Thank you very much for your kind introduction. I am delighted and honored to speak before this FEE Assembly, among so many leaders of our profession. Your President David Devlin and your Secretary General Henri Olivier have been great supporters of IFAC and its work and for that I am very grateful for this. The more we collaborate, the more we can achieve. I am very much looking forward to working with your incoming President, Jacques Potdevin, and with your new Chief Executive, Olivier Boutellis-Taft.

I would like to thank your Chairman, Willem van Wijngaarden, and your Chief Executive, Gert Smit, for inviting me to speak to you today. Gert Smit has been an active supporter of IFAC, serving as a Technical Advisor on the IFAC Board - including at our meeting in Istanbul last week - and I would like to recognize his dedication and commitment to the accountancy profession both here in the Netherlands and globally.

The accountancy profession is standing strong and looking ahead. In recent years, the expectations of our profession have rightfully increased. We have not only met these expectations; we have in many cases exceeded them. We have concentrated on doing what is right and necessary, not for ourselves, but for the public who has entrusted us with their confidence. We have the conviction and the talent to keep working in that direction. The hearts and minds of professional accountants are willing and prepared to respond to the future.

I am very proud to have the honor of presenting the IFAC Sempier Award to a professional who I deeply respect for her dedication to this profession.

She is a person of impeccable character and great courage. For the past 40 years she has helped our profession address ethical issues at both a national and international level, doing so with the utmost integrity. For 10 years, she served on IFAC’s Ethics Committee – now the International Ethics Standards Board of Accountants – including five years as its chair. And she served as chair during some of the most challenging times in our profession’s history. Under her leadership, in January 2002, IFAC issued a major revision to its Code of Ethics for Professional Accountants, including a conceptual framework approach for independence requirements for assurance engagements. This approach has now been incorporated throughout the entire IFAC Code of Ethics.

Her work on ethical issues has not been confined to IFAC. Prior to her work with IFAC, she was chairman of the Ethics Committee of the American Institute of CPAs.

I would now like to invite Marilyn Pendergast, the IFAC Sempier Award winner, to join me on the stage.

Marilyn, I highly respect and admire you. Thank you for all you have done. It has been good for the profession. More importantly, it has been good for the public that we serve.

On behalf of IFAC, please accept this award in recognition of your contributions to IFAC and this great profession of ours.

Congratulations Marilyn.

Overview

Good morning, ladies and gentlemen. It is a privilege for me to be the chairman in this first plenary session, at this magnificent congress on the accountancy profession. Here with us this morning we have a panel of distinguished speakers, individuals who have already demonstrated their commitment to the development and growth of societies and economies around the world.

Ladies and gentlemen. It is a pleasure to be here with you today for the SC International annual conference and to commemorate the 20^th anniversary of the founding of SC International, one of the top 25 global accounting associations. Congratulations on reaching this important milestone.

I would like to thank Mr. Donal Watkin, your Executive Director, for the invitation to be here with you today. The firms you represent are a critical constituency of our international profession and I foresee that you will play an even greater role in the years to come in serving clients around the globe. We know that growing economies in Asia, where you have a strong presence, as well as in other parts of the world are in increasing need of services from professional accountants, as our role, indeed your role, is vital to assisting them in achieving economic growth.

I have been asked to speak to you today about the future of the accountancy profession. While our past success as a profession is a good foundation for the future, predicting the future simply by looking at the past assumes that conditions remain constant. That is like driving a car by looking only in the rear view mirror! 

Conditions certainly are not remaining constant. The environment in which we work has changed dramatically in the last few years and we are likely to see more significant changes in the upcoming years. Whether we are working in large, medium, or small firms, I believe that our fundamental duty is to the public interest and that our current and future activities must focus on achieving this goal. This is because our profession will have a future if and only if it serves, and is seen to serve, the public interest above all else. This morning, I will consider what future the profession might face and what IFAC is doing to bring about a successful future. I invite you to think about three interrelated global trends:

• First, the nature of business relationships will change in line with the changing balance of economic and, ultimately, geopolitical power between East and West, in particular with the rise of major economic powers in Asia, such as India and China. We are already seeing the success and vibrancy of their economies. Both these nations have big advantages – an enormous home market with few language barriers, the ability to spread research and development costs, huge investment in education and modern technology and mobile and educated workforces.
• Second, this shift will have a consequential effect on business and on reporting performance. Eastern business relationships are predominantly relationship-based, not transaction-based, and this is a major shift in perception for the West. Western business men and women – from the European Union, the United States and other nations – will need to look more closely at the development of financial and non-financial reporting as the values, expectations and decision-making criteria of society change.
• Third, the imperative that the developed world should be doing more to help developing nations, to benefit from globalization in a truly fair way, will become a primary focus of achieving world financial stability. Clearly, this objective is right for its own sake – both morally and ethically. In this effort, professional accountants will contribute where our expertise is most valuable, by building an investment climate of trust and by supporting both institutional strengthening and organizational performance throughout the world.

I am not alone in believing these to be significant trends. They are also recognized by business and government leaders, international standard setters, regulators, and international development and funding agencies.

Our profession has historically been responsible for the spread of financial knowledge and for a commitment to helping others around the world to develop the capacity to succeed. The growth of the profession has mirrored the growth of the capital markets and clearly – in business, practice and the public sector – we accountants are recognized as being intimately tied to the development and maintenance of sound financial infrastructures and of trustworthy, sustainable institutions. There is no doubt that a strong accountancy profession is fundamental to the economic success of every nation. The issues are common to countries throughout the globe, so it is right that we address them globally, as we do, through the International Federation of Accountants, as well as by acting locally, through national institutes and through firms such as yours.

