (3) other includes 3,308 retired, 537 career break and 763 unknown; (4) figure for members aged 25-34; (5) figure for members aged 35-44; (6) figure for members aged 45-54; (7) figure for members aged 55-64; (8) industry and commerce; (9) other includes unemployed, taking a career break, undertaking study, on maternity leave; (10) consultative committee of accountancy bodies; (11) chartered institute of public finance and accountancy; (12) hong Kong institute of certified public accountants; (13) chinese institute of certified public accountants; (14) institute of chartered accountants in ireland; (15) institute of chartered accountants of pakistan; (16) Global accounting alliance; (17) canadian institute of chartered accountants; (18) south african institute of chartered accountants; (19) new Zealand institute of chartered accountants; (20) institute of chartered accountants in australia; (21) institute of chartered accountants in Zimbabwe; (22) institute of chartered accountants in scotland. source: The Accountant


16



INDEXAFRICA, THE MIDDLE EAST AND SOUTH ASIAaudit organization, iran 4dayarayan auditing & financial services 4institute of chartered accountants of bangladesh 7institute of chartered accountants of india 3, 7iranian accounting association 4iranian association of certified public accountants 4iranian institute of certified accountants 4ASIA-PACIFICchinese institute of cpas 9financial reporting council, hong Kong 6financial supervisory commission, taiwan 8-9hong Kong institute of certified public accountants 6Kaohsiung city cpa association 9Korean institute of certified public accountants 6national federation of cpa associations of the republic of china 8-9new Zealand institute of cas 6 taipei provincial cpa association 8-9taiwan provincial cpa association 9EUROPEassociation of chartered certified accountants 10-15auditing practices board uK 3, 7chartered institute of Management accountants 10-15chartered institute of public finance and accountancy 10-15committee of European securities regulators 3European commission 1, 3European financial reporting advisory Group 1, 5European systemic risk board 7European system of financial supervisors 7federation of European accountants 2institute of chartered accountants in England and wales 2, 3, 7, 10-15institute of chartered accountants in scotland 10-15NORTH AMERICA AND THE CARIBBEANamerican institute of certified public accountants 1, 6financial accounting standards board 3, 5Grant thornton us 5institute of Management accountants 5public company accounting oversight board 1, 6us securities and Exchange commission 1, 3, 5, 6WORLDWIDEaccounting and auditing organisation for islamic financial institutions 5international accounting standards board 1, 3, 5international audit and assurance standards board 3international federation of accountants 4pricewaterhousecoopers 3trucost 2

INDEX

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● RSM expands in North Africa and Brazil ● Poland survey: Firms come through the worst ● Deloitte UK leader John Connolly to step down

● Spain survey: Extreme pressure as firms battle recession

Political bombshell

US lobby forces KPMG out of Iran

April 2010 Issue 464/465 www.WorldAccountingIntelligence.com

4 y April 2010

KPMG has fled Iran amid fierce US lobby group pressure. It is the last Big Four firm to leave the embat-tled country, raising questions

about the future of the Iran’s accounting profession as well as the moral integrity of using economic sanctions to remove an unpopular regime.

Experts, including the leader of the Inter-national Federation of Accountants (IFAC) warn the Big Four’s departure could stall the development of Iran’s profession. A broader exodus of foreign companies will seriously destabilise the country’s economy, which is already suffering chronic inflation due to a shortage of imported goods.

Bayat Rayan, a part of the KPMG fam-ily a month ago, believes foreign compa-nies will still use its services, as there is little choice in the market, and the Big Four will return to the resource rich nation once the political situation is resolved.

KPMG’s departure was engineered by the United Against Nuclear Iran (UANI), a coalition of lobby groups that wants to pre-vent Iran from becoming a regional power with nuclear weapons, although scratch the surface and it is clear the lobby group has other interests, including regime change.

The lobby group dismissed concerns about Iran’s accounting profession while lauding KPMG’s decision as “helpful to our

cause on a greater level than any company operating in Iran”.

For its part, KPMG has remained largely silent on this issue, confirming it ended its working relationship with Bayat Rayan due to concerns raised by the UANI. KPMG’s silence is common among accounting firms who often shy away from politically sensi-tive issues.

Iran’stop10Bayat Rayan is a top-six domestic firm with 55 staff that provides audit, account-ancy, tax and advisory services, primarily to Iran’s private sector.

The Iranian profession is dominated by 10 audit firms: Audit Organization, Dayarayan, Agahan Moshar, Bayat Rayan, Behrad Moshar, Behmand, Fater, Iran Mashhood, Rymand & Co and Tadvin, according to Dayarayan managing partner

Gholamhossein Davani.According to International Accounting

Bulletin research, there are at least seven global mid-tier networks that still have Iranian affiliates (see chart below). These groups play and will continue to play an important role in assisting their Iranian affiliates to develop international standards and best practices.

Davani explains the state-owned Audit Organization is the largest firm and audits 80 percent of the audit market, including Iran’s government companies and public institutes. The rest of the pack focuses on the private sector. Davani estimates the total revenue generated by the audit mar-ket is about $90 million of which Audit Organization earns $60 million.

It is unclear what cut Bayat Rayan takes out of the Iranian audit market but it is significantly less than what KPMG earns from US federal contracts each year – the Big Four firm is reported to have earned $1.2 billion in the past decade.

For this reason alone, Bayat Rayan partner Ali Jan believes KPMG had “little choice” but to end its working relation-ship.

“Common sense tells me that if my inter-ests is somewhere else and they are going to make me subject to sanctions, then I really need to make a decision on where I am


sPeCIALRePoRt:IRANeXoDUs International Accounting Bulletin

Politics strikes professionA lobby group has pressured KPMG into ending its affiliation with Iranian firm Bayat Rayan. ArvindHickman interviews industry leaders to discuss the circumstances surrounding KPMG’s departure and the repercussions it will have for the developing profession in the country

n IRANtheInternational Accounting Bulletin approachedthemid-tiertofindoutwhichgroupshadIranianmemberfirms.

Yes

Network/Association Firmname Membershipstatus

Nexia International Behrad Moshar Certified Public Accountants Full member

Moore Stephens International Moore Stephens Iran Limited, Moore Stephens Hajiran Audit and Management Services Firm Full member

HLB International HLB Modaberan Auditing Services Full member

Grant Thornton International Rymand & Co Correspondent member

RSM International Dayarayan Auditing & Financial Services Firm Correspondent member

Crowe Horwath International Hoshiyar Behmand & Co n/a

AGN International Azmoudekaran Certified Public Accountants n/a

No

BDO International, IGAF Worldwide, Baker Tilly International, PKF International, Kreston International, Mazars, Praxity, Leading Edge Alliance, BKR International, DFK International

Source: International Accounting Bulletin

“onceyoustartworkinginthispartoftheworld,disappointmentdoesn’tmeanmuch.Youhavetosurviveandyoudosurvive”Ali Jan, Bayat Rayan

April 2010 y 5

sPeCIALRePoRt:IRANeXoDUsInternational Accounting Bulletin


going to lose most if I am not following the rules,” Jan says.

Jan does not believe the break-up will have a major impact upon Bayat Rayan’s bottom line because a large bulk of its busi-ness is local and there’s little alternative for foreign companies in Iran.

“We’ve got international clients which operate here and under law have to have their accounts audited in accordance with the local laws,” he explains.

“Either they use us or they use another firm like us, so really at the end of it [they shouldn’t go elsewhere] because there is no alternative. All the major international firms have gone so there is no choice.

“One way or another we may get affect-ed slightly but we still have expatriate cli-ents ringing us still making enquiries. I do not expect a major upheaval. It all has to be sorted out at a much higher level than KPMG, what is happening in the world, in the UN.

“At the diplomatic level this has to be resolved and once that’s resolved the busi-ness will follow.”

threattotheeconomyDavani is concerned that foreign firms and companies leaving Iran will not only direct-ly affect the local audit market but also col-lapse the economy.

“It is self evident that if they comply with the sanctions, foreign companies shall be out of Iran and the revenue of audit firms who are engaged with foreign clients will be reduce so much,” Davani says.

“Even revenue of other audit firms [will be affected] because the economy will col-lapse.”

Both Jan and Davani point out the Ira-nian profession went through a similar exodus following the Islamic Revolution in 1979 and recovered.

“We have been through this before, it is not the first time and I’m sure multination-als will come here,” Jan says.

“Once you start working in this part of the world, disappointment doesn’t mean much. You have to survive and you do sur-vive.”

DevelopmentheadacheEven if firms do survive the desertion of foreign companies, the departure of the Big Four could delay professional development in Iran, according to one of the world’s leading accountants.

Iranian professional accountants are trained by professional accounting bod-ies and at firms like Bayat Rayan. Being affiliated with a Big Four network allows domestic firms to tap into vast technical

“Youarecutofffromresourcesandyouarecutofffromcolleaguecontacts.thereisnomoreinboundinvestment[bytheBigFourfirms]…soyoulookatthatanditispotentiallydevastatingtotheprofession”Robert Bunting, International Federation of Accountants

The United Against Nuclear Iran (UANI) has described KPMG’s departure from Iran as being more helpful to its cause than any other company it has targeted.

KPMG was targeted by the UANI for sev-eral reasons. It was the last Big Four firm with a presence in Iran and the UANI is attempting to drive out multinational com-panies to destabilise the nation’s economy and pressure the Mahmoud Ahmejinidad regime to buckle to US demands.

UANI spokesper son K imber lyn Lipscomb describes this strategy as Iran’s ‘cost benefit analysis’.

“Is it more worth it to them to contin-ue to pursue illegal nuclear weapons or to engage with the international business community?” Lipscomb asks.

The UANI claims that KPMG has prof-ited from US government contracts worth $1.2 billion and, therefore, the firm should not also profit from doing business in Iran.

The UANI hopes KPMG’s departure from Iran will lead to an exodus of mul-tinationals that operate in the country. In the past six months, the UANI campaigns have pressured six major international corporations to leave, including the heavy duty machine manufacturer Caterpillar and commercial products manufacturer Ingersoll Rand.

“As an auditor [KPMG] is enabling com-panies to do business in Iran. Some of those companies include Daimler, Honda, HSBC, Petrobras and Synopec,” UANI spokesper-son Kimberley Lascombe says.

“By convincing KPMG to get out of Iran we can also limit the other companies that are doing business there. I think it’s cer-tainly a disincentive, which is why KPMG’s decision to end their business in Iran is helpful to our cause on a greater level than any company operating in Iran.”

High-levelfoundersThe UANI lobby coalition was formed in 2008 by former US ambassadors Dennis Ross, Richard Holbrooke, Mark Wallace and James Woolsey as a private effort to address US foreign policy challenges in Iran. Two of the founding members, Dennis Ross and Richard Holbrooke, now have roles in the Obama Administration and have ended their direct involvement with the group.

Lipscomb says foreign policy challenges include Iran’s nuclear ambitions, the coun-try’s human rights record and the country’s links to Western defined terrorist groups. Lipscomb concedes the group has no tangi-ble evidence Iran is seeking to build nuclear weapons but the nation’s refusal to disclose all of its nuclear plans is a sign of its ambi-tions.

“While hope for diplomacy may not be feudal at this point there is certainly stress and I don’t know that there is an avenue for co-operation with them as we had hope even a year ago,” she says.

UANI coalition members promote a vari-ety of causes, including groups opposed to nuclear weapons and those in favour of democracy.

The UANI works by publicly naming and shaming large corporations operating in Iran and threatening legal activism to ostracise companies. This involves writing to targets and using an army of activists to harass them directly.

The UANI first wrote to KPMG on March 12, asking the firm to sever ties with its Iranian affiliate Bayat Rayan.

Lipscomb says KPMG was also subject to private messages from thousands of UANI supporters.

On 1 April, KPMG announced it had ended its relationship with Bayat Rayan.

The firm stated: “As a result of seri-ous and escalating concerns expressed by UANI and others, KPMG International has terminated Bayat Rayan’s membership in the KPMG network, effective 30 March 2010... As a result, the KPMG network no longer has any member firm in Iran.”

