I am honoured to be here with you today to share in this celebration of your 100^th anniversary. Both personally, and on behalf of IFAC’s Board, committees, and staff, I offer you our sincerest congratulations on this important milestone. I would also like to thank the Consiglio Nazionale dei Ragionieri e Periti Commerciali, its President, William Santorelli and its Vice President, Francesco Distefano for inviting me to participate in this historic event by making some brief remarks about IFAC and the role of the international profession.

There can be no more appropriate place to discuss the international accountancy profession and to celebrate its history than here in Italy, the birthplace of Luca Pacioli who is credited with founding our great profession during the 14^th century. Pacioli was a man of diverse backgrounds and talents: he was a tutor, a professor of mathematics, an author and a Franciscan Friar.  He associated with the common merchants, devising bookkeeping methods that could assist them with their businesses and, at the same time, counted Leonardo Di Vinci amongst his friends. A true Renaissance man, Pacioli continues to be a model for our profession today. Like Pacioli, our lives as professional accountants result in us working with individuals in all paths of life. We are continually challenged to understand business’s changing needs, to deliver credible financial information and to adopt the vision necessary to serve the public interest effectively in the years ahead.

The CNRPC is dedicated to helping professional accountants  to meet these goals. As an active member of the International Federation of Accountants for a dozen years, CNRPC has demonstrated its commitment to the development of a high quality accountancy profession both here inItalyand internationally. And we are very grateful to the leaders of your organization for sharing IFAC’s mission to protect the public interest. I would like to recognize and to thank those Italian representatives currently serving on our boards and committees,  whose support enables IFAC to achieve its mission and objectives: Dr. Roberto D’Imperio, a member of the IFAC Board and his technical advisor Gianfrancesco Padoan; Prof. Roberto Tizzano, a member of the International Auditing and Assurance Standards Board; Prof. Stefano Pozzoli, a public member of the International Public Sector Accounting Standards Board; and Lino De Vecchi, Deputy Chair of our Small and Medium Practices Committee. I would also like to thank Angelo Casò, who retired from the IFAC Board last November after more than five years of service on the Board and four years as Chair of the SMP Committee. These outstanding professional accountants, like the great Italian Pacioli, possess the leadership, integrity and vision necessary further to develop our profession and to serve the public interest.

Today, I would like to speak to you briefly about recent IFAC initiatives – initiatives that are themselves designed further to strengthen our accountancy profession and its ability to contribute to economic growth and stability worldwide.

IFAC’s activities are driven by a mission that reflects our broad vision to consider the public’s welfare. Our mission is:

To serve the public interest, IFAC will continue to strengthen the worldwide accountancy profession and contribute to the development of strong international economies by establishing and promoting adherence to high-quality professional standards, furthering the international convergence of such standards and speaking out on public interest issues where the profession's expertise is most relevant.

In striving to meet this mission, IFAC has taken significant steps in four key areas, working closely with its 160 member organizations:

• Strengthening our standard setting and promoting ethical conduct;
• Achieving convergence with international standards;
• Reaching out to and supporting developing nations, professional accountants in business and small and medium practices and enterprises; and
• Strengthening the financial reporting supply chain.

Our initiatives in each of these areas are central to our mission to serve and to protect the public interest. Let me begin with standard setting. IFAC sets international auditing and assurance, ethics, education and public sector accounting standards. Over the past year, we have continued to increase public interest input into these processes through Consultative Advisory Groups and other means and enhanced the transparency of those processes by including more information on the IFAC website (www.ifac.org). Time does not permit me to outline all of our standard setting initiatives but I would like to highlight a few of the most significant ones for you now.

In the area of auditing standards, the International Auditing and Assurance Standards Board has undertaken a significant project to improve the clarity and structure of its standards. Last October, the IAASB issued four exposure drafts of proposed standards re-drafted using its new drafting style. This new style was developed based on input it received at a forum in July last year and through responses to its 2004 Proposed Policy Statement and Consultation Paper on Clarity. These proposed new standards are the first to be issued as part of an ambitious program to make IAASB standards more understandable and capable of being translated and to facilitate international convergence.

In addition to focusing on clarity, last year the IAASB released a new international standard on audit documentation, designed to enhance auditor performance and audit quality by establishing stricter requirements for audit documentation. Beginning with this standard, the IAASB staff is preparing a “Basis for Conclusions” for each new international standard to increase understanding about the development of the standards – in particular, how the IAASB has responded to input received. We hope that you find this to be helpful.