Our response is important not only for the future of the accountancy profession but also as part of our responsibility to the future of the societies in which we live and work. Ours is a profession of people. What unites us is not simply shared technical expertise, but rather a shared commitment of people: professional accountants, to a common set of values, common objectives and a mission to serve the public interest.

Yes, we do need to address competitive pressures, for example, by maintaining our competency through Continuing Professional Development, by demonstrating our commitment to quality and to transparency, by delivering relevant and needed services and by being market oriented as professionals and by leveraging our strengths through associations such as the one which you have formed. But even more, we need to stay true to our core purpose of serving the public interest. Preparers of accounts must safeguard the integrity of financial statements. Practicing firms must meet both the challenges of running a business, thereby attracting high quality people into the profession, and safeguarding the quality, integrity and value of the audit. Accountants in the public sector must safeguard integrity in governments’ relationships with their citizens.

Our response to the trends I have talked about rests on three things:

• Making sure that we keep the public interest at the forefront of our activities – whatever sector we work in;
• Emphasizing the importance of ethics in all that we do – and promoting ethics throughout the whole financial reporting chain; and
• Supporting organizational performance by thinking globally – not just about our own businesses, but also in terms of global standards that promote transparent and useful information for decision making.

Public interest

So first, let us consider the public interest. There are three major initiatives, among others, that demonstrate our profession’s commitment to quality and that serve the public interest: the IFAC Member Body Compliance Program; the Forum of Firms and its commitment to quality; and our standard-setting initiatives.

Let me take a moment to tell you about the IFAC Member Body Compliance Program.  This program supports the development of high quality auditing, accounting, ethical, educational and related quality assurance and disciplinary standards in IFAC member bodies throughout the world. The program is intended to guide accounting institutes in the full spectrum of their professional responsibilities and to demonstrate a shared commitment to our profession’s values of integrity, transparency and expertise. As part of the Compliance Program, members and associates provide information on their compliance with IFAC’s membership requirements. This includes promoting and incorporating international standards, issued by IFAC and by the International Accounting Standards Board, into national standards and implementing quality assurance and investigation and discipline programs to monitor compliance with applicable professional standards. Responses to the Compliance Program are posted on the IFAC website once agreed with the member or associate.

The responses provide a valuable global snapshot of the accountancy profession from a standards perspective. Additionally, they help IFAC to gauge where it needs to focus its development work. Lastly, but perhaps most importantly, the responses to the questionnaires demonstrate the global profession’s willingness to be accountable for its actions to meet high standards, to deliver quality and to protect the public interest.  Phase 1 of the programme is complete.  Phase 2, which requires members and associates to complete a self-assessment questionnaire about their best endeavours to comply with IFAC’s membership requirements, is in progress. Almost all have completed their questionnaires and nearly forty are already available for you to review on our website.

I encourage you to review these responses to obtain information on the standard-setting and regulatory structures in countries around the globe and better to understand the extent to which international standards are promoted and followed in each country. This information could be valuable to you as your firms expand their operations.

The second program I want to discuss with you today is the Forum of Firms. 

In addition to the Member Body Compliance Program, IFAC, through the Forum of Firms, is able to promote convergence and adherence to high ethical values. The members of the Forum of Firms, which is comprised of over 20 global networks and associations of public accounting firms, have committed to the use of International Standards on Auditing and of the IFAC Code of Ethics for Professional Accountants for transnational audits. Additionally, these firms have committed to use the IAASB’s International Standard on Quality Control 1, which establishes a high quality standard for the quality control systems within the firms. This commitment to IFAC standards and to the promotion of high quality and consistent performance was reinforced in February 2006 with the approval of a new constitution for the Forum of Firms. The new constitution updates membership requirements to emphasize the firms’ commitment to audit in accordance with the IAASB’s International Standards on Auditing, and all members of the Forum must show that they meet all the requirements to be deemed to be full members. The requirements for membership and the names of all members of the Forum are listed on the Forum of Firms website, which is www.ifac.org/fof.

The Transnational Auditors Committee (TAC) is the executive committee of the Forum of Firms and also a committee of IFAC and is dedicated to meeting the needs of the Forum. Essentially, it assures that the voice of the firms is heard. It identifies audit practice issues and when the issues suggest changes in auditing or assurance standards may be required, it recommends to the appropriate IFAC standard-setting boards that the issue be reviewed. The TAC also provides a forum to discuss "best practices" in areas including quality control, auditing practices, independence, and training and development and acts as a formal conduit for interaction among transnational firms and international regulators and financial institutions with regard to audit quality, systems of quality control, and transparency of international networks. Lastly, the TAC nominates five candidates to serve on each of IFAC’s standard-setting boards (except for the IPSASB). 

I encourage SC International to consider membership of the Forum of Firms, as I believe that it represents a substantial opportunity for networks and associations visibly to demonstrate their commitment to quality to their clients, to regulators and to the public. Further, members of the Forum have found the Forum’s membership framework to be an extremely useful means to promote and monitor consistent high quality audit delivery in each of their member firms.

Let me turn now for a moment to our standard-setting initiatives. IFAC, through its independent standard-setting boards, sets standards in four areas: auditing and assurance, ethics, education and public sector accounting. Time does not permit me to elaborate on the roles of all of these boards or to describe all of the new standards, but I would like to highlight for you now a few of those which are most significant to well informed markets.