KPMG is the last Big Four firm to have a presence in Iran. <

n BACKGRoUND

KPMG departure sends a key message to all – United Against Nuclear Iran

4

6 y April 2010 www.WorldAccountingIntelligence.com

sPeCIALRePoRt:IRANeXoDUs International Accounting Bulletin

n CoMMeNt

KPMG right, UANI wrongKPMG’s departure from Iran is a blow for Iran’s accounting profession but it won’t be fatal. However, a US lobby group’s cam-paign to target a firm that provides corpo-rate transparency in a country where trans-parency is lacking is hypocritical, counter-productive and leaves a bitter taste in the minds and hearts of Iranian accountants.

Criticism should not be directed at KPMG for leaving. KPMG should receive praise for staying in Iran well after its Big Four rivals fled, ignoring the political tensions between Iran and the US.

KPMG’s departure is a straightforward business decision, and the right one. Any business that earns as much as $1.2 billion in a decade from one client, the US govern-ment, would be foolish to risk this by mak-ing some pointless political stand that will ultimately achieve nothing.

Two of the founders of United Against Nuclear Iran (UANI), Dennis Ross and Richard Holbrooke, are now senior Obama advisers – one can only imagine the prickly position KPMG found itself when the UANI came knocking.

The UANI parades KPMG’s departure from Iran as a sign that big business won’t deal with a brutal regime seeking nuclear weapons. But on further probing, the lobby group could not provide a shred of evidence KPMG ever dealt with or endorsed the Ira-nian government or that Iran is even pro-ducing nuclear weapons. Media speculation is not evidence of sinister nuclear ambitions while providing services to clients in a coun-try is not the same as endorsing a regime.

The UANI claims KPMG’s departure will have no ill-effect on the Iranian profession, but how many experts did it consult?

This publication spoke with two from the Iranian profession and one from the peak accounting body, IFAC. The sentiment is that the departure of a major provider of training and technical resources will have an effect, although just how much is unclear.

Western divestment in Sudan, a country where genocide is occurring, may be justi-fied. Divestment in Iran is not, and econom-ic sanctions are leading to extreme inflation rates of 25 percent in 2009. This affects the people much more than the regime.

KPMG’s departure won’t help the UANI prevent Iran from producing nuclear weap-ons. But if the lobby group manages to drive out all foreign companies, expect further economic casualties in Iran to follow. <

Arvind Hickman

resources, training programmes and global best practices. This is particularly impor-tant for keeping up to speed with interna-tional changes to accounting and auditing standards.

IFAC president Robert Bunting says the Big Four leaving any country could be “potentially devastating”, highlighting the important role these networks play in providing on-the-job training. Big Four net-works also provide support and resources to professional accounting bodies, such as the Iranian Association of Certified Public Accountants.

“You are cut off from resources and you’re cut off from colleague contacts,” Bunting says.

“There is no more inbound investment [by the Big Four firms]. In a lot of countries the large firms and large networks are net investors because they don’t profit at all from being in the country, they are simply financially supporting their office there.

“So you look at that and it is potentially devastating to the profession. Certainly it is going to delay the development of the pro-fession for a long time.”

Jan accepts that belonging to a network has its own benefits, “because you get the technical know how, you have access to research, access to training and things like that which are within that international domain”.

“But having said that, we are now back on the same footing as all other firms oper-ating in Iran,” he adds.

Both Jan and Davani contend that resources are still largely available on the internet and through staff membership of professional bodies abroad.

At Bayat Rayan, several professionals have access to resources from the Institute of Chartered Accountants in England and Wales, among other bodies. He hopes these connections will help mitigate the loss of materials and support from KPMG.

Another effect KPMG’s departure could have on Bayat Rayan is the removal of KPMG’s strict quality control infrastruc-ture, which polices auditor practice across the network.

Firms that belong to networks such as KPMG are regularly inspected to ensure they comply with high global standards. The loss of this oversight could eventually filter down to audit quality if careful moni-toring is not picked up elsewhere.

sendingamessageThe UANI argues that KPMG’s departure from the country will not devastate the domestic accounting profession.

“I can’t imagine KPMG is the only

accounting firm left in Iran,” UANI spokes-person Kimberley Lascombe says.

“It certainly sends a message to the Ira-nian regime that the Big Four international accounting firms are not willing to provide services to a brutal regime.”

Lascombe also does not believe econom-ic sanctions will affect the people of Iran more so than its government – a common criticism of economic intervention mecha-nisms.

“I don’t think it is hard to argue that what the Iranian regime is doing to its own people is significantly more brutal than KPMG’s decision not to operate in Iran,” she says.

Lascombe cites South Africa as an exam-ple of where the “divestment movement during apartheid proved to be effective”.

An example closer to Iran is the brutal UN Security Council-imposed economic sanctions forced on Iraq between 1990 and 2003.

The United Nations Children’s Fund esti-mates these sanctions were responsible for the deaths of at least half a million children while doing little to affect the powerbase of Saddam Hussein.

Davani questions the UANI’s motives and believes all professions – such as account-ing, lawyers and medicine “must be [left] out of political matters”.

ProfessionbattlesonIran’s profession has undergone setbacks before when global organisations have left for political reasons and industry leaders are confident they will return when the time is right.

Further, it’s important to note that several mid-tier networks are active in Iran, play-ing an important role in helping the local profession develop global standards. Ira-nian professionals are also well educated, resourceful and often qualify with globally recognised professional bodies.

Other organisations, such as IFAC, pro-vide assistance, whether this is on a formal or informal basis.

However, there is certainly the risk that a potentially toxic political situation could spiral further out of control and economic sanctions become much harder hitting. In addition, the UANI’s campaign against for-eign organisations could yet threaten the Iranian operations of other international accounting groups.

Iranian accounting firms won’t hold their breath in the hope stability will return any time soon. But also don’t expect this pro-fession to stagnate or go backwards, it has battled hardship before and will survive this latest setback. <

4

January 2015 Issue 6134 www.theaccountant-online.com

● Round Table: Latin American profession dances to its own tune● Politicians should support accrual accounting: Muller-Marques Berger

● A4S summit: sustainability enjoys a crowning moment● Obama, Modi and the IFRS road map in India

Iran: clean slate after the

THE TRUTH YOU NEED TO BUILD A BIG LIFE.

“ Full of insight, wisdom and inspiration.”Fayezul Choudhury CEO, International Federation of Accountants

Now available at all good booksellers

Alex Malley CEO, CPA Australia

Intriguing stories and outstanding advice from Alex Malley, the suspended schoolboy who became a disruptive CEO.

CPAH1094 Alex Malley Book Launch The Accountant_307hx220 FP Ad.indd 1 18/11/2014 2:04 pm

www.theaccountant-online.com

EDITOR’S LETTERThe Accountant

CONTENTS

January 2015 y 3

NEWS 04-06• UK and Australia complete cross-border merger

• US audit reports in potential conflict with IAASB standards

• New Spanish professional body to help SMEs

• Obama and the IFRS road map in India

IN FOCUS 07-14• A4S summit in London

• IPSAS

• Round Table: Latin America

COUNTRY REPORT 15-19• Iran: International sanctions eroding business

activity, the exodus of international firms, and lobby groups calling for tougher sanctions. Despite the adverse conditions, the Iranian profession is proving to be resilient

08-09

Iran also in from the cold?

Is Iran the new Cuba? Judging by the news reports from Geneva’s nuclear talks, a com-promise between Washington and Teheran could be reached at some point in 2015.

The global accountancy profession must be watching very closely for the outcome of the P5+1 group’s negotiations. All these countries, by the way, should know an aw-ful lot about nuclear weapons. The whole P5 (the US, Russia, China, the UK and France) have nuclear warheads – the ex-ception being the +1, Germany.

Worth remembering the US was the first to use them in WWII against the Japanese, when, according to some historians, Japan was already defeated.

And France declassified documents in 2013 about the consequences of its nucle-ar testing in Polynesia during the 60s, 70s and the 90s.

Never mind. The talks about Iran’s nu-clear ambitions come on the back of De-cember historic announcement by Presi-dent Obama that the US will seek to restore diplomatic relationships with Cuba after more than 50 years of animosity between the neighbours.

I’m sure the global profession is also

keeping an eye on the ongoing US-Cuba talks. Nonetheless, there are significant differences between Iran and Cuba, as well as similarities. Iran and Cuba have in common a well-educated population with an avid appetite for pursuing university degrees, particularly in accountancy and finance.

Cuba has 33,450 accountants for an 11 million population. In Iran there are 8,000 accountants for 78 million people and more than 200,000 students a year begin ac-countancy studies at Iranian universities. Yet the Iranian profession has managed to develop further and reach impressive levels of maturity and international stan-dards compared to its Cuban colleagues.

Few would remember the last time a US business (including accountancy practic-es) was run in Cuba, after the exodus from the island in the late fifties and the sub-sequent international sanctions and em-bargo. That hasn’t been the case in Iran. As recently as 2013 international account-ing firms had members in the country and prior to 2010 that included the Big Four.

A driving force behind the exodus of international firms (not just in the ac-

countancy sector) has been the US lobby group United Against Nuclear Iran (UANI). Its “hard soft power”, as UANI CEO Mark Wallace describes it, has extended the scope of the embargo turning it into an overarching boycott.

But as we explain in our country survey, while UANI’s campaign has removed inter-national players from Iran, the national profession is taking over strongly and resiliently filling the void left by inter-national peers. As far as the accountancy profession is concerned, to what extent has UANI’s campaign backfired?

In addition, accountancy being a cata-lyst for financial transparency and ac-countability, a chance might have been missed to build a more democratic Iran with international firms and other stake-holders sharing their know-how on the ground.

After our July 2014’s report on Cuba, The Accountant tackles the Iranian conundrum this month. Find out what the future of one of the oldest civilisations in the world looks like.

Carlos Martin [email protected]

10-14

07

15-19

08-09

Thomas Müller-Berger

Shiraz, Ali e bne Hamzeh mosque

Latin American profession: Shall we dance?

THE TRUTH YOU NEED TO BUILD A BIG LIFE.

“ Full of insight, wisdom and inspiration.”Fayezul Choudhury CEO, International Federation of Accountants

Now available at all good booksellers

Alex Malley CEO, CPA Australia

Intriguing stories and outstanding advice from Alex Malley, the suspended schoolboy who became a disruptive CEO.

CPAH1094 Alex Malley Book Launch The Accountant_307hx220 FP Ad.indd 1 18/11/2014 2:04 pm

The Association of Chartered Certified Accountants (ACCA) and the University of London partnered to offer a Masters course to ACCA students and members. ACCA said the part-nership marks the first time an accountancy body and a univer-sity have joined forces to allow candidates to gain both a Mas-ters’ degree and a professional accountancy qual i f icat ion simultaneously.

The CFA Institute appointed the Institute of Chartered Account-ants in England and Wales (ICAEW) fellow Paul Smith to the role of chief executive offic-er. Smith previously held the position of managing director at the 147-country investment institute and brings to the role 30 years of management experi-ence, of which 18 were in Asia. His appointment is part of an increased strategic focus with-in the CFA Institute towards China and India, where it hopes to build a stronger presence.

Former chief accountant for the US Securities and Exchange Commission (SEC) division for

investment management Jaime Eichen returned to EY as a partner.

Throughout her t ime at the Commission, Eichen was responsible for the interpreta-tion of new accounting and auditing legislation. Prior to joining the SEC in 2008, Eichen held the post of senior manager at EY. She rejoined the firm as a partner.

The Institute of Singapore Chartered Accountants (ISCA), Chartered Accountants Ireland and the Singapore Account-ancy Commission signed an agreement to consider the reciprocity of their member-ship in the future. More than 50,000 accountants could ben-efit from a future recognition agreement; 28,000 of them are ISCA members while the Irish institute has more than 21,000 professionals. In recent years the Singaporean profession has signed different agreements with global institutes to raise its international profile and to meet the 2020 deadline for its project of becoming Asia-Pacif-ic’s accounting hub.