Other current IAASB projects are the development of standards on the audit of group financial statements and related parties issues. In January, the IAASB issued an exposure draft of a proposed revised International Standard on Auditing that would require the auditor to perform a minimum set of procedures to identify related party transactions and transactions not identified or disclosed by management.  I view this exposure draft as being particularly important.

In the area of ethics, IFAC’s International Ethics Standards Board for Accountants has updated the Code of Ethics for Professional Accountants, further emphasizing the five fundamental values, which are integrity, objectivity, professional competence and due care, confidentiality and professional behavior. The development of the updated Code is part of an ongoing effort to ensure that all professional accountants – whether they work in public practice, business or government – have clear, relevant and high quality ethical guidance.

The Ethics Standards Board is also 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.

IFAC’s International Accounting Education Standards Board is also focused on ethics, among other issues. It is in the process of developing a tool kit and an International Education Guideline to assist member bodies, academic institutions and others in instilling a strong ethical foundation in the accountants of tomorrow. The guideline will offer recommendations for good practice models of ethics education, while the tool kit will provide practical tools – such as sample course outlines, teaching notes and case studies – to be used by member bodies and educators. The tool kit and proposed guideline are expected to be available later this month.

As part of its effort to help ensure that there are competent professional accountants worldwide, the Education Standards Board is developing new guidance on the training of audit professionals. The Board is also in the process of updating International Education Guideline 11, Information Technology for Professional Accountants, to reflect changes in the information technology field, and it plans to release an exposure draft in the near future.

Through the International Public Sector Accounting Standards Board, IFAC develops Standards which are designed to improve public sector financial management and accountability. This is an area that we cannot afford to overlook and IFAC views it as an increasingly important area of activity. The IPSASB is currently addressing key issues for public sector accounting, including accounting for non-exchange revenue, heritage assets and budget reporting.

The IPSASB’s recent consultation paper on accounting for heritage assets, such as museum collections, historic buildings and nature reserves, will be very relevant toItaly, a country  that has such significant heritage assets.

In consultation with IFAC boards and committees, and other relevant interested parties, IFAC staff are further developing the concept of “international convergence.” The objective is to develop guidance to accompany IFAC’s Statements of Membership Obligations (SMOs), which require IFAC members and associates to use their best endeavors to incorporate international standards, set by IFAC and by the International Accounting Standards Board, into their national standards. The SMOs, which also require member bodies to implement quality assurance and investigation and discipline programs, form the basis of IFAC’s Member Body Compliance Program.

The Compliance 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, to demonstrate a shared commitment to our profession’s values of integrity, transparency and expertise.

Part 1 of the Compliance Program, a fact-based questionnaire to assess the regulatory and standard-setting frameworks of IFAC member bodies, is now complete. Responses from more than 130 member bodies, including the CNRPC, have been posted on the IFAC website, and the remaining responses are in the process of being agreed and posted.

Part 2, the SMO Self-Assessment Questionnaire, was launched last December and member body responses will be posted beginning in the second half of this year. The responses from these questionnaires will  provide a global snapshot of the accountancy profession from both a regulatory and standards perspective. Additionally, they can be used to help IFAC gauge where it needs to focus its efforts to support the development of the profession and to work to achieve convergence. Lastly, but perhaps most importantly, the responses to the questionnaires demonstrate the international accountancy profession’s willingness to be accountable for its actions to meet high standards, to deliver quality and to protect the public interest – all important responsibilities in the changing and complex environment in which we all work.

This focus on convergence is fundamental to all IFAC standard-setting activities. We firmly believe that it is in the public interest to have a single set of international standards, of the highest quality, set in the public interest by an international expert body which transparently consults with, and recognizes the legitimate interests of, the international community. The IAASB and  IFAC’s Education and Ethics Standards Boards develop standards that do meet these requirements. The independent international Public Interest Oversight Board, formed in February 2005, oversees these standard-setting activities as well as the IFAC Member Body Compliance Program. Last September, the PIOB approved the due process and working procedures for these standard-setting boards and in December,  it approved IFAC’s nominations of members of them .

In order to achieve its goal of developing a high quality profession that meets the public interest, IFAC must ensure that it supports the roles of all professional accountants. For this reason, over the past year, we have reached out to accountants in developing nations, to those in small and medium practices and to professional accountants in business. IFAC’s Small and Medium Practices Committee is increasingly active in representing the interests ofSMPs to both theIAASB and the International Accounting Standards Board. The committee is providing input to theIASB’s project considering the development of financial reporting standards for SMEs. It is also planning to develop guidance materials forSMPs, especially in relation to the application of ISAs to the audit of SMEs and to establish an electronic data exchange on SME andSMPissues.