In the area of auditing, the International Auditing and Assurance Standards Board (IAASB) sets international standards on auditing and assurance, quality control and related services that are recognized throughout the world. A key objective of the IAASB is supporting international convergence to its International Standards on Auditing (ISAs). So far, more than 100 countries worldwide have adopted ISAs or are using them as the basis for national auditing standards. In addition, I am very pleased to report to you that at its General Assembly meeting, earlier this month, the World Federation of Exchanges announced its endorsement of ISAs. This important endorsement by the World Federation of Exchanges, which represents 57 securities and derivative markets that account for more than 97 percent of world stock market capitalization, provides important recognition of the high quality of the IAASB’s standards and of the reforms that we have implemented over the past three years to protect further the public interest and to enhance the transparency of the IAASB and of our other standard-setting boards.

To strengthen support for convergence at the national level, the IAASB has developed new guidance, for national auditing standards setters that adopt its standards with limited modifications, which was issued in July. While not intended to be a definitive statement on convergence, the document provides guidance on the extent to which modifications to adopted international standards are permitted, while still allowing the national standard setter to assert that the national standards conform to the international standards.

To ensure that its standards are clear and understandable the world over, the IAASB has undertaken a significant project to improve the clarity and structure of its standards. In September, it approved the first three standards redrafted in its clarity drafting convention, which will be released later this year. The IAASB has now undertaken an ambitious timetable to redraft all its standards in the new clarity style, with a provisional effective date for all new standards of December 15, 2008. The new style was developed based on input it received at an international Clarity forum last year and through responses to its 2004 Proposed Policy Statement and Consultation Paper on Clarity. We hope that this new style will not only make the standards more understandable, but also make them better capable of being translated and used in countries throughout the world.

The IAASB is also addressing several critical issues in auditing and assurance. In March 2006, it issued a re-exposure draft designed to enhance the quality of audits of group financial statements, entitled proposed ISA 600 (Revised and Redrafted), The Audit of Group Financial Statements. Following earlier consultations, the IAASB has modified the proposals and reissued the exposure draft to address issues related to the extent to which the group auditor needs to be involved in the audits of components that are audited by other auditors, whether these auditors are independent of the group auditor or belong to the group auditor's national or international firm or network of firms.

We at IFAC are also focused on strengthening the transparency and accountability of the financial reporting of governments and of other public sector entities. Through the International Public Sector Accounting Standards Board (IPSASB), IFAC develops International Public Sector Accounting Standards (IPSASs), which are designed to improve public sector financial management and accountability. We view this as an increasingly important area of IFAC activity. The IPSASB is currently addressing key issues for public sector accounting, including accounting for social policy obligations of governments, non-exchange revenue and budget reporting.

An important IPSASB objective is facilitating convergence with International Financial Reporting Standards, upon which the IPSASs are based, and with statistical bases of financial reporting. Last year, the IPSASB issued exposure drafts further to converge its standards with International Financial Reporting Standards and with statistical reporting bases. The IPSASB is making great strides in its convergence efforts. An increasing number of governments and public sector entities worldwide, including the Organisation for Economic Co-operation and Development, the World Bank and the North Atlantic Treaty Organisation, are using IPSASs. In addition, earlier this year, the United Nations General Assembly adopted a financial management reform program that calls for the adoption of IPSASs by all the organizations within the UN group.

Today, we accept that if we are to achieve convergence, particularly in the area of auditing standards, it’s very important to involve a broad constituency in standard setting in order to ensure that the views of those who use and rely upon those standards are considered. In this context, let me turn now to public interest oversight – which I see as essential to the credibility of standard setting and essential to building confidence in the work of auditors. In February 2005, a new independent Public Interest Oversight Board (PIOB) was created to oversee IFAC’s standard-setting activities in the areas of auditing, ethics and education; and the Member Body Compliance Program. The PIOB, led by Professor Stavros Thomadakis, and comprised of very high quality people, was established by IFAC in cooperation with international regulators and institutions. Its members are nominated by international regulators and other international organizations. In addition, we have obtained the close involvement of investors, regulators, preparers and others in our standard-setting processes through, for example, the Consultative Advisory Groups for each of our standard-setting boards.

The PIOB has approved the standard-setting processes of three standard-setting boards: the IAASB, International Accounting Education Standards Board, and the International Ethics Standards Board for Accountants and the new members of these boards for 2006 and 2007. I should point out that the PIOB does not oversee the IPSASB. That board is subject to different oversight. The PIOB’s oversight has helped to enhance the credibility of IFAC’s standards, build confidence in them by regulators and fuel international convergence. The power of its credentials has led recently to the European Commission committing to appointing two full members to it.

In addition to public interest input and oversight, IFAC also considers the needs of smaller firms and of small and medium enterprises (SMEs) in the development of international standards. We all are well aware that SMEs are, together, the economic engine that fuels growth, jobs, and ultimately individual prosperity and security, in developing as well as in developed countries, in all parts of the world. Here in the European Union, SMEs represent 95.77 percent of the businesses. These figures are mirrored globally, with SMEs representing 97 percent of the total companies in the Asia-Pacific region and 99.7 percent of all employers in the United States. Because of their sheer scale when taken as a whole and the dramatic effect that successful SMEs can have on national and international economies, their issues must be at and remain at the forefront of IFAC’s priorities. Our focus, through the IFAC Small and Medium Practices (SMP) Committee and other groups, is to develop practical guidance that is universally and easily available to accountants worldwide; to make sure that the voices of SMPs and SMEs are heard by standard setting boards; and to provide forums for the exchange of ideas on how we can all better support one another.