Moore Stephens will spon-sor the recently established Counter Fraud Centre of the Chartered Institute of Public Finance and Accountancy. The institute launched the centre in July 2014 to aid anti-fraud and anti-corruption efforts across public services. “The Centre will provide the tools, training and ideas to shape the future of counter fraud,” Moore Stephens director of counter fraud servic-es John Baker said.

KPMG global chairman John Veihmeyer has been appointed to the board of trustees of the Financial Accounting Foun-dation (FAF), replacing Grant Thornton International chief executive Edward Nusbaum. The FAF, the US equivalent of the IFRS Foundation, oversees

two standard-setting bod-ies: the Financial Accounting Standards Board (FASB) and the Governmental Account-ing Standards Board (GASB). Veihmeyer’s appointment is for a four-year term, ending 31 December 2019.

In February 2014 he was appointed KPMG global chair-man, as Michael Andrew retired after being diagnosed with a serious medical condi-tion.

Khalid Rahman, chief oper-ating officer at the Institute of Chartered Accountants of Pakistan (ICAP), was appointed managing director of Sui South-ern Gas Company (SSGC), a top gas distribution company. SSGC is listed on the Karachi Stock Exchange and has author-ised shares worth PKR10bn ($980,000).

SSGC’s outstanding shares are worth PKR6.7bn, the majority of them, 70%, are held by the government.

As well as an ICAP member Rahman is an ICAEW member, as is the country’s Minister of Finance Mohammad Ishaq Dar.

EDITOR’S LETTERThe Accountant The Accountant

www.theaccountant-online.com4 y January 2015

NEWS

Uantchern Loh, SAC, CEO

Cross-border merger of UK and Australian accountancy bodies completed

The UK Institute of Financial Accountants (IFA) and the Institute of Public Account-ants (IPA) in Australia have partnered to create a global organisation aimed at rep-resenting the interests of SMEs and SMPs.

Following a majority vote of IFA mem-bers (96%) on 16 December 2014, the consolidation process was scheduled to be legally completed by the transfer of IFA’s assets to the newly created organisation by 31 December.

IFA and IPA have undergone an “amal-gamation”, as they call the move, to form the IPA Group which has more than 35,000 members and students in 80 coun-tries according to the institutes.

As of January 2014 IFA counted 7,000

members, 60% of them based in the UK, and 2,200 students. According to The Accountant’s 2014 World Survey, IPA has 12,631 members and 9,811 students.

The “amalgamation” of IFA and IPA represents the second cross-border con-solidation project by professional account-ancy bodies. Earlier in 2014 the Insti-tute of Chartered Accountants Australia (ICAA) and the New Zealand Institute of Chartered Accountants (NZICA) merged to create a Tran-Tasman institute named Chartered Accountants Australia and New Zealand.

ICAA had 53,711 members and 13,715 students, while NZICA counted 26,146 members and 12,373 students, according

to The Accountant’s 2014 World Survey. IFA and IPA, both members of the

International Federation of Accountants (IFAC), said they will, however, preserve the autonomy of each institute.

In a recent interview before the Decem-ber vote, IFA chief executive David Wood-gate told The Accountant that IFA and IPA members will be part of the IPA Group’s membership, although the brand names of the two institutes will be retained.

“At the moment there’s no plan to change the names, that’s important for the members. Other institutes can be invited to join further down the line,” he added. Carlos Martin Tornero<

NEWSThe Accountant

www.theaccountant-online.com January 2015 y 5

Spanish equivalent of chartered accountants introduced to help SMEs’ finances

Spain’s General Council of Economists (Consejo General de Economistas or CGE) and the Institute of Auditors (Insti-tuto de Censores Jurados de Cuentas de España or ICJCE) partnered to introduce a pro-fessional profile called experto contable, which would resem-ble the chartered accountant of other jurisdictions.

Spain’s two professional bod-ies said the move is aimed at building the reputation of Span-

ish professional accountants and enhancing their responsi-bility and regulatory oversight. ICJCE, the professional body for auditors, and the CGE, which is formed by a wider range of finance professionals including economists and audi-tors, will jointly run the new qualification.

To that end a committee will be tasked with assessing the professional experience and capabilities of those members who would like to become a registered experto contable and meet the criteria to do so. A spokesperson for the CGE

told The Accountant that the professional bodies decided to join forces as both were work-ing on similar initiatives to strengthen the regulation and opportunities of professional accountants.

The experto contable would be a finance professional who would work for those compa-nies that do not need to pass a statutory audit.

The vast majority of compa-nies in Spain are SMEs. The idea behind the introduction of a Spanish chartered account-ants equivalent (or the French equivalent of expert-comptable)

is to place trust in the financial statements of those companies, which may lack reliable inde-pendent third-party assurance.

For example, the initiative could improve the access to finance by SMEs as Spanish banks have been tradition-ally reluctant to lend to smaller companies, particularly in the aftermath of the credit crunch.

According to the European Commission’s Eurostat, 38% of Spanish companies had no more than nine employees in 2010, compare with 18% in Germany and with the 28% of the Euro-zones’s average.

US ‘anonymous’ audit reports in potential conflict with IAASB standardsThe revised auditor reporting standards issued by the International Auditing and Assurance Standards Board (IAASB), which include disclosing the name of the engagement audit partner, might create a conflict between US rules and the interna-tional standards.

The IAASB final standards are intended to enhance the relevance of audit reports and transparency in the financial reporting chain, a long-standing demand of inves-tors.

Among the measures to improve the auditor’s report, IAASB rules include a sec-tion to express key audit matters (or addi-tional information subject to the auditor’s professional judgement); and notably, the disclosure of the engagement audit partner who conducted the work.

Such requirements are mandatory for listed companies and voluntary for non-listed businesses.

According to the general provisions of ISAs (or International Standards on Audit-ing) an auditor may be required to comply with additional regulatory requirements, as well as the international standards.

The standards’ guidance states: “The ISAs do not override law or regulation that governs an audit of financial statements. In the event that such law or regulation differs from the ISAs, an audit conducted only in accordance with law or regulation will not automatically comply with ISAs.”

The guidance also states that an audit

can be conducted in accordance with both, performing additional audit procedures to comply with the relevant standard and the national law.

ACCA head of auditing practice David York told The Accountant the guidance doesn’t clearly address the conflict between laws and ISAs.

“An easy – but incredibly odd – audi-tor’s report could say ‘complied with ISAs except for this non-disclosure’,” York said.

The guidance also states that in rare cir-cumstances, the auditor would be allowed not to sign off the audit report if that cre-ates a personal security threat. But this does not include the threat of legal liability or professional sanctions.

However, the guidance indicates that the law or national standards of a given coun-try may establish further requirements that are relevant to determine whether or not the disclosure of the engagement partner is compulsory.

“The guidance was intended to make sure that auditors did not use some spuri-ous reason about personal security,” York said.

However the last bit of the guidance could be a hint, according to York, that if the law prevents the disclosure there might be a way around.

“But it is too woolly, I think law prevent-ing disclosure would be rare,” he added.

In August 2014 the US Council of Insti-tutional Investors (CII) urged the Public

Company Accounting Oversight Board (PCAOB) to include this issue on its stand-ard-setting agenda.

The CII was reissuing a previous call, when the PCAOB discarded the idea of requiring auditors to sign their reports on a mandatory basis.

PCAOB chairman James Doty told The Accountant in a July 2014 interview that he personally saw the need for the audi-tors to have at least an option to sign their reports.

“All the major markets, except the US have it. Auditors are living with it in most countries around the world except here,” Doty said.

“We’re not expecting them to sign; we are giving auditors alternatives about whether further to disclose the name.”

The US Center for Audit Quality exec-utive director Cindy Fornelli told The Accountant that national policymakers are pursuing more transparency in this area.

“The PCAOB has said it will release a supplemental request for comment on a proposal that would require disclosure of the engagement partner and others involved in the audit, either in the audit report or in a separate form to be filed with the PCAOB,” she said.

The PCAOB’s standard-setting agenda has been recently updated to discuss this issue during the first half of 2015.

Carlos Martin Tornero <


IN FOCUS EDITOR’S LETTERThe Accountant The AccountantNEWS ANALYSIS

The US president Barack Obama began 2015 with a visit to India which has been described as a landmark of a new era in the relations of the two coun-

tries. In his three-day visit, Obama and India Prime Minister Narendra Modi left few sub-jects untouched as they discussed climate change, human rights, defence and, most importantly, trade.

Indeed in the US delegation to India, Obama brought with him the US Secretary of Commerce Penny Pritzker; the adminis-trator of the US Agency for International Development Raj Shah; the president and CEO of the US Overseas Private Investment Corporation (OPIC) Elizabeth Littlefield; and the Director of the US Trade and Devel-opment Agency Lee Zak.

“In the last few years, we’ve increased trade between our countries by some 60%. Today, it’s nearly $100bn a year – which is a record high,” Obama said during his visit. However the US president said this wasn’t enough and he announced a series of new measures that would increase trade between the two countries.

“Today, I’m proud to announce additional steps, a series of US initiatives that will gen-erate more than $4bn in trade and invest-ment with India and support thousands of jobs in both of our countries,” he said.

He added that over the next two years, the US Export-Import Bank will commit up to $1bn in financing to support “Made-in-America” exports to India. OPIC will support lending to small and medium busi-nesses across India, which the US president anticipated would ultimately result in more than $1bn in loans in underserved rural and urban markets. He also announced that the US Trade and Development Agency will aim to leverage nearly $2bn in investments in renewable energy in India.

Incidentally, a week before Obama’s visit and his announcements of new measures to make the US and India greater partners in the globalised market, India took steps of its own to upgrade its profile internationally.

Indeed, the Indian Ministry of Corpo-rate Affairs (MCA) has announced plans to implement IFRS for all listed companies by

2016, with the exception of banks, insurers and shadow banking companies.

The announcement follows the call made in July 2014 by Minister Arun Jaitley, who proposed the mandatory adoption of Indian accounting standards (Ind AS), which are IFRS-converged, by financial year 2016-2017 and on a voluntary basis from April 2015. According to the MCA, the Indian IFRS-converged accounting standards will also apply to non-listed companies whose net worth is INR5bn ($78.7m) or above.

According to the Institute of Chartered Accountants of India (ICAI), more than 550 listed companies will be affected by the change. But the number of companies, either listed or non-listed, applying Ind AS will increase as the following year the net worth threshold will go down to INR2.5bn.

Banks and insurers won’t be affected at this stage, as their accounting is not gov-erned by the Companies Act. The account-ing rules for insurers are set out in the Insur-ance Regulatory Development Act, whereas banks follow the Banking Regulation Act.

“In further stages they might be covered as well. These acts have differences, but there is work going on to make them compatible and prepare for the transition,” IFRS expert Eish Taneja told The Accountant.

The government’s announcement brings closer to completion the process of IFRS convergence started in 2010, which has been subsequently postponed.“We have now a government which is in majority, so it has the power to enforce the decision. The previ-ous government could not do so, although it was trying,” Taneja noted.

Adoption issuesICAI president Kumar Raghu told The Accountant that his institute recommended the implementation of IFRS to the govern-ment. He warned, however, that the new standards will require new types of finan-cial information, and presumably first-time adoption issues will be rife. “Any new sys-tem of accounting will bring implementation challenges, for both preparers of financial statements and auditors. We are a very big country, with a large number of accountants.

We have to train all of them,” Raghu said.ICAI has already prepared 500 semi-

nars around the country. And Taneja, who also trains Big Four firms’ staff on IFRS, acknowledged there’s a skill gap that needs to be addressed. One of the new areas that the IFRS-converged standards will bring to India is the concept of fair value, as Taneja and Raghu pointed out.

“In India we don’t have a strong body or association that can monitor the concept of fair valuation. There are registered valuers, who are supposed to do fair valuations, but there is no strong body to monitor them,” Taneja said.

OversightThe MCA’s announcement did not mention the controversial National Financial Report-ing Authority (NAFRA), a new regulator under the Companies Act which hasn’t been implemented yet. Taneja said that NAFRA’s composition and team members could be announced in the next months.