Our Developing Nations Committee is also focused on the goal of high quality in the public interest. As a result of an extensive consultative process, the committee is 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, last year the committee released new good practice guidance on the roles and responsibilities of a professional body, education and examination and 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.

I believe that tools such as this new guidance are a key way that the accountancy profession can support economic growth and stability, which in turn can reduce poverty and improve the quality of life for citizens of developing nations.

IFAC is also working to help member bodies to meet the unique needs of professional accountants in business. These accountants hold a wide range of positions in companies inItalyand around the globe and are often the gatekeepers of financial information, and thus, of public trust. Recognizing this very critical role, our Professional Accountants in Business (PAIB) Committee has undertaken several initiatives to provide accountants in business with good practice guidance, including the forthcoming launch of an electronic resource center to provide one-stop access to current information on issues faced by this constituency.

Recognizing the critical role of ethical values and standards on protecting the public interest, the PAIB Committee has 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 exposure draft may be downloaded from the IFAC website. The goal of this proposed new guidance is to support sound corporate governance policies worldwide.

Accounting and auditing firms play an important role in the financial reporting supply chain through the provision of assurance about the financial reports of the companies they audit. It is important, however, to keep in mind that accounting firms are only one part of that chain, which also includes accountants within businesses, analysts, lawyers, senior management and boards of directors. It is for this reason that IFAC’s Board agreed to begin a new initiative on enhancing the quality of the financial reporting supply chain. The project will identify investor expectations and needs and include practical suggestions for enhancements that the global accountancy profession can provide by direct action and those where it will need to engage with others to create change. Among the issues being considered in the new study are corporate management and governance, regulatory developments, auditor independence and rotation and the expectations around the board’s and auditor’s responsibility for the detection of fraud.

As IFAC looks to the future, we are aware that the profession’s reputation rests squarely on its ability to protect the public interest and to improve the transparency of financial markets. Ensuring high-quality financial reporting is an area where there is no room for compromise. The CNRPC and the accountancy profession here inItalyhave been vital participants in the development of the international accountancy profession. We are most grateful for your very active role in strengthening our profession and for your continued support for IFAC. Inspired by Pacioli, we need to keep in mind that together, we can make a difference. Together, we can serve the public effectively and strengthen capital markets. Together, we can contribute to stability and prosperity both here inItalyand worldwide.

Thank you very much for your attention.

I am pleased to have been invited to today's roundtable and to have an opportunity to present the perspective of the Public Interest Oversight Board on regulatory and practical challenges in achieving quality implementation of financial reporting and auditing standards.

The International Federation of Accountants (IFAC), the global organization for the accountancy profession, is seeking nominations for a public member for the International Ethics Standards Board for Accountants and for a public member for the International Public Sector Accounting Standards Board, independent standard-setting boards within IFAC. Individuals, organizations, accountancy firms and IFAC member and regional accountancy bodies may submit nominations for these two public member positions by April 15, 2006. Public members are expected to act in the public interest and must be seen to be independent of any special interests and seen to be acting to represent society as a whole.

The International Ethics Standards Board for Accountants develops high-quality ethical standards and other pronouncements for professional accountants around the world. The IFAC Code of Ethics for Professional Accountants and Interpretations apply to all professional accountants, including those in public practice, business, education, and the public sector. The Code serves as the foundation for codes of ethics developed and enforced by member bodies, and no member body of IFAC or firm issuing reports in accordance with International Standards on Auditing may apply less stringent standards than those stated in the Code.

The International Public Sector Accounting Standards Board (IPSASB) develops high-quality accounting standards for use by governments and other public sector entities around the world in the preparation of general purpose financial statements. Its aim is to enhance the quality and transparency of public sector financial reporting and strengthen public confidence in public sector financial management. The IPSASB also supports the convergence of international and national public sector accounting standards and the convergence of accounting and statistical bases of financial reporting where appropriate.

Nominees for either public member position must have an appropriate level of knowledge about the work of the respective board, although they need not have a professional accountancy designation. See the Call for Nominations for more information, including expected time commitments. Organizations and individuals interested in submitting candidates may do so through the electronic Candidate Information Form, available at http://www.ifac.org/NominationForms.

The search for public members for IFAC's standard-setting boards is part of a broad-based and transparent IFAC nominations process designed to identify the most qualified candidates possible. All members of these groups are required to sign a declaration committing to act with integrity and in the public interest in their role within IFAC.