In July, the SMP Committee organized a forum in Hong Kong to discuss the challenges and opportunities facing SMEs and SMPs. Over 130 participants from 35 countries attended the conference and their deliberations identified two significant challenges facing SMEs and SMPs: SMEs need financial reporting standards that are appropriate for their users’ needs and reduce the associated cost of compliance; and, in an increasingly globalized economy, SMPs should continue to explore new ways to support the growth and accountability of SMEs.

To help to address these challenges, IFAC’s SMP Committee is taking a two-pronged approach to helping SMEs and SMPs to converge and comply with international auditing and accounting standards, helping to shape the form and content of international standards and providing practical assistance to SMPs and SMEs that have to use them. It is developing a guide to International Standards on Auditing for SMEs and a web-based knowledge resource for SMPs. Additionally, the SMP Committee continues to respond to exposure drafts of international standard setters where an SMP or SME focus is needed.

I emphasize that all IFAC exposure drafts are posted on the IFAC website and it is very important to us to get comments from firms like those you represent. Please do take the time to respond to the EDs.

Reporting shifts

I would like to return now to the second trend that I described in the beginning of my remarks. Recalling the East/West shift, relationship-based business, rather than transactional based business, poses its own issues. At present, financial statements report transactions and the results of transactions. In future, companies will also have to report on their relationships, probably through narrative reporting.

The International Accounting Standards Board has undertaken a project to consider a possible role in improving the quality of the management commentary. Last October, it issued a discussion paper that offers recommendations on how the IASB might promote the wider adoption of best practice in the interests of investors and of others who use financial reports.

Accounting for sustainability is another area that will gather more impetus. It involves recognizing the intangible costs and benefits of decisions as well as the tangible, for example, how decisions taken today will affect future performance and outcomes. Conventionally, we account in financial statements for the revenues and expenses that fall to or on the organization. Accounting for sustainability involves seeking to account for costs and benefits – including non-financial effects – that fall on other members of society.

To encourage the involvement of the profession in this issue, IFAC has established a Sustainability Experts Advisory Panel, which serves in an advisory capacity to both our Professional Accountants in Business (PAIB) Committee and the International Auditing and Assurance Standards Board. The PAIB Committee plans to raise awareness of the issue and to provide good practice guidance for professional accountants in business in this area. As part of this process, it will be coordinating and encouraging member body research and representation. In addition, IFAC is addressing sustainability on a global level through its representation on the Global Reporting Initiative.

Developing credible accounting measures on sustainability is, conceptually, extremely difficult but must be tackled. Coupling this driver with the East/West shift, will traditional accounting measures become the appendices to narrative reports, not the main information for analysis and reaction?

Ethics and the whole financial reporting chain

My second point focuses on ethics. Serving the public interest is grounded in our professional ethics. That will not change.

Our profession is built upon and committed to sustainability and stability, consistency and credibility, and independence and integrity. These are enduring values which are the hallmarks of a profession. They must be upheld and enforced by professional accountancy firms if the public interest is to be well-served. And they should underpin our future response to the global trends I mentioned.

All IFAC staff and volunteers embrace and promote the values we stand for – integrity, transparency and expertise. These values are reflected in our strategic plan, in our professional standards and in our decision-making processes, as well as in IFAC’s Code of Ethics for Professional Accountants, which is applicable to all professional accountants in business, practice and government and upon which many national codes of professional conduct and ethics are based. Last June, IFAC’s International Ethics Standards Board for Accountants issued an updated Code of Ethics, which reinforces the five fundamental principles of professional ethics: integrity, objectivity, professional competence and due care, confidentiality and professional behavior. These are personal qualities that today’s and tomorrow’s accountants must have.

In future it will become even more important for us to take up the challenge of promoting the importance of ethics throughout the financial reporting supply chain. Because, as was highlighted in the IFAC-initiated independent report on Rebuilding Public Confidence in Financial Reporting, prepared by a Task Force chaired by John Crow, a former Governor of the Bank of Canada and a former Chairman of the Central Bank Governors of the Group of Ten Countries, and published three years ago: failure to recognize the primacy of integrity was a major contributor to the financial scandals of recent years. A key recommendation of the report was that effective corporate ethics codes need to be in place and actively monitored. So often in the past, we have heard that finance directors have acted as the only conscience of the board when, of course, without underestimating the importance of the finance director, ethical behavior should be at the heart of the board and of the company as a whole.

So while one cannot over-emphasize that the tone for an organization needs to be set at the top, there is a key role for all professional accountants in business to help in practical ways to promote ethical values throughout an organization. Members of firms such as yours should, I believe, encourage your clients to recognize and to act on this responsibility.

Before I move on from ethics, I want to emphasize that a fundamental role of the International Ethics Standards Board for Accountants is to ensure that the Code remains relevant. As part of this process, in July, the Ethics Standards Board issued a revision to the Code of Ethics to update the definition of a network firm. This update provides important guidance to firms in the area of independence and includes information on the application of the definition. The Ethics Standards Board is also currently addressing issues such as audit independence and whistle-blowing and is in the process of developing new guidance for professional accountants in government and in business.