“I think is a good bold step, in line with the PCAOB [Public Company Accounting Oversight Board] in the US. It’s going to han-dle accounting standards and professionals, who were not under big scrutiny. They have been handled by the institutes, which is quite lenient,” Taneja said.

The ICAI president disagreed and hoped the government will not pass enabling leg-islation to implement the NAFRA. “Our institute is doing its job. The NAFRA is a duplication of authority; there is no need for one more regulator,” Raghu said.

Despite the challenges and difficulties aris-ing, India’s latest announcement show the country’s commitment to be better integrat-ed in the global economy. And in light of the US president recent visit and announcement, it is expected that foreign direct investment, and not only that coming from the US, will see an important increase.

With an accounting profession and a corporate world able to speak the “interna-tional language” of IFRS, it will only make India more attractive for investors. Needless to say, it’s a language the US is still turning its back on. <

India is working hard to be better integrated into the global economy as Carlos Martin Tornero and Vincent Huck report

IFRS ROAD MAP IN INDIA

Obama’s visit signals IFRS momentum in India


There’s bad news for climate change sceptics who still sit in national par-liaments, company boardrooms and CFOs suites. Bad news for those who

still put short-term profit above long-term sustainability –regardless of the price. Sus-tainability is high on the agenda. Quoting a 2014 report of the International Panel on Climate Change, Prince Charles declared that the consequences of climate change could be beyond our capacity to rectify, if unchecked. “We are already seeing in the form of ever-more extreme weather events that damage our infrastructure, sea level rise threatening coastal cities and the disruption of weather patterns vital for agriculture to feed a growing population,” Prince Charles said. His words seemed more topical than in the previous ninth summits of the Prince’s Accounting for Sustainability Project (A4S), as world leaders were meeting in Peru for the UN climate summit. There was mount-ing pressure for them to reach a global agree-ment to reduce carbon emissions and com-pensate for the 2009 fiasco of the Copenha-gen summit.

The A4S summit in London on 11 Decem-ber, however, focused on the close relation-ship between finance and sustainability, which is the rationale behind the joint work of the A4S and the accounting community. “I could see that accountants would need to develop the practical tools required to design and build sustainable organisations, and ultimately the sustainable economy we so desperately need,” Prince Charles said. And that was the gist of the A4S summit – despite the progress made in sustainability, there’s a long way ahead. To highlight the change in attitudes within the finance community, A4S executive chairman Jessica Fries brought to light a survey the Institute of Chartered Accountants in England and Wales conduct-ed among its members in 2003.

Back then, 63% of them didn’t see envi-ronmental or social issues as being part of an accountant’s responsibility, with some of them making remarks such as “these issues are not the business of an accountant” or “isn’t this survey a waste of time?”.

The most interesting quote came from one member who answered: “What a mess this country is in because of our focus on touchy-feely issues?” As Fries pointed out, the new generations of accountants are more aware of the challenges ahead. She said: “More recently, research conducted by different global accounting bodies showed that more than 80% of their students believe sustaina-bility is a relevant issue for their qualification in finance. A recent joint survey by the Char-tered Institute of Management Accountants and the American Institute of Certified Public Accountants, showed similar rate of awareness, 88%, among their African members – compared to an average of 65% among their peers in Western economies.

From a SMEs perspective, Institute of Directors chairman Ian Dormer, who runs an engineering SME, said smaller compa-nies are crucial for the sustainability agenda. “The overwhelming number of UK business-es are small firms,” Dormer said. “But they are all plugged into the global supply chain. Without convincing them that sustainability is in their interest, the aims we share will be much harder to achieve.”

National Grid finance director Andrew Bonfield broadened the scope of sustainabil-ity to include corporate tax avoidance issues. “It has to do with our companies playing their part in society and paying fair taxes,” he said. From a CFO perspective, he warned, this is not just corporate social responsibility but a long-term bottom line issue: “Yes we all have short-term pressures. But if sustain-ability is not part of our strategy, how long do you expect to be around for?” Bonfield asked rhetorically. He added that inves-tors are the first to benefit from long-term business strategies, but do they care about sustainability and are they the only ones to blame? “The onus is also on CFOs to make sure that we are getting the message across, that we are highlighting the importance of sustainability within our business plans,” UK grocer Sainsbury’s CFO John Rogers said at one of the summit’s panel discussions.

Another member of the panel, David Blood, co-founder of Generation Investment

Management, a long-term focused invest-ment partnership, noted that not all inves-tors belong to the same type. “It’s important to differentiate that there are long-term investors, who may or may not be focused on sustainability specifically, but indeed in the long-term assessment of investments. And then there are traders.”

From the floor, Global Reporting Initia-tive chairman Christianna Wood asked the panel that if one of the issues is the short-term focus of traders, what can the finance community can do about it. Blood answered that there are increasingly more long-term investors in the financial system. However, he said, they often confuse themselves and think as traders. “They become very focused on quarterly performance; we need to move away from all that. Long-term investors are structural for a more sustainable economy.”

Again from the floor, a delegate high-lighted the issue of incentives in the finan-cial services industry. “If you look at bro-kers’ business models, you’ll find that being short-term focused improves their profit-ability.” He stressed that such a system of incentives is undermining sustainability and said accounting could help to challenge this.

“We can start using the data from the corporate disclosures to show clients where the money is being invested; what kind of sustainability profile is in the portfolio. But at the moment this is not particularly perva-sive,” he said.

Sustainability did seem to be the day’s top priority, as on the same day of the A4S summit in London, the US Secretary of State John Kerry paid an unexpected visit to negotiators in Lima. “If you’re a big devel-oped nation and you are not helping to lead [in sustainability] then you are part of the problem,” Kerry said. In his closing keynote speech Prince Charles joked: “I did my best to account for a little bit of sustainability by walking here.” Step by step the message of sustainability permeates the financial world. And while negotiators saved the day in Lima, next December all eyes will turn to the 2015 Paris UN climate change conference. Carlos Martin Tornero <

Sustainability enjoys a crowning moment

EDITOR’S LETTERNEWSIN FOCUSA4S SUMMIT LONDON The Accountant IN FOCUS

EDITOR’S LETTERThe Accountant The Accountant


PUBLIC SECTOR: IPSASIN FOCUS

Where were the auditors? is the question commonly asked when reflecting on the 2008 financial crisis. From there starts a line of

questioning that has been repeated over and over again since the fall of Lehman Brothers: are auditors’ reports fit for purpose? How to enhance audit quality? Should businesses report differently on their activity? Is the Big Four quasi-monopoly of the market an impediment to audit quality?

In the past six years, out of those ques-tions a number of initiatives were born, some laws were passed and new accounting and auditing standards were issued. How-ever most of these look at the private sector as the genesis for all troubles.

Far from suggesting that the private sector doesn’t have its share of responsibility for the recent economic turmoil, the account-ancy profession has in recent months warned governments that they should focus on their own backyard as much as the pri-vate sector’s.

Against the background of this rhetoric, the International Public Sector Account-ing Standards (IPSAS) seem to have come out of the shadows – a set of accrual-based standards used for the preparation of gen-eral purpose financial statements by gov-ernments and other public sector entities around the world and issued by the IPSAS Board (IPSASB) since the late 1990s.

The Accountant h ighl ighted th is increased focus on government accounting by the profession in its 2014 World Sur-vey entitled The Quest for Transparency, but the accountancy profession’s call for accountability in public finance has never been so loud as at the latest World Congress of Accountants held in Rome in November.

IFAC immediate past-president Warren Allen set the tone in his opening speech right at the start of the Congress. He said historians had pointed at economic

troubles, public sector overspending, and government corruption as the reasons behind the decline of the Roman Empire.

“In 2014, more than 1,500 years after the fall of Rome, these issues still plague us,” he continued. “More than six years later, nations remain in recession and govern-ments still struggle with massive debt, high unemployment rates, and anaemic eco-nomic growth […] Without doubt, there is a need for greater transparency and account-ability.”

Only a few minutes after his speech, Allen presented the IFAC Gold Service Award to IFAC former chief executive for 10 years and CIPFA current chairman Ian Ball, and in his acceptance speech Ball reiterated the need for transparency in governments’ accounting.

Quoting Jacob Soll’s book The Reck-oning: Financial Accountability and the Rise and Fall of Nations, Ball said: “From Renaissance Italy, the Spanish Empire, Louis XIV’s France, the Dutch Republic, the British Empire, and the early United States, effective accounting and political accountability have made the difference between a society’s rise and fall.”

In conversation with The Accountant a few weeks later he said he likes Soll’s book because it shows how economies and soci-eties evolved depending on the political accountability between leaders and the public. “That is something we kind of lost, and I really think we see better governments where we see better accounting or financial management involved,” he said.

Ball is very much attached to this topic as he helped his home country’s government, New Zealand, over 20 years ago, to adopt accrual-based reporting standards. To that effect Ball was one of the speakers at the WCOA second plenary session entitled Enhancing government transparency and accountability: a way to economic growth.

Also a speaker at the session was IPSASB member and EY partner Thomas Müller-Marques Berger who said the lessons of the financial crisis had been learned. Catching up with The Accountant after his speech he explains: “There were three lessons to the crisis: the first was the lack of transparency in financial accounting, the second was the lack of quality of data in statistical frame-work, and the third was the incongruences between the two.”

Talking with delegates at the Congress, he continues, one of the takeaways is that it is globally accepted that we need a higher level of transparency within government accounting. He also points to the fact that accounting boards are more and more working in close cooperation with statisti-cal organisation like the IMF or Eurostat.

Mül ler-Marques Berger tel ls The Accountant that accrual-based account-ing standards in the public sector are a pre-requisite for transparency in governments’ spending. “Talking about transparency, there certainly are two parts to it: you need to get the right numbers, and then you need to translate that into understandable mes-sages for the decision-makers,” he explains. “But accrual accounting is a necessary pre-condition to get the numbers right. How can you talk about financial debt if you don’t have an accrual picture of the finan-cial debt?”

He admits that IPSAS implementation around the world might be slow, but despite the critics saying that IPSAS are not gaining momentum he says the IPSASB was not dis-satisfied with the level of adoption.

“We are not dissatisfied with improve-ment and the level of implementation at the IPSAS board,” he says. “I think you have to look at the specific environments we are focusing on – countries like Nigeria which have some serious challenges for the imple-mentation of an accounting framework.”

In the wake of the financial crisis regulators have called for accounting reforms in the private sector. But the profession is more and more vocal building the case for governments to adopt accrual-based

IPSAS to increase transparency. Vincent Huck looks at the state of play after the WCOA

IN THE PUBLIC DOMAIN

The Accountant

EDITOR’S LETTERNEWS


IN FOCUSPUBLIC SECTOR: IPSAS

Things can always go faster, but on the other side it has to be sustainable, he con-tinues. “But compared to where we were six years ago when we had the financial crisis, I think we made huge improvements.” Implementation challenges However the level of implementation around the world is difficult to ascertain. Only two countries directly refer to IPSAS, Switzerland and Austria, while many coun-try use the international standards as a base to develop their own set of national accrual-based standards. Nevertheless Müller-Marques Berger says that 80 coun-tries already apply or are considering apply-ing IPSAS.

Nevertheless he admits that IPSAS imple-mentation doesn’t come without its fair share of challenges. First there’s the ques-tion of cost, but Müller-Marques Berger contends that the cost of doing nothing is greater then the cost of implementation.

“In Europe for example, some member states needed to be bailed out or subsidised [because of the financial crisis],” he says, adding that this is the cost of doing noth-ing. “And you have to compare that to the cost of getting improvements in the public finance management system.”

Equally the debate tends to focus on the costs rather than the benefits, he continues. He argues that a government might have to cover implementation costs for a period of three-to-five years, but the benefits in hav-ing transparency and better figures, better decision-making, will last for decades.

“I rather tend to speak about investments in improving our public finance manage-ment system, rather than talking about costs,” he says.

Lack of skills and knowledge is another challenge regarding IPSAS implementa-tion, but this is a gap that’s becoming eas-ier to breach according to Müller-Marques Berger. “One of the advantages of having accounting and reporting systems which are very close to the private sector is that we can leverage the knowledge we have of financial reporting in the private sector,” he argues, saying that it wasn’t the case 10 years ago when an accountant wouldn’t really cross the line between private and public sector.