IFAC is dedicated to serving the public interest by strengthening the profession and contributing to the development of strong international economies. Its current membership consists of over 160 professional accountancy bodies in 120 countries, representing more than 2.5 million accountants in public practice, education, government service, industry and commerce. IFAC, through its independent standard-setting boards, sets international standards on ethics, auditing and assurance, education, and public sector accounting. It also issues guidance to encourage high-quality performance by professional accountants in business.

Thank you very much for your kind introduction. I would like to thank your President, Mr. Syed Mohammad Shabbar Zaidi, and your Executive Director, Mr. Moiz Ahmad, for the privilege of the invitation to speak to you today. This is my first visit toPakistansince becoming President of the International Federation of Accountants, and I am heartened by the warm welcome that I have received. The profession here inPakistanis thriving, as evidenced by the Institute of Chartered Accountants of Pakistan’s growing membership and nearly 30,000 students. Your leadership has much of which to be proud. 

There is no question that the international accountancy profession has a unique, critical and practical role to play in building stronger and more stable economies around the globe. In order to carry out this role fully, however, we need to continue to enhance confidence in the profession and to build trust. Investor confidence and public trust empowers our profession. Without it, the credibility of the information we produce, indeed the future of our profession itself, is put at risk. Whether we work in Pakistan or Portugal, we cannot afford to take this risk.

Since corporate fraud and misconduct in the U.S. and elsewhere shook investor confidence and raised questions about the integrity of capital markets and their participants, action has been taken around the globe by governments, regulators, and accountants themselves to strengthen the profession and enhance market integrity. The International Federation of Accountants, which is comprised of over 160 members and associates in 120 countries, including three inPakistan– the Institute of Chartered Accountants of Pakistan, theInstituteofCostand Management Accountants of Pakistan and the Pakistan Institute of Public Finance Accountants – has also undertaken major initiatives, consistent with its mission which is:

To serve the public interest, IFAC will continue to strengthen the worldwide accountancy profession and contribute to the development of strong international economies by establishing and promoting adherence to high-quality professional standards, furthering the international convergence of such standards, and speaking out on public interest issues where the profession’s expertise is most relevant.

Before I describe some of our initiatives, I would like to emphasize that when I speak about “IFAC” and the work that we do, I am not speaking about a handful of individuals. I am referring to the broad, global network of volunteers that serve on our eight technical committees and boards; to our Board, which is comprised of nominees of IFAC members; to all member bodies which so actively participate in IFAC, particularly through the IFAC Member Body Compliance Program; and of course, to the IFAC staff who support all of these groups.

I am especially grateful to the Institute of Chartered Accountants of Pakistan and to its leaders, who have made a deep commitment to the profession and to the public interest which it serves. 

As a long-standing member of the International Federation of Accountants, the Institute of Chartered Accountants of Pakistan has a tradition of active involvement in and support of IFAC. I would like to thank those Pakistani representatives who serve on our boards and committees whose support enables IFAC to achieve its objectives: Abdul Rahim Suriya, a member of our International Accounting Education Standards Board; Khaliq-ur-Rahman, a member of our Small and Medium Practices Committee; and Mujahid Eshai, who served on our Developing Nations Permanent Task Force – now our Developing Nations Committee – from March 2004 to November 2005. These gentlemen exemplify the Institute of Chartered Accountants of Pakistan’s commitment to the international profession and to our core values of integrity, transparency and expertise. 

Transparency is a concept that takes on real significance following a disaster, such as the devastatingKashmirearthquake of last October. That tragic event took many lives and has deeply saddened us all. It also destroyed many businesses, including some PKR 1 billion of SME assets, and huge amounts of infrastructure. We accountants, however, have an important role in supporting the recovery efforts through, for example, ensuring that recovery funds are properly managed, that effective governance controls are in place, and that public monies benefit those most in real need. We can also fulfill the pledge of your President, Perves Musharraf, to the Donors’ Conference in Islamabad last November when he affirmed that “therewillbe transparency and therewillbe total accountability” in the rebuilding effort. These are the values that we, as professional accountants, live every day. We embrace these values because they are central to protecting the public interest and to achieving economic growth. Where there is transparency and accountability, there is typically greater public trust and social stability.

Let me turn now to my topic for today: the role of IFAC in restoring public confidence in the accountancy profession, with the goal of achieving economic growth and stability. IFAC activities in four specific areas are directly related to achieving this goal:

First, we have promoted, indeed required, adherence to high ethical standards by the 2.5 million accountants represented by our member bodies.