Additionally, IFAC’s International Accounting Education Standards Board has released new guidance on ethics. Last month, it proposed a new International Education Practice Statement (IEPS), Approaches to Developing and Maintaining Professional Values, Ethics and Attitudes, designed to assist IFAC member bodies in developing ethics education and continuing professional development programs for their members. There is no doubt that ethics education programs enhance professional accountants’ ethical judgment and their decision making.

Organizational performance – thinking globally

My third point is on supporting organizational performance by thinking globally.

We have a duty to our profession throughout the world, including both developed and developing nations, and to ourselves to deliver:

• The enduring values I’ve talked about – our commitment to the public interest and to professional ethics;
• The benefits of global standards, with accountancy as the international language of business; and
• Trust in the capital markets.

We are well-placed to act, bringing benefits now and for future generations.

Our profession is regarded as one of the main conduits to fighting financial corruption. And it is no secret that many developing economies have a problem on this front, often driven by those in developed nations who, for example, offer bribes to gain advantage, but too often driven by poverty. For example, the misappropriation of aid funds has been raised as part of last June’s G8 discussions. So we need to build strong professions that can help to ensure that the right funds are directed to the right places.

IFAC’s Developing Nations Committee is working at an international level, with organizations such as the World Bank and the United Nations Conference on Trade and Development, to build responsible accountancy professions in developing nations and to support the development of the financial infrastructures within which our profession will operate. Towards that end, this past September IFAC, together with the World Bank and the African Development Bank, sponsored a Learning Workshop in Nairobi for government leaders, donor agencies and representatives of the accountancy profession, among others, as a first step in determining a plan of action to help African nations further to develop stable economies.

As a result of an extensive consultative process, the Committee is also preparing a country-specific approach to supporting developing nations, helping both those countries where there is no established profession and those that have only begun to build the professional, financial and regulatory architecture necessary to support economic growth.

In addition, to assist in the establishment and development of professional accountancy bodies – which is viewed as a critical first step in creating a sound and viable financial infrastructure – we have released good practice guidance on the roles and responsibilities of a professional body, education and examination, and on capacity development. This guidance addresses a range of situations, including where the accountancy profession does not exist in a country, where the profession exists and there is a desire to establish a professional accountancy body, and where an existing professional body requires further development and enhancement. The guide also includes suggested areas for priority action based on short-, medium- and long-term goals and projects.

In Conclusion

The future of our profession does rest on staying relevant, up to date and market oriented. But most fundamentally, it depends on demonstrating professionalism, acting in the public interest and not losing sight of our core purpose as custodians of transparency and integrity in financial reporting. It needs to be focused on ethics as the foundation of that purpose and acting and thinking globally, at a local level, to fulfill that purpose.

These objectives are at the heart of IFAC’s work and are, I believe, embraced in SC’s strategic plan. Our profession needs to be respected and influential today, if we are to be so in the future.

All of us here have a role to play in building confidence in financial information and financial infrastructure. Yet we also have a role to play in communicating how those infrastructures work to protect the public interest. Clear information about the financial reporting process needs to be presented to those who rely on – or want to rely on – the information that results from it. Additionally, clear information about the economic policy framework, the regulatory environment, and economic developments is essential to sound business decisions. Thus, while I urge you to continue to take actions in this area, it is equally important to communicate those actions to the public who, ultimately, will benefit from them.

If we continue to commit to putting the public interest first and to living our profession’s values of integrity, transparency and expertise, the future of the accountancy profession is bright: For professional accountants in public practice, this means that you will be recognized fully for the role you play: as auditors, in facilitating fair, well-informed capital markets; and as professional advisors, in creating wealth. 

If we fail to commit to the public interest and to sound values, we will lose public confidence and no longer have an accountancy profession or accountancy firms that we would recognize as such.

It is a stark choice. I believe that we will make the right choice, together. Working together as a global profession we will live those values of integrity, transparency and expertise. Working together with regulators, investors and other stakeholders, we will command justified public confidence.

As we look to the future, it is evident that the quality of information expected by investors and needed by public and private sector decision makers will become even more critical to the development not only of national market economies, but to the global economy as well. Thus, ensuring high-quality financial reporting is an area where there is no room for compromise. We must all continue to be as proactive as possible and make an ongoing commitment to high-quality financial reporting. Nor can we afford to compromise in any other service area. Acting with integrity, transparency and competency must be the supreme driving force for all accountants. It is good for business and good for society. It is what distinguishes our profession from all others and enables us to contribute to worldwide stability and prosperity.

If I leave you today with only one message, it is that you should never forget this role that you play in the global arena.

Thank you very much for your attention.

Good afternoon. It is a pleasure for me to be here today with you in the inauguration of the National Congress on Auditing.

On a personal note, it is always a marvelous opportunity to visit Spain, the country where my grandfather was born, and for this reason it is especially close to my heart. It is amazing how the places of our origins forge and inspire a sense of identity and affection.

It is also a joy for me to have the possibility to visit such a special and admirable city such as Bilbao.

In fact, I think that it is particularly symbolic that we are meeting, exchanging opinions, analyzing the future of the accounting profession, its challenges and the answers that it must have to those challenges, in a city that knew how to correctly redefine itself when it was necessary. Bilbao re-won and strengthened its vitality by centering on culture and converting itself into a city dedicated to services and also by turning itself over to environmental and urban renewal. I believe that Bilbao offers a brilliant example of how to face tendencies and adapt to the context, difficulties and changes.

We can see this city in the same light as its country, together with all of their citizens, as a model of interpretation to think about the challenges facing the accounting profession and also to take advantage of the opportunities presented to us.