“Now, if you have knowledge in IFRS, I think you update yourself on what are the additional or different requirements in IPSAS in a reasonably short time,” he says.

While IFRS aimed at creating a common language and a certain level of comparabil-ity in the private sector around the globe, the necessity for such comparability in the public sector might seem overstretched. But Muller-Marques Berger contends: “The capital markets are not only looking at pri-vate sector investments; they are also look-ing at public sector investments.”

Therefore he believes that it is in the interest of investors to have comparable information, but it’s also in the interest of the countries themselves as they compete for investments from foreign and global investors.

But while the profession pushes for accrual accounting in the public sector, as highlighted by Müller-Marques Berger’s discourse, accounting firms are not always supportive of accrual accounting for their own purposes. This was particularly clear in the US, as revealed last October in The Accountant, when US CPAs actively lobbied Congress through their professional body, the American Institute of Certified Public Accountants, in order to be able to con-tinue to pay their taxes under a cash-based accounting system.

Asked about his thoughts on the topic and if it was the reason why the US accounting profession hadn’t been campaigning more vocally for the use of accrual accounting by the federal government, Müller-Marques Berger answers: “To be honest I’m not familiar with this issue, I haven’t heard about it, I can’t comment.”

Balance sheet and auditIn contrast to the US, some countries have been more receptive to the issues, like Can-ada which at the moment is the only country in the Group of 7 (G7) to produce a balance sheet. Müller-Marques Berger argues that all governments should be looking into pub-lishing balance sheets and have their finan-cial figures independently audited.

“There’s no difference between private and public sectors when it comes to the need for independent audit,” he says when asked who should be providing the independent audit. “The issue of whether this [the audit

of governments’ finances] is done by a firm from the private sector or whether it’s a knowledgeable supreme audit institution is not really important.”

Asked if there was no ethical issue in hav-ing the private sector giving assurance on public sector financial data, he says that what matters are the auditing standards applied and to have trained, knowledge-able auditors, which according to him is the case in private practices as much as supreme audit institutions.

“In many cases, or in most cases, when private sector audit firms do the audit, they do it on behalf of the supreme audit insti-tution and often for capacity reasons,” he says, adding that in the end it’s always the supreme audit institution giving the last stamp. “Therefore I don’t have a problem with private sector firms being involved; on the contrary, I think we can contribute a lot in how to perform audits, due to capacity restrictions in the public sector.”

IPSAS still has a long way to go before reaching the same celebrity status as its “younger brother” IFRS. Indeed the inter-national standards for the private sector started in the early 2000s. And even if a few major economies are still reluctant to embrace IFRS, it has quickly gained trac-tion with today half of the world already adopting, converging or considering IFRS.

Even so, IPSAS is slowly making its way in governments’ minds, as Müller-Marques Berger reminds: “Looking at where we stood four or five years ago, where we still had to spread the word about what IPSAS is and to raise awareness – today if you talk to somebody about IPSAS, they’re aware of it. You’re not asked to explain what it is.”

In two years, IPSASB will be celebrating its 20th anniversary, and as countries con-sider whether or not to adopt the board’s standards they should be reminded that the concept of accountability in the public sec-tor is much older.

And as of an example they might want to revisit Thomas Paine’s words: “A body of men holding themselves accountable to nobody ought not to be trusted by any-body.” ■

The Accountant IN FOCUS

“There is something that accountants could have done better in the past: they should have more intensively talked to politicians about the benefits of accrual accounting. But the ones who really should benefit

and support the process are politicians”Thomas Müller-Berger



The AccountantIN FOCUS LATIN AMERICA ROUND TABLE

The Accountant: What are the main challenges and opportunities when practising account-ancy in your countries?

Oscar Noe López Cordón: Globalisation is opening up the markets and when Gua-temala receives direct foreign investment (FDI) flows, we, the profession, should be ready to live up to expectations. FDI is both a challenge and an opportunity. We should be able to translate those investments into the language of financial information for the benefit of stakeholders and potential inves-tors. Obviously, we need to deliver quality and master not only international account-ing standards but also assurance standards to give extra trustworthiness to the financial information we produce. And bear in mind that the competition is fierce within the profession. In Guatemala the biggest firms control the market. That makes it harder for the smaller players to invest in capacity and training. Being a global accountant doesn’t come cheap, as standards, rules and the know-how frequently change. But we must be ready to take up that challenge.

TA: Indeed, investing in capacity is not cheap. But do you have any support from the national body, from the government or international organisations?

López Cordón: At the national institute we make significant efforts to be relevant to the profession. On a personal level, we also make time in order to attend industry events like the WCOA. And it’s not just the cost of the flight and accommodation, it’s also the time we stop working at our firms to be here in Rome. We acknowledge, though, the importance and added-value for the national profession of catching up with international colleagues, networking, and keeping abreast of technical changes and trends.

TA: You mentioned the biggest firms dominate the market, what’s their share approximately in Guatemala?

López Cordón: The Big Four have about 80% of market share and the mid-tier about 15%. There’s a tiny slice of the cake left for the smaller national firms, and they are the ones who need to consider very seriously invest-ments in international education in order to be competitive. But that’s expensive. And only the best, those who produce quality work, thrive in these tough conditions. And remember that word of mouth is the only marketing tool we’re allowed by regulations and ethics. We can only grow through posi-tive endorsements from our clients.

TA: International qualifications being key to remaining competitive, is there any involve-ment by the global accounting bodies to build capacity in your countries?

López Cordón: We try to make contact and look for relationships, because, as they say, those who seeks shall find. But it’s hard to get international support. It’s more an effort from within the country. For instance, Gua-temala hasn’t benefited from the capacity building initiatives of the World Bank or the International Monetary Fund (IMF). There is an IMF Report on the Observance

of Standards and Codes (ROSC) from 2005 whose findings haven’t been implemented. In theory, Guatemala should be using standards based on financial performance information, but in reality there’s still a predominance of taxation-based information. That’s an obstacle which impedes our profession from accessing funds to access global capacity building. Recent attempts have been made to review the ROSC but one of the main challenges lies at university level. Future generations of accountants need to enter the profession as prepared and fully equipped as possible with a strong focus on ethics.

Isidro Soto Sánchez: Indeed our main issues start right at the beginning, in university classrooms. The curricula don’t reflect the changes in the profession. So, when stu-dents finish their degrees they are already in need of an update. Add to that their lack of minimum professional experience. And to make things worse, the national accounting bodies in Costa Rica provide little support, if any support at all. All this contributes to the ongoing war on fees in the marketplace, what we call “the jungle”, because the lack of a proper qualification and training of national professionals causes a drop in the quality of the services rendered and the fees charged. There’s dysfunctional competition as a result. No wonder, as Oscar points out, international firms have the biggest share of the market. But there’s an additional issue. If an independent firm has a big client in Costa Rica, market players such as banks or the regulator, would tell the client that an inter-national firm is required for its operations. This assumption is not right and clips the wings of smaller practitioners and independ-ent firms without an international affiliation.

TA: Why do you think professional bodies are not providing enough support?

Soto Sánchez: We have two bodies, one for accountants and another one for auditors. My criticism is that they see continuing professional development (CPD) entirely

Oscar Noe López Cordón: Instituto Guatemalteco de Contadores Publicos y Auditores, president executive

committee (Guatemala) Isidro Soto Sánchez: ISS Consultores, CEO (Costa Rica)

Juan Ivan Rogers-Harper: Institute of Anti-Fraud Forensic Auditors, president (Panama)

Umberto Tedeschi: Abile Consulting Group, chief executive. (Brazil)

Participants, Rome Nov 2014

At the World Congress of Accountants in Rome The Accountant took the pulse of a continent full of opportunities for the global accounting industry, as Latin American practitioners met with Carlos Martin Tornero and Vincent Huck

Profession dances to its own tune



IN FOCUSThe Accountant LATIN AMERICA ROUND TABLE

as a business. The CPD that national bod-ies offer should be at more affordable prices for their members. They charge a fortune, despite the members being those who finan-cially maintain the institutes. In addition, our national bodies should monitor and take action against professional malpractice. They should keep a vigilant eye on firms that provide services for which they are not quali-fied or lack sufficient expertise. As I said, this partly explains why banks or regulators tend to underestimate independent firms, which ultimately shapes the market’s dynamics.

TA: What does the market look like in Costa Rica?

Soto Sánchez: I’d say the Big Four have 75% of market share, and 15% the mid-tier. There is still a considerable segment, about 10%, formed by small and medium-sized inde-pendent firms and individual practitioners.

TA: What’s the situation in Panama?

Juan Iván Rogers-Harper: Professional train-ing and education is the key that opens the door of the market. If accountants don’t believe in professional training and don’t look for it, either within the country or abroad, they will lag behind. We have about 15,000 accountants for a country of four million people. But out of those 15,000 accountants, just 15% are members of one of our three national accounting bodies. The situation, I’d say, is similar to Guatemala and Costa Rica. There isn’t support from the

government or from international organisa-tions. We should aim at forcing account-ants to keep up to date with international rules, standards and best practices. This is expensive. But accountants play a crucial role in society and there are worrying signs that society is losing confidence in the pro-fession. For example, as one of the panel-lists at the WCOA said, accountants should fight fraud, corruption and money launder-ing. Yet the widespread perception is that institutions that are supposed to enforce the law aren’t able to counteract this scourge. And in those institutions accountants work without being able, or not knowing how to, fight corruption more effectively. And this is a global perception. Panama is one of the fastest-growing economies in Latin America, with a wealth of foreign investment flows. This investment, however, poses risks too. Sometimes capital of suspicious origin slips through the system and don’t forget that all those investments have passed through an accountant’s hands at some point.

TA: And what does the accounting firms market look like in Panama?

Rogers-Harper: The market share of the Big Four, mid-tier and independent firms could be around 70%, 20% and 10% respectively. In Panama non-Big Four firms are getting stronger. Some professionals leave the big-gest firms to pursue a career with other mar-ket players or to found new firms.

TA: Umberto, let’s hear about Brazil now.

Umberto Tedeschi: We have 500,000 accountants, of which 150,000 are based in Sao Paulo, and the population of Brazil is 200 million. The profession has massive opportunities. Accounting studies are the most sought-after degrees in universities. As in every field of life, though, when a sud-den growth is reported, quality and quantity don’t go necessarily hand in hand. One of the main concerns of the Conselho Federal de Contabilidade (CFC) is to ensure that the quality of the accounting curricula is maintained in each of Brazil’s 27 states. In fact, a proficiency test was reintroduced in order to gain access to the profession and be granted the licence to practise as an account-ant. Another concern for the CFC is to keep the qualification relevant through CPD, for both auditors and accountants. And one of

the main challenges, not just for Brazil but for the whole of Latin America, is the eth-ics of the profession. This closely relates to the issue of fee pressure. We were discussing this between us a while ago. Some profes-sionals bid down fees disregarding quality standards. There’s a constant struggle to dig-nify the profession going on, which connects with the ethics and CPD. In my opinion, this is crucial for the future of the Latin Ameri-can profession.

TA: What does the market of accounting firms look like in Brazil?

Tedeschi: My area of expertise is account-ing and not just auditing. Also take into account that the majority of companies, which represent about 80% of Brazil’s GDP, are not subject to statutory audits. Among the remaining companies, worth 20% of GDP, more than half are international cor-porates whose choice would normally be a Big Four firm. But I should say that in Brazil we have the Big Six. Grant Thornton, BDO plus other local firms are making inroads into the auditing market, particularly among listed companies.

TA: Umberto pointed to the critical issue of fee pressure as a structural problem of the profession. Do you perceive that benefits are put above quality in audit work?

Rogers-Harper, Panama

Umberto Tedeschi, Brazil


EDITOR’S LETTERThe Accountant The AccountantIN FOCUS LATIN AMERICA ROUND TABLE

Rogers-Harper: In theory auditors should be able to estimate the amount of billing hours a commission would require follow-ing the applicable rules and standards. But those estimates are sometimes not entirely accurate because while conducting an audit unexpected issues and questions could arise too. And such issues may require further investigation beyond the budgeted billing hours. It’s a business at the end of the day, and the auditor would go ahead to deliver in time. At that point it all boils down to ethics; it’s the professional’s call – whether the profit outweighs the risk of signing off a potentially faulty report which may eventually compromise the professional’s reputation. In my career as a forensic audi-tor I’ve seen cases of fraud, corruption and money laundering where the accountant or the auditor could have done more. That’s why, for me the future of accountancy lies in adopting a forensic approach to the business from the very early stages. An accountant with a forensic mindset would help prevent many risks.

TA: Can you elaborate on this idea of a forensic approach to accounting?

Rogers-Harper: In conversation with col-leagues at the WCOA I told them: if you have a new audit client just ask the manage-ment and ownership one question. Ask them about the particulars of the initial investment to set up the business. If they don’t remember, you are most probably auditing the finan-cial statements of a shell company. That’s rife in Latin America. And here comes the real challenge for the profession – a foren-sic approach to prevent fraud. The motto

of the WCOA is learning from the past to build a better future for the profession. Let’s look back at recent history. The profession is under fire. Crime, fraud and corruption have given the profession a bloody nose. Govern-ments and financial institutions have fallen apart and don’t tell me that only politicians are to blame. We accountants must stand up for a stricter approach to business. We need another mindset and international support. Accountants are the vigilantes of the world’s finances.

TA: Touching ethical issues, what’s your view on accounting firms rendering consulting and other non-audit services to audit clients?

Rogers-Harper: It’s a tricky one for account-ants. The client may have started with the firm and eventually have grown to the extent of requiring audited financial statements. Normally, the conflict could be solved by changing the partner. But obviously, such a solution wouldn’t work for a forensic audit. Forensic audits make companies venture into the lion’s den. And by the way, big account-ing firms in Latin America aren’t precisely eager to develop this service line. I’ve talked to partners and they aren’t keen on being seen as the police within their industry seg-ments. For example, let’s take the banking industry where the Big Four firms usually take 90-95% of market share. In the event of a forensic audit which detects fraud, the bank would see its dirty laundry aired. That may have a negative impact also for the audi-tor that was in charge of the statutory audit. No one wants to be auditing a bank involved in corruption or fraud or money laundering. And at the same time, those audit firms may

not like to be regarded as the police. As I said, an industry-wide forensic approach, not only for auditors but for accountants as a whole, is the future of the profession.

Soto Sánchez: In Costa Rica, the bigger firms don’t want to turn down any work oppor-tunity. Therefore the firm’s different depart-ments of tax, audit, consulting, etc. would provide the services to the same client – per-haps at the expense of professional inde-pendence. And as I said before, smaller firms wouldn’t be able to compete, due to the lack of adequate and affordable CPD courses. But there’s another problem – the reluctance to enrol for courses because of the irrational fear of ‘what people will say’. Unfortunately, this prejudice exists within the profession; the misleading pride of assuming that if you need a course it’s because you’re not a good enough professional. And to make things worse, some of those who could afford a course would hesitate to sign up for it if it’s during out of office hours or on a weekend.

TA: How is the wider accounting and corpo-rate governance culture in Latin America? For example, would companies value a voluntary audit, undertake internal audits or get man-agement accountants on board?

Soto Sánchez: I think audit, and accounting too, is regarded as an obligation, a burden, or a cost. Many companies still just want the cheapest accountant, regardless of the qual-ity delivered. They just simply want to com-ply with whatever the minimum regulatory requirements in their countries are.

Rogers-Harpers: The evidence of what Isidro

■ BRAZIL

Population 64.3m

Unemployment rate 6.5%

GDP $2.6trn

GDP growth 4%

GDP per capita (PPP) $12,994.7

Foreign direct investment (net inflows) 3.6% of GDP

Inflation 4.7%

Current account balance -3.2% of GDP

Budget balance -1.7% of GDP

Corruption perception index Ranked 69 out of 187

Human development index Ranked 79 out of 187

Sources: IMF; UNDP; WB and Transparency International

■ COSTA RICA

Population 4.8m

Unemployment rate 6%

GDP $53.6bn

GDP growth 4.4%



Inflation 5%






■ GUATEMALA

Population 15.9m

Unemployment rate -

GDP $56bn

GDP growth 3.4%



Inflation 4.3%







IN FOCUSThe Accountant LATIN AMERICA ROUND TABLE

is saying is that companies are increasingly outsourcing their accounting needs. Compa-nies underestimate to some extent the role of the accountants in business. Outsourc-ing means one less headache for them. But accountants can be key leaders within com-panies. Instead, we have enclosed ourselves within the walls of numbers, rules and stand-ards. The accountant needs to get involved in IT, marketing, strategy and several fronts of the business for his role to be fully harnessed. That’s what global management accounting credentials are showing.

López Cordón: Besides better training and ethics, our profession would benefit from stricter processes and monitoring tools to review the quality of accounting firms and practices. In Guatemala we are imple-menting quality assurance systems. This is intended to review accounting firms every three years, regardless of their size and not only for audit work. If the review observed irregularities, there could be sanctions. And governments have also stiffened measures to fight money laundering. For example, in Guatemala accountants are obliged to report to the police any client we suspect could be involved in such wrongdoing. Otherwise we could face prison terms ourselves. The market and the economy will continue put-ting pressure on us. So we are better off self- regulating and self-controlling our profes-sion, being ahead of the game.

TA: Umberto, have the criticisms about Brazil’s FIFA World Cup last year damaged the profes-sion in any way?

Tedeschi: Well, the country had other

rather more urgent needs than building football stadia to be used for four games in a tournament. The World Cup could have been organised spending much less money – that’s the core criticism. Instead, those very resources could have been allocated to other industries, or invested in improv-ing the health or education systems. Fifty years ago Brazil was considered the coun-try of the future, and so it is, still today. Now touching on your previous question about the accounting culture, I think enhanc-ing compliance capabilities is the best meas-ure to prevent fraud, and therefore avoid going through a forensic audit. Whenever there’s a threat, there’s also an opportunity. In Brazil, accountants are considered, so to speak, the family doctors of companies. And many companies are literally “born, grow up and die” with the same accountants. There is an opportunity for the profession to har-ness this loyalty by developing compliance

work as a means to prepare for the audit or prevent fraud and forensic audits.

TA: Have you ever felt patronised by foreign professions reputed to be more advanced?

Rogers-Harpers: In all honesty, quite the contrary in my case. Perhaps it’s because I’ve specialised in a particular niche in the market. But it’s true; almost invariably what comes from abroad is seen as the last Coke in the desert. Nonetheless, there are ambi-tious independent professionals emerging from Latin America. The four of us are inde-pendent practitioners who have attended this congress with little or no support from any organisation, I suspect. We are here at our own expenses, giving our time. We rep-resent ourselves in this forum, but indirectly our respective countries too. There used to be more delegates from Latin American countries. Yet the professional of the future is a global accountant. We need support

from top to bottom if we want to achieve an international profile.

TA: Global accounting bodies would be inter-ested in having more presence in Latin Amer-ica. But for some reason it’s hard for them to enter those countries. Why?

López Cordón: In 2007 we started a project, together with Isidro, to build relationships with the French profession, aiming at creat-ing perhaps a federation for Central America some years down the line. No doubt, cul-ture and language are sometimes obstacles for both parties, but nothing that can’t be overcome with willpower. In fact both pro-fessional bodies, the Guatemalan and the French, managed to sign an agreement in October 2013 to cooperate in the implemen-tation of quality assurance systems in nation-al firms I previously mentioned. Despite the difficulties, this agreement proves that there is always a way. I would recommend to other global professional bodies to be less conserv-ative if they are interested in Latin America. Accountancy is one of the most interna-tionalised professions; it’s a matter of really wanting to get closer between countries. I’m sure we have more things in common than differences between us.

TA: Andrew Harding from the Chartered Insti-tute of Management Accountants told us once that CIMA was very keen on Brazil, yet we guess it’s not easy to enter such a big country?

Tedeschi: As I said, Brazil has been the coun-try of the future for a very long time. Com-panies may have an insufficient knowledge of the country. And, as I said, a ratio of 500,000 registered accountants for a popu-lation of 200 million people.

Rogers-Harpers: How many accountants are not registered? There should be millions....

Tedeschi: I don’t know, but in any case, accountants in Brazil need to be registered in order to practice the profession, otherwise you are out. That’s one of the focuses of the CFC – to ensure accountants have the man-datory licence to practise. Now, my criticism of Latin America countries is that we aren’t united enough. There were some initiatives, such as Mercosur and others to create a trad-ing bloc, but it hasn’t gone further. Abroad we are seen more as a project for the future,

■ PANAMA

Population 3.9m

Unemployment rate 4.2%

GDP $45.6bn

GDP growth 7.2%



Inflation 4.8%






“For me the future of accountancy lies in adopting

a forensic approach to the business from the very early stages. An accountant with a forensic mind-set would help prevent many risks,”

Rogers-Harper


COUNTRY SURVEY EDITOR’S LETTERThe Accountant The AccountantIN FOCUS LATIN AMERICA ROUND TABLE

than a current option. We should do our homework first. In Brazil there’s huge poten-tial. The tax authority is trying to put some order into key aspects such as money laun-dering and tax avoidance. A law has recently been passed whereby all cash transactions in excess of BRL50,000 ($19,000) have to be reported to the authorities. And an e-invoice system has been enforced, so that all invoices paid and issued by any company can be veri-fied by the tax authorities.

Soto Sánchez: A note regarding interna-tional organisations. In Latin America, for example, we have the Inter-American Asso-ciation of Accounting (AIC). But to what extent is this or other organisations making a difference? What’s the benefit for national accounting bodies who are members and support the AIC? And when it comes to IFAC, I do miss representatives of independ-ent and smaller firms at higher levels in exec-utive committees.

TA: In Latin America you have also GLENIFF (Group of Latin-American Accounting Stand-ard Setters) and CILEA (the Committee for Integration of Latino, Europe and America), so what about them?

Rogers-Harpers: They work as clubs. Nation-al institutes are normally part of one of those clubs. It follows those dynamics – the mem-bers of one club hang out in one corner and the members of the other club in the opposite one. I’m missing the synergies between them. And regarding IFAC, I have just shared with them that I’d like the International Institute of Forensic Auditors to be considered for membership. They said they have to think

about it as IFAC membership is for account-ing institutes. However, take into account that there’s a new profession, forensic audit, which is being led by accountants. In general our profession, and in particular interna-tional organisations, need to be more open. We need to play them some tango or samba and see if they become more sociable.

TA: Talking of which, in Europe the profes-sion has to face the music and implement the reform of the audit market, including manda-tory rotation.

Rogers-Harper: In Panama there is already mandatory rotation for certain industries. For instance, within the financial industry it’s every four years. The idea is to bring a fresh pair of eyes onboard. But I don’t think that rotation solves any problem. The cur-rent audit firm has a wider knowledge of the company than any other firm. I’m dealing with a fraud case where audit firms rotated every four years. Three firms in total dealt with the audits. So I would ask the lawmak-er in Brussels, what’s the point? This policy is doomed to fail. All audit firms follow the same rules. And you know how hard it is to get clients? You have to play golf, hang out at the social club, and that kind of stuff. As I said, what matters is a forensic approach to the profession at all levels. We would only change the world if auditors and account-ants really challenge their clients. Otherwise, mandatory rotation could just mean bring-ing in one ‘yes man’ after another.

López Cordón: In Guatemala it isn’t compul-sory by law. There’s just rotation of the audit partner – although the wider debate about

audit quality in Europe has been closely fol-lowed.

Soto Sánchez: In Costa Rica we have manda-tory firm rotation every three years for the audits of financial institutions. Companies then have to choose from a list of qualified audit firms that meet the requirement to conduct such audits. More than audit rota-tion, I think the priority in Costa Rica would be sitting exams every three or five years to keep the qualifications of our accountants relevant.