I want to thank the Instituto de Censores Jurados de Cuentas and in particular it’s President, Don José María Gassó, for the invitation extended to me and allowing me to be here today in contact with all of you.

The slogan for this plenary session is “the profession on a new horizon.” This implies that the profession is moving. And when we are moving, we are always exposed to the vicissitudes of the road.

There can always be a stone in the road. One can trip over it if distracted. One can stop and let him or herself be detained by the obstacle. One can see the rock as a purposeful threat. One can simply overcome that obstacle or one can pause above it and use it as an opportunity to extend his or her vision of the horizon and also to build a bridge to move even farther. In any case, the difference is not the stone, but rather the attitude of the person.

I will begin by giving you good news: today, society is convinced, more than ever, that the accounting profession and, in particular, auditing is essential for the proper functioning of the capital and financial markets and for the proper functioning of the economy. Today, there is a clear conviction that auditing is a key link in the chain in the production of financial information and therefore has an important function in the public interest.

The great challenge unfolding for us all is to intelligently define the conditions, so that quality is given, and given efficiently.

The audit directive has provided a reasonable regulatory framework for Europe. Among the definitions adopted by the directive throughout the member states, I would like to point out the decision to adopt the international auditing standards, once they will have been developed following the due process, with public oversight and transparency, and have been generally accepted internationally, contributing to the high level of credibility and quality of the annual or consolidated accounts and will have added to the European public interest.

IFAC, through the International Audit and Assurance Standards Board (IAASB), has been working impeccably so that all of the above mentioned conditions are achieved and the standards adopted by the European Commission.

The decision has been taken to accelerate the Clarity Project to finish it before the end of 2008, instead of 2011, as was estimated in the original plan.

The Consultative Advisory Group of the IAASB has been made stronger to permit a fluid and significant contribution on behalf of the users of the standards.

IFAC has successfully implemented the reform and the Public Interest Oversight Board (PIOB) is achieving its duty to oversee the public interest activities of IFAC. In March of this year, the PIOB approved the due process and the work processes of the different standards setting boards, among them the International Audit and Assurance Standards Board. In May, the Public Interest Oversight Board issued its first public interest report, in which in reference to the transparency and the quality of the nominating process for the members of the standards setting boards of IFAC, it reported that, “The PIOB concluded that the IFAC Nominating Committee had operated with a high level of professionalism and had sought to make high quality choices with a sense of fairness, balance, and objectivity.”

A few days ago, in the conference of the Fédération des Experts Comptables Européens, Commissioner Charlie McCreevy communicated his satisfaction, which of course is shared by IFAC, for the recent understanding about governance issues of the International Auditing and Assurance Standards Board and the Public Interest Oversight Board and has expressed that this will allow the Commission to move closer to the adoption of ISAs. He also confirmed that he thinks that the two EU observers should become full members of the Public Interest Oversight Board. 3

Therefore, all of the conditions are being fulfilled to seal the adoption of the International Standards on Auditing on the behalf of the European Commission. And this is very good news for Europe and for the rest of the world.

In relation to the auditing standards, in particular, with respect to their use by small and medium enterprises, I think it is worth mentioning that IFAC, through the Small and Medium Practices Committee, estimates that for the middle of 2007 they will publish a Guide for the application of the International Standards on Auditing for the audits of small and medium enterprises. It will be without a doubt very useful, considering the number and the importance of these businesses in all economies of the world. It will facilitate a practical implementation of the principle that an audit is an audit and that it is not convenient to consider the existence of different sets of auditing standards according to the size of the entities being audited.

The auditing directive leaves considerable room with respect to other areas for the decisions of the member states in the transition process of national legislation and ruling.

I would like to refer today to two of these areas: public oversight, in particular, quality control, and the independence of the auditor.

The European Directive establishes that each member state should organize an effective system of public oversight of auditors and auditing firms and define, for this, certain principles.

The principal objective of the oversight mechanism should be to protect the public interest. The key element of the oversight function is independence with respect to the accounting profession, whether it is achieved exclusively through the resources of the oversight body or through monitoring and directing of activities of other organizations, including professional organizations.

In this area, it is fundamental maintain sight of the primary objective, the reason for being. As I said in the beginning, the quality of the audit is a key factor for the confidence in financial information and of the capital and financial market system as a whole. Public oversight is an important way of assuring the quality of audits.

Quality is ultimately the final and principal objective. It is clear that as much the profession, as the oversight body, coincide in this central objective. In this issue, there are no conflicting interests, but rather the contrary is true, the interests coincide.

The understanding of this reality is fundamental at the time of designing the oversight system and delineating the relationship between the overseer and the overseen. 

It is clear, then, that in this concurrence of objective, it is not the mere fulfillment of requirements and formalities, but rather the true implanting of a culture of quality, that will signify the measure of success for all: auditors and supervisors. The great beneficiary will be the public that uses auditor services.

In this sense it is interesting to remember that the IFAC Statement of Membership Obligation (SMO) 1, related to quality control, establishes that each member body, in this case the Instituto de Censores Jurados de Cuentas de España, should assure the existence of an mandatory quality control program and that when these functions are managed, as in this case, by an independent government body, it should assist in the implementation in all that is appropriate and should obtain an understanding of the scope of such a program, in such a way so that if all the aspects included in said SMOs are not satisfied, the professional organization should establish a complementary program that covers all the missing parts.

This is a very good demonstration that there are not different objectives, but rather a shared final objective.

The principles and standards included in the SMO 1 constitute a very good base for the design of the quality control program and can be very useful in the development and implementation phases that, in the processes of transitioning the auditing directive to legislation and local rules, will be faced next.

The current sections of the IFAC Code of Ethics related to independence were issued in November 2001. The facts and the circumstances present since then have driven many jurisdictions to perform actions tending to restore credibility in financial information, of which many refer concretely to the independence requirements of the auditor. Hence, the International Ethics Standards Board for Accountants decided to confront the revision of the corresponding section of the Code to determine which of the requirements should be revised. A forum was held in October 2005 to obtain the comments and input for this project. The topic has been considered high priority, it is being intensely worked on, and with out a doubt an exposure draft will be issued in December of this year.

The objective of this rule, based in principles and developed under the approach of threats and safeguards, updated now based on experience and the new market demands can constitute a clear international reference.

If on the one hand, IFAC’s requirement of its member bodies is that they not apply requirements less strict that the contents of the IFAC Code, then the ideal certainly is world wide convergence in this area as well.

To conclude, I would like to refer briefly to the accounting standards.

Just as the rest of the European Union, Spain has adopted the International Financial Reporting Standards (IFRSs) for the consolidated financial statements of listed entities.

It is my understanding that it is in the process of defining the applicable standards for the rest of the cases. It is also my understanding that a consensus also exists, which of course I share, that these standards should be harmonized with the IFRSs.

Being as it is, allow me to make a suggestion. Think seriously about the possibility of adopting IFRSs, in your case, introducing some exception if a founded justification exists, and avoid the elaboration of your own a set of standards, as harmonized as it may be. What’s more, the greater the degree of harmonization attempted to achieve, the less sense it makes to have the superposition of sets of standards.

Under this same focus, the adoption of standards issued by the International Accounting Standards Board (IASB) for small and medium enterprises should also be considered, those that it is assumed will be consistent with the applicable IFRS to entities that should have public accounts.

This not only unmistakably will assure consistency, but also will facilitate the future process with respect to changes in the international standards. In addition, it would allow for savings in resources that could be used in incrementing and strengthening the participation of Spain in the elaboration process of international standards, whether it is intervening directly in the IASB, having an active and opportune participation in the analysis of drafts, or contributing with proposals to be integrated in the work agenda of the IASB.

As you may have been able to appreciate from the examples I mentioned today, IFAC continues working intensely to promote the global adoption of the international standards, to facilitate and improve the applicability of the standards to small and medium enterprises, to contribute to the development and the strength of the accounting profession around the world, and to improve the quality of financial and auditing information.

We want to do accomplish this with the collaboration of our member bodies. We want to ensure the existences of adequate channels for participation so that our activities can benefit from all cultures and take the best from each.

Global convergence does not imply cultural change. Ortega y Gasset says that “culture is a set of solutions that society gives to the problems of the era it lives.” If convergence helps a culture have better solutions, this does not mean that the culture has to change, it only implies adapting.

Spain can not be absent from this process. The Instituto de Censores Jurados de Cuentas de España has a great deal to add to the global profession. Each country has its unique values and talents, which if they are not added, are lost.

In relation to my last point, it pleases me to inform you that the Executive Committee of IFAC has designated Carmen Rodríguez as member of the IESBA and this designation has been approved by the PIOB.

I am convinced that Spain is in the conditions, and I would even say that it has the obligation, to continue increasing its presence in the international environment.

As far as all of you, I want to encourage you to continue working with your sights on the new horizon, looking at the market and its needs, identifying and designing more efficient methods to serve your clients, preparing to act with new technology and to take the leadership in the preparation and revision of non-financial information and in the new forms of accessing and using information, convinced of the value that you can add and the contribution that you can make to the integral development of the society you live in. 

Thank you, Eamonn, for inviting me to make a few remarks this evening. It is a privilege to be here with you and your President, Pádraig Ó Feinneadha, to speak before such a distinguished group of professionals. Indeed, I truly appreciate this opportunity discuss a topic that increasingly has made its way into boardrooms, classrooms, lunchrooms, and even to our dinner table: that is the topic of Ethics in Business. Ethics, as we know from the lessons we learned from Enron, WorldCom, Tyco and other companies around the world, is a driver both of business stability and business success. Without a strong ethical foundation, companies and their management are more likely now, than ever before, to find their customer base eroded and their profit margins narrowed.

What is to prevent ethical lapses on the part of company management and those that support management, such as lawyers, investment managers and professional accountants: both in public practice and those who work as CFOs or internal auditors? I think there are three fundamental ways to prevent it: Company management must:

• Establish realistic business objectives;
• Develop a transparent business culture; and
• Promote and enforce a corporate code of ethics among their employees and require their service providers to do the same.

Let me comment briefly on these areas, beginning with the need to establish realistic business objectives, before I turn to the accounting profession’s ethical roles and responsibilities.

Last year, a study entitled, The Ethical Enterprise, A Global Study of Business Ethics, reported that the number one factor likely to cause people to compromise ethical standards was pressure to meet unrealistic business objectives and deadlines. Recognizing this, management must strive to balance business objectives with the reality of their resources and, along the way, they must continually remind employees that ethics is sacrosanct. An Ethics Department or resource center should be available to assist employees when they are confronted with ethical dilemmas. We are quick to provide technical resources to our employees, to assist them in expeditiously and correctly carrying out their work; we must apply the same strategy to ethics.