Tedeschi: I think one of the key questions is the moral hazard. Technically, the audit will be performed according to the amount of hours budgeted for the commission. But if the auditor sees something that requires further investigation, that should be tackled or flagged up. However as it goes off budget, the auditor could consider that it’s not the scope of the audit work and may carry on with the audit. The case of Petrobras and PwC reflects this issue; the auditor didn’t want to certify the company’s Q3 financial statements due to an alleged scandal involv-ing a kickback scheme. In Brazil since 2014 all companies, no matter their size, have to hand a statement to their accountants expressing that they are not aware of any fraud or irregularity within the company.

Rogers-Harper: Is it for all companies? That’s really an improvement that should be high-lighted.

Tedeschi: Yes for all companies, even the smallest ones.

■ BRAZIL MARKET SNAPSHOT

Top earners Top employers

Rank/firm Revenue (BRLm) Audit & Accounting (%) Rank/firm Staff Partners

1 PwC 1,199.9 - PwC 5,800 -

2 Deloitte 1,094.0 - Deloitte 5,000 -

3 EY 942.0 - EY 4,447 -

4 KPMG 887.3 - KPMG 4,000 -

5 Grant Thornton 103.4 18 Grant Thornton 873 22

6 BDO 91.2 60 BDO 815 36

7 Mazars 90.0 84 Mazars 777 17

8 Baker Tilly International 58.0 64 Baker Tilly International 428 31

9 RSM International 34.5 61 Moore Stephens International 386 42

10 Moore Stephens International 28.4 72 Nexia International 368 27

Source: International Accounting Bulletin; Data as of firms’ respective 2013 year-ends

Translated by Carlos Martin Tornero


Standing on the sidelines at Rome’s World Congress of Accountants (WCOA), this publication had the opportunity to meet representatives

of the Iranian delegation for lengthy discus-sions.

Amid the WCOA’s busy schedule, a group of national practitioners shared with The Accountant exclusive insights into what it means being an accountant in a country strangled by economic sanctions and whose accountancy industry was forced to sever ties with international counterparts not so long ago.

One of the Iranian practitioners who met with us is Houshang Khastoui, a veteran auditor and co-founder of the Iranian Asso-ciation of Certified Public Accountants or IACPA.

Khastoui jokes about how similar the acronym of its US equivalent is, the Ameri-can Institute of Certified Public Accountants (AICPA), when said in the same breath.

IACPA council vice-chair and chairman of an investment advisory firm, Saeed Jamshidi Fard, spares a thought for the Iranian pro-fessionals who miss, he says, the exchange with international colleagues, including the Americans. “Globalism means removing barriers and obstacles. Knowledge and scien-tific exchange shouldn’t be restricted by the political environment,” Jamshidi Fard says.

Khastoui elaborates: “International stand-ards means globalisation. Sanctions are against IFRS. What does globalisation mean in such circumstances?”

Amir Pooryanasab, a member of the Irani-an Institute of Certified Accountants (IICA) and editor of the IICA official magazine (Hesabdar or Accountant in Farsi), says the Iranian profession has influenced the govern-

ment to adopt IFRS as a model for national standards.

Abbas Vafadar, an IACPA council mem-ber and managing director of Iranian firm Azmoon Pardaz, notes that the Iranian secu-rities exchange organisation has agreed that listed companies should be allowed to use IFRS.

Jamshidi Fard adds: “It’s voluntary dur-ing the next two years. After that period it becomes mandatory for them. But IFRS are translated [into Farsi] and well-known in Iran.”

A circular from the Tehran Stock Exchange (TSE) seen by The Accountant states that from the Iranian year 1395, or 2016 in the Gregorian calendar, listed com-panies must prepare IFRS-compliant finan-cial statements. However a spokesperson for the TSE tells this magazine that the official date is 2017, quoting the Iranian Capital Market Authority.

International relationshipsInevitably, one vital issue to understand Iran’s modern accounting industry emerges during the conversation. In April 2010 the last Big Four firm with a presence in the country, KPMG, severed ties with its affili-ated national firm Bayat Rayan.

The exodus steadily continued, reaching a tipping point in 2013 when Nexia, Grant Thornton International, RSM International and Crowe Horwath International followed suit.

Behind the exodus has been a lobby campaign by the US pressure group United Against Nuclear Iran (UANI). By naming and shaming companies with any commer-cial relationship with Iran, UANI targets the country’s economic lifeblood as a means to

■ IRAN

At a glance

POPULATION

78.1m

UNEMPLOYMENT RATE

14.7%

GDP

$326.3bn

GDP GROWTH

1.1%

GDP PER CAPITA (PPP)

$13,241

FDI (NET INFLOWS)

0.8% of GDP

INFLATION (CPI)

21.1%

CURRENT ACCOUNT BALANCE

1.9% of GDP

BUDGET BALANCE:

-4% of GDP

CORRUPTION PERCEPTIONS INDEX 2013

Ranked 136th out of 175

HUMAN DEVELOPMENT INDEX

Ranked 75th out of 187

Source: The Accountant, IMF estimates, UNDP, WB and

Transparency International

IRAN COUNTRY SURVEY

International sanctions eroding business activity, the exodus of international firms, and lobby groups calling for sanctions to be stepped up a notch. Despite the adverse conditions, the Iranian profession is proving to be resilient – while everyone keeps an eye on the nuclear negotiating table. Carlos Martin Tornero investigates

Clean slate after the embargo

A man pays tribute to Persian poet Hafez at his tomb in Shiraz. Photo by Vincent Huck



IRAN The AccountantCOUNTRY SURVEY

counteract its alleged nuclear threat. Our interviewees remember this episode

well, so we can’t afford to miss the opportu-nity of asking them about the status of their relationships with international firms.

Vafadar says there are some links, yet not formal or direct. Asked if he can name any names he prefers to be discreet, but says: “A lot of Iranian firms have informal relation-ships with big firms. It’s a form of coopera-tion between professionals. For example, if one of their clients needs to find a firm in Iran to do some work,” Vafadar says.

Jamshidi Fard adds that the need for refer-rals comes not just from the clients of big international accounting firms but also from smaller ones, as the majority of companies in Iran are SMEs.

He adds that the door is open for all types of international firms and explains that those referrals sometimes go through the local institutes, which both have a certain amount of experience in international affairs.

Our discussion in Rome continues, joined by IICA president Ghasem Fakharian and general secretary Mohsen Ghasemi, this time focusing on the profession and the interest of young people in pursuing a career in accountancy.

According to the Iranian delegates at the WCOA, it’s one of the most popular and sought-after degrees at universities with 250,000 students currently, higher than law and medicine due to its low unemployment rate.

The audit track proves to be in high demand too, despite being granted a licence requiring preparation for a tough exam. Approximately 6,000 candidates, who must be IACPA members with at least six years’ experience, take the test every year. Just 100 of them pass, according to Vafadar.

A minimum of three licensed IACPA members can set up an audit firm. Currently

there are 266 firms which are reviewed on a yearly basis by the IACPA. After this quality control, firms are ranked in four categories: A, B, C and D, with A reflecting the high-est quality. The review process could involve losing the registration if the outcome is unsatisfactory.

As of January 2015, there were 69 firms ranked A; 121 B-ranked firms; 41 C-ranked firms and eight D-ranked firms. The remain-ing 27 are new firms which haven’t been reviewed by the IACPA yet.

Despite not being able to provide a rank-ing by revenue or income, delegates state that there’s no gap in the market between the first four players and the following mid-tier peers as in other countries.

Vafadar points out that size is not that important and all reviewed firms should be able to uphold good standards. However, the differences in quality are reflected by those A to D rankings, and there is increasing spe-cialisation of firms by sectors or industries.

At this point in the conversation, delegates point out that one of the issues Iran faces is still a weak private sector as the majority of businesses are state-owned.

This is an issue for the accounting profes-sion as well, Vafadar says, looking back to the 1979 revolution to offer perspective on the matter. In the aftermath of the Iranian Revolution, businesses were nationalised, international accounting firms left the coun-try and the local ones had to close because of a drop in demand for their services. Three governmental organisations were established to audit the recently-created state-owned business sector.

Four years later, in 1983, a law was passed to allow the merger of the three. By 1987, the resulting body, called the Audit Organisation of Iran, was also responsible for setting accounting and auditing standards.

“It’s clear that having all those responsibilities in the hands of one entity and not involving stakeholders in the process of standard-setting is not ideal,” Vafadar notes.

As such in the nineties, shortly after the war with Iraq, the government started lib-eralising the economy. And in Iran’s first five-year development plan, Vafadar says, the need for private sector audit firms was acknowledged.

As a result, the parliament passed anoth-er law establishing the IACPA, which was granted power to supervise audit firms of CPAs and to develop the Iranian profession.

But the abundance of state-owned busi-nesses in Iran’s economy still remains a chal-lenge for the profession too, Vafadar says, because the demand for its services would be greater with a more dynamic private sector.

Another question we put forward, on the back of the ongoing EU audit reform imple-mentation, is if there is mandatory audit rotation and if audit firms can render other services.

As Vafadar explains listed companies must rotate auditors every four years and no other services to the audited company can be provided. Auditors themselves are not allowed to take other jobs, apart from teaching at university.

International perspectiveThe conversation with the Iranian delega-tion at the WCOA left a lasting impression on The Accountant’s editorial team. Eager to obtain further insight and analysis, this publication contacted stakeholders from the global accounting industry.

We focus on two main issues: what impact the sanctions may have had in the Iranian profession’s fabric. And whether or not, despite the embargo, there’s interest in the Iranian profession and market.

The Association of Chartered Certified Public Accountants (ACCA) head of North-ern Gulf Anis Motorwala, who has respon-sibility for Iran, recently travelled to the country.

ACCA doesn’t have an office for its scarce Iranian membership – about 15 profes-

sionals. However it counts 350 students, who can take ACCA

computer exams in an Iran-based examination centre.

Motorwala predicts a higher demand for skilled financial professionals if the sanctions and the envi-

ronment eases up in the near future, as Iran will start inter-

acting in international markets.“These skills can improve. For exam-

ple, banking operations are basic in certain aspects. Banks are lending, based on the bal-ance sheet and the income statements, but they don’t look at cash flow,” Motorwala say.

■ IACPA

Total membership: 2,106

Male Female Diversity

1,996 110 94.5 % vs 5.5%

Active membership: 1,460

1,382 78 94.4% vs 5.6%

Audit firms: 266

A-rated B-rated C-rated D-rated

69 121 41 8

Source: IACPA; Notes: 27 firms haven’t been assesed yet; The other professional body, the IICA, has 6,502 members (598 female) . At the time of publication the IICA didn’t participate in this survey

Abbas Vafadar

NEWS


IRAN COUNTRY SURVEYThe Accountant

Nonetheless the goal to be IFRS-compliant by 2017 is a powerful indicator for Motor-wala which shows the aspirations of the Ira-nian accounting profession and the appetite for achieving professional qualifications.

“There’s a strong culture of education in Iran and accounting has a large intake at the university undergraduate level. More than 200,000 students enter the account-ing stream every year. Some of the private universities are very open and talk about aligning their curricula according to ACCA’s programme,” he says.

According to Motorwala, many stake-holders within the banking sector are already pushing to improve the financial capabilities of the staff and are investing in capacity building.

A private bank, Saman Bank, has created an internal academy and a university. And another financial institution, Bank Pasagard, is a significant ACCA employer and has its own computer exam centre

Motorwala points out another relevant factor for the profession’s development, if conditions for doing business improve – the Iranian diaspora.

“If markets open up, a lot of English-speaking Iranians living abroad may consid-er relocating to Iran. I not only heard this, I confirmed it on the ground. That’s a strong sign, from our perspective, to look at,” he says.

From his recent visit to Iran, Motorwala appreciates some interesting developments. For example, big players from China and the former-Soviet area, such as the Savola Group and other big family businesses, already have a presence in the country.

Asked whether he believes international accounting firms would be interested in re-discovering Iran’s opportunities, Motorwala perceives that everybody is watching very closely.