Secondly, we must develop a transparent business culture. Again, this is an area where there is no room for compromise. An open and transparent corporate culture breeds honesty and respect on the part of employees. Corporate secrets, on the other hand, arouse suspicions and create unhealthy corporate cultures. Without transparency, the credibility of the organization can also be compromised.

Thirdly, it is vital that every company, no matter how large or small, no matter what the industry or area of practice, develop and promote a corporate code of ethics. The value of that code will be significantly enhanced if the code is consistently enforced. In fact, this was exactly the recommendation made in the 2003 report of the Task Force on Rebuilding Public Confidence in Financial Reporting, chaired by John Crow: a former Chairman of the Central Bank Governors of the Group of Ten countries. The Task Force emphasized the need for management to develop an ethical “tone at the top” and to reinforce this tone with an ethical code of conduct that is widely promoted throughout the company and regularly enforced. Those recommendations, supported by regulators, standard setters and others, are now resulting in significant changes in corporate culture. Ethics and values are, I believe, finally getting the attention that is necessary.

What then is the role of the International Federation of Accountants in promoting strong ethics? First, IFAC’s values of integrity, transparency and expertise, are embraced in all the work carried out by IFAC and by our four independent standard-setting boards. Our board and committee members, for example, all sign declarations indicating their commitment to these values and to act in the best interests of the public.

IFAC’s International Ethics Standards Board for Accountants develops the international Code of Ethics for Professional Accountants, which is applicable to all accountants, including those in business and industry, public practice, the public sector and academia. In June 2005, the Ethics Standards Board released an updated Code of Ethics, which establishes a conceptual framework for all professional accountants to ensure compliance with the five fundamental principles of professional ethics. These principles are integrity, objectivity, professional competence and due care, confidentiality and professional behavior. Under the framework, professional accountants are required to identify threats to these fundamental principles and, if there are threats, to apply safeguards to ensure that the principles are not compromised. The framework applies to all professional accountants: to those in public practice, as well as to those in business and government.

And by the way, the title ‘accountant’ should only apply to members of recognised institutes, to protect and reassure the public that all those known as accountants are bound to follow the IFAC ethics code.

In July 2006, the Ethics Standards Board issued a revision to the Code of Ethics to update the definition of a network firm. This update provides important guidance to firms in the area of independence and includes information on the application of the definition. The Ethics Standards Board is also currently addressing issues such as audit independence and whistle-blowing and is in the process of developing new guidance for professional accountants in government and in business.

Additionally, IFAC’s International Accounting Education Standards Board has released new guidance on ethics. Last month, it proposed a new International Education Practice Statement (IEPS), Approaches to Developing and Maintaining Professional Values, Ethics and Attitudes, designed to assist IFAC member bodies, such as CPA Ireland, in developing ethics education and continuing professional development programs for their members. There is no doubt that ethics education programs enhance professional accountants’ ethical judgment and decision making. The guidance proposed by the Education Standards Board will help member bodies to develop these skills in current and future professional accountants.

The Education Standards Board is now in the process of finalizing an Ethics Education Toolkit to assist member bodies, academic institutions and others in instilling a strong ethical foundation in the accountants of tomorrow. The toolkit will include sample course outlines, teaching notes, case studies, video clips of ethical dilemmas, and a database of ethics education resource materials. It will be available for download from the IFAC website free-of-charge, like all IFAC publications, by the end of the year.

My personal belief is that probity and profitability go hand in hand. Ethical conduct lies at the core of all business. We do business with those we trust; we get business from those who trust us. Ethics, therefore, are a driver of business growth which demands attention from boards and investors alike. Similarly, society accepts those it trusts and ethics are a driver of the social and political acceptability of doing business in corporate form.

The IFAC Professional Accountants in Business (PAIB) Committee is, therefore, expanding the guidance it develops, with a focus on supporting professional accountants in business in providing high quality information and in acting ethically. Earlier this year, the committee issued an exposure draft, Guidance for the Development of a Code of Corporate Conduct, proposing guidance to assist professional accountants and others in establishing and implementing codes of conduct in their organizations. The goal of this proposed new guidance is to support sound corporate governance policies worldwide. The proposed guidance highlights the benefits of an effective code of conduct and identifies professional accountants’ roles in the development, monitoring, reinforcement, and reporting of such codes in their organizations. To assist in the creation of codes of conduct, the guidance includes information on presentation and content, organizational and management challenges, and implementing a code of conduct in a global organization.

Guidance is helpful, but it is important for all of us to keep in mind that it is best to lead by example. Good governance and sound ethics have to be embedded within companies, to grow from within, not be force fed from without. That means leaders, such as yourselves, need to be role models as well as active promoters of sound ethics.

The French Mathematician and philosopher Blaise Pascal said: “The virtue of man ought to be measured not by his extraordinary exertions, but by his everyday conduct.” I believe that these words hold true for every professional accountant worldwide, as well as for all of us in this room tonight. By dedicating ourselves to doing what is right, we will enhance our professional reputation, win public and client trust, and contribute to economic prosperity.

I know that the CPA Institute shares these values, together with the IFAC values of integrity, transparency and expertise. Your participation in the IFAC Member Body Compliance Program, in which you indicate your commitment to and promotion of international auditing, ethics, and accounting standards, makes a very clear statement about the strength of your organization. I am proud to work with you, both institutionally and personally, in our profession’s drive to generate economic growth and stability in every country of the world.

Thank you very much for your attention.