“Even without lifting the sanctions, if you go and visit and compare what you hear about Iran and what you actually see, they are two different economies. Inflation is a big issue but it’s a quite operational economy despite the challenges,” Motorwala says.

And regarding what impact the sanctions and long-lasting pressure from lobby groups such as UANI have made to the Iranian accounting industry, Motorwala shares his personal views: “It may have made local firms stronger, because they have learnt to find ways out. They might have become sav-

vier or take a bigger share of the business.”We question HLB Modaberan Auditing

Services partner Nasrollah Saleh, one of the few Iranian firms that keeps an internation-al affiliation. To what extent has the exit of international accounting firms damaged the profession?

“Professional ethics have improved. We are more or less adopting international standards,” Saleh says. “The IICA issues standards, the IACPA reviews audit firms yearly. To be honest, as far as the profession-al practice is concerned we’re improving.”

We point out that perhaps one of his col-leagues, with no international affiliation, may not share his analysis.

“When international firms are practising somewhere, they have their own manuals, procedures and practices,” he says. “This could help with the training and with inter-national regulation. But I’m practising in Iran, where accounting firms are investi-gated and supervised, using defined stand-ards which have been issued by the national body.”

Saleh notes that the work of the two insti-tutes, combined with the securities exchange organisation has been crucial in improving the Iranian profession, particularly in the past 15 years.

For him, therefore, while sanctions have affected the business activity of the country, a factor that may put off interna-tional accounting firms from entering or re-entering Iran, the professional practice hasn’t been hurt that much.

He explains that even when there were internationally affiliated firms in Iran, they were registered and worked under the local name. “Before they left, local firms were auditing and issuing audit reports under

their names,” Saleh says. “When they left, more or less nothing changed. The same firms continued their auditing.”

Asked if despite the embargo there are off-the-radar talks or communication between Iranian professionals and international firms, he’s not sure about it, but adds that some cooperation might have been needed.

In that respect Alliott Group chief execu-tive James Hickey says that just in the last few months his association has registered two needs for referrals from clients which have got business in Iran. One of them was from a US Alliott member firm whose client was looking to sell commercial properties in Iran.

Hickey acknowledges the huge potential, not only of the country but the whole region: “We have to be there. The Iraqs, the Irans and other places perhaps are not in people’s bucket lists. But any international group has to be there,” he says.

Mentioning the pressure suffered by the international accounting firms before leav-ing the country, some of them with govern-ment contracts in the US, Hickey notes a big difference between being a network and an association.

He says at Alliott all members remain totally independent from one another. “I can understand that in the case of the Big Four and larger networks, that pressure can influence decisions. But as an association we don’t chase as a group government work. We are looking to service the entrepreneurial mid-tier SME businesses,” Hickey says.

As he explains those referrals don’t involve fee sharing. It’s typically the refer-ring firm looking for a peer in the country which would take care of its client. Once introduced, the client would take over the

■ WORLD NUCLEAR FORCES

Country Weapon stockpile View of the International Campaign to Abolish Nuclear Weapons:

Russia 8,000 It spends more on its nuclear arsenal than all other countries combined.

United States 7,315 It is investing heavily in the modernisation of its warheads and delivery systems.

France 300 Most of its nuclear warheads are deployed on submarines equipped with M45 and M51 missiles

China 250 It does not appear to be increasing the size of its arsenal.

United Kingdom 225 It is considering whether to overhaul its nuclear forces or disarm.

Pakistan 100-120 It has increased the size of its nuclear arsenal considerably in recent years.

India 90-110 It developed nuclear weapons in breach of non-proliferation commitments.

Israel 80 It has a policy of ambiguity in relation to its nuclear arsenal, neither confirming nor denying its existence.

North Korea <10 It is not clear whether it has the capability to deliver them.

Source: Federation of American Scientists, 2014 and the International Campaign to Abolish Nuclear Weapons



IRAN The AccountantCOUNTRY SURVEY

running of that transaction and would usu-ally invoice the referred firm.

Hickey says his association hasn’t got, at the moment, any firm “knocking on the door” to join, but Alliott is very keen on Iran. “We’re clear about the relationship that we have with our members in their respective countries. As long as there’s trans-parency in what people are trying to do and these are legitimate businesses looking to do legitimate work, we’re there to support them on an independent basis.”

The Accountant contacted a large number of international firms and in the majority of cases, the interest in entering the country if sanctions are lifted, is indicative of Iran’s accounting industry potential.

One of those is Crowe Horwath Inter-national which before its departure from Iran in 2013 was represented by Hoshiyar Behmand & Co, a firm that had been part of a Big Four in the past.

Crowe Horwath International regional director for EMEA Bernard Deloménie says the network was active in Iran working both for domestic and international companies, but always within the limits of the interna-

tional embargo.Crowe Horwath International was one of

the international firms that were put under pressure by the US lobby group UANI. Delo-ménie says that when they received the let-ters from UANI asking them to leave Iran, the network reviewed the situation with its external legal advisers, who confirmed that the international firm was not infringing the embargo.

“However, after discussing with our Ira-nian colleagues, we agreed that it was better to part company for the time being and we made our decision accordingly in the com-mon interest of everybody,” Deloménie says.

He adds: “We hope that the political situ-ation will evolve positively and that we will be able to readmit our previous member firm to our network.”

However, if the international accounting firms weren’t doing anything illegal why didn’t they stand up and fight back, uniting against the challenge posed by lobby groups such as UANI?

If the demands of those lobby groups were beyond what could be considered reason-able, why wasn’t there a united voice from the profession defending the legitimate right to have a member firm in Iran?

Didn’t UANI’s challenge represent one of those occasions when the global profession should put aside industry squabbles and respond in unison?

UANI chief executive Mark Wallace tells The Accountant: “Certainly, we were an encouraging force, but I’d like to think that those accountancy firms took what I see as a wise decision on their own volition.”

Wallace, a former UN ambassador, describes UANI’s lobby work as a “hard soft power” capable of affecting foreign policy where governments can’t or won’t act. Dif-ferent sources and media reports link UANI with Jewish and pro-Israel groups.

The lobby group was created in 2008 when Wallace was friends with the late US diplomat Richard Holbrook, former CIA director Jim Woolsey and diplomat Dennis Ross among others.

The founders shared the strategy that by targeting the vulnerabilities of Iran’s econ-omy, foreign policy could be influenced, he says, without considering American boots on the ground.

Wallace says UANI has focused on every important business sector in Iran, from the oil industry, to the automobile sector, to the shipping industry.

“We’ve tried to run the gamut, and in many ways peel the onion of economic sup-port, layer by layer,” he says. “And look, I think accounting firms were an important component of that. Obviously any large-scale project, infrastructure for example, is under the control of the Islamic Revolution-ary Guard Corps (IRGC),” Wallace says.

He continues: “Those big projects are very difficult to finance and operate with-out financial statements, audit and serious accountancy. So hopefully these firms saw their responsibility in aiding and abetting the sustenance of that economy, and that they didn’t want to be participating in this.”

Asked if he doesn’t see a strong account-ancy profession as a driver for change, trans-parency in government’s finances, as well as a force capable of strengthening democracy, Wallace says that wouldn’t be the case in Iran.

“You can’t do any serious business with-out the involvement, either direct or tacit, of the IRGC. Their revolutionary cronies have been insinuated into the economic levels of power in order to dominate society, prevent any change and engage in horrible human rights violations against its own people.”

Asked if UANI’s pressure on international accounting firms could backfire in the sense of radicalising people in Iran, instead of

Politics

In post-revolutionary Islamic Iran the

Supreme Leader Ayatollah Ali Khame-

nei is the ultimate ruler of the coun-

try, elected for life by a religious elite.

There are presidential and par l ia -

ment ar y elections ever y four years,

but the Supreme Leader has the f inal

decision on all crucial public af fairs.

Candidates running for presidential and

legislative elections are subject to a vetting

process carried out by the Guardian Council.

According to a BBC Monitoring’s report

about the past elections, this process

aims at checking the piety and loyalty

to the Islamic Republic of candidates. Of

the total 686 candidates who registered,

only eight of them were approved by the

Guardians Council, 30 of them women.

As the BBC also reported there is ambiguity in

Iran’s constitution about the participation of

women in presidential elections. The council

interprets that law only allow women to run as

members of parliament, not for president. <

“I’d like to think that those accounting firms left on their

own volition. You can’t do any serious business in Iran

without the involvement, either direct or tacit, of the Islamic Revolutionary Guard Corps,”

Mark Wallace, UANI



supporting entrepreneurial businessmen who would enhance the private sector, Wallace says: “The best example is that Iran was operating for many years without a sanctions environment. Those accounting firms were there for a long time, profiting under the auspices of the Ayatol-lah and [during that time] didn’t help the Iranian people to stand up to the dictatorial theocracy they live under.”

In Iran’s 2013 presidential election, a moderate and well-educated candidate Hassan Rouhani, who gathered the pro-reform votes, was elect-ed and succeeded radical hardliner Mahmoud Ahmadinejad. Nonetheless, Wallace remains sceptical about the potential for change that President Rouhani can bring out.

“He was able to be elected in a non-democratic election, let’s be serious. He was one of six hand-picked people [originally eight, two withdrew] who were allowed to run by the Ayatollah and the Guardian Council. But he managed to present himself as a reformer who would ease sanctions,” Wallace says.

“Rouhani is a very charismatic friendly look-ing man, but he harbours the same ideologies as Ahmadinejad and, most importantly, the Aya-tollah, who is obviously the Supreme Leader of Iran.”

Wallace says a vigilant eye is kept on all cam-paigns launched by UANI, including the one tar-geting accounting firms: “If the firms are engag-ing in support activities to Iranian practitioners and we found out about it, I think the risk to those firms is so monumental.”

He adds that many accounting firms do enor-mous amounts of work in the US, and otherwise they would be in a very vulnerable position: “We would bring pressure to ensure that they didn’t have those opportunities in the US and the US government. From a business decision [perspec-tive], if [firms] had a choice of doing business in the US or doing business in Iran, they would be a little bit foolish not to take the US.”

One factor that needs to be considered regard-ing UANI’s naming and shaming campaign is to what extent could what the international

accounting firms were doing be considered ille-gal. Would paying membership fees to an inter-national network constitute any trading activity at all?

On the other hand, international accounting networks are typically formed by independent member firms. One of those member firms, based in a country where trading with Iran is not for-bidden, could technically establish contact with Iranian peers.

Therefore, what’s really been achieved by UANI’s campaign against accounting firms? If, as many practitioners have argued, the Iranian profession has become more resilient as a result, then UANI’s campaign could have backfired.

If professional collaboration between col-leagues and former colleagues is hypothetically possible, either through referrals or simple net-working, then is not UANI’s campaign doomed to fail?

Moreover, it wouldn’t be exaggerating to say that international accounting firms might be queuing up to enter (or re-enter) Iran, judging by the words of IACPA’s Vafadar: “Considering the positive signs from the result of sanctions nego-tiations, the relationships between Iranian audit firms and the international ones have started, but there have been no official agreements between them.”

He doesn’t share, however, the analysis expressed by his colleague at HLB Modaberan Auditing Services, partner Nasrollah Saleh.

For Vafadar, the exodus of international firms has prevented Iranian firms from accessing up-to-date methodology, knowledge and best practice, particularly first-class advisory capabilities which are one the highest sources of revenue for firms globally, he says.

Vafadar also regrets that the sanctions do not allow Iranian companies to list on foreign stock exchanges, which consequently hinders the aspi-rations of Iranian audit firms to enter the global market of professional services. And internally the embargo has reduced demand. <

NEWSIRAN COUNTRY SURVEYThe Accountant

“The relationship between Iranian audit firms and the international ones have started, but there have been no

official agreements. Western countries should be realistic and respect Iran’s

right in the international stage,” Abbas Vafadar, Iranian CPA firm

Azmoon Pardaz

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Carlos Martin Tornero, The Accountant Editor: Journalist of the Year for Regulatory Issues

2014 State Street UK Institutional Press Awards

Celebrating140 years

IAB interview

Documents

Transcript of IAB interview