Secondly, we have sought to continue to enhance the quality of the audit process through the development of high-quality international standards.

Thirdly, we have encouraged firms and our member bodies to monitor the quality of those processes.

Lastly, we have focused on encouraging strong corporate governance and management accountability.

The bedrock of our international commercial system is high quality financial information: information based on ethics and integrity, on high-quality international accounting and auditing standards and on the work and sound judgment of both internal and external professional accountants. Credible and reliable financial information is fundamental to investment. It builds investor confidence which, in turn, facilitates business development, contributes to job growth and leads to individual financial prosperity.

Let me return to the first point – promoting high ethical standards.

Ethical conduct lies at the core of all business. We do business with those we trust; we get business from those who trust us. It is at the root of generating confidence in both individuals and entities. Ethics, therefore, is a driver of business growth which demands attention from boards and investors alike. As the world becomes more interconnected, it is the values that we share that unite us as a profession.

IFAC’s values of integrity, transparency and expertise are reflected in every facet of our work. To build credibility in financial systems and to contribute to sound economic systems, we must also promote these values to all professional accountants, both in practice and in business, as well as to all those in the financial reporting supply chain. And we must do so in a way that is relevant and meaningful.

IFAC’s International Ethics Standards Board for Accountants, which develops the international Code of Ethics for Professional Accountants, does just this. The Ethics Standards Board recently 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, those in public practice as well as those in business and government. The Ethics Standards Board, recognizing that both governmental and business accountants play significant roles in safeguarding the public trust, plans to provide further guidance for these accountants in particular.

IFAC’s Ethics Standards Board is also focused on an issue that is perhaps most central to public trust and one that has received widespread attention by the media and regulators: independence. A forum on the topic was held inBrusselslast October and attended by regulators, standard setters, corporate management, and representatives of IFAC member bodies. This input is part of an extensive Ethics Standards Board consultative process thatwillhelp to determine how the independence rules should be modified better to address the public interest.

I commend the ICAP for sharing IFAC’s commitment to promoting the highest ethical standards. The Institute bases its Code of Ethics for Chartered Accountants largely on IFAC’s international Code of Ethics. As more and more countries adopt the IFAC Code, we are raising the bar globally for ethical conduct for all accountants.

The second way in which IFAC is working to build confidence in the profession and contribute to economic growth is through one of its most core activities: developing international auditing and assurance standards. These standards are developed by the independent International Auditing and Assurance Standards Board and, like IFAC’s ethics code, are subject to a rigorous due process that includes extensive public interest input.

I am pleased that the Institute of Chartered Accountants of Pakistan has adopted International Standards on Auditing for use inPakistan, which is a further sign of your Institute’s commitment to convergence and to protecting the public interest.

In order further to facilitate convergence to international standards, the IAASB has undertaken a significant 18-month project to improve the clarity and structure of its standards. The IAASB has developed a new drafting style for its standards based on input it received at a forum in July 2005 and through responses to its 2004 Proposed Policy Statement and Consultation Paper on Clarity. In late October 2005, the IAASB released exposure drafts of the first four proposed standards developed using a new drafting style. The proposed standards focus on:

• The auditor’s responsibility to consider fraud in an audit of financial statements;
• Planning the audit;
• Understanding the entity and its environment and assessing the risks of material misstatement; and
• The auditor’s procedures in response to assessed risks.

The exposure drafts are posted on the IFAC website – www.ifac.org – and I encourage you to review them and to provide comment.

In addition to addressing the issue of clarity, the IAASB has issued a new international standard on audit documentation, designed to enhance auditor performance and audit quality by establishing stricter requirements for audit documentation. Beginning with this standard, the IAASB staff is preparing a “Basis for Conclusions” for each new international standard to increase understanding about the development of the standard – in particular, how the IAASB has responded to input received. We hope that you find this to be helpful.

The involvement of related parties, such as directors, owners, and management, in major corporate scandals prompted the IAASB to review its current auditing standard on the subject. As a result of its review, in January the IAASB issued an exposure draft, proposed International Standard on Auditing (ISA) 550 (Revised), Related Parties, and is inviting comments on proposed requirements for auditors regarding the audit of related party relationships and transactions.

The proposed standard places new emphasis on evaluating the effects of related party relationships and transactions on the financial statements, even in circumstances where the financial reporting framework does not establish related party accounting or disclosure requirements.

Other current IAASB projects are the development of standards on auditing accounting estimates and on materiality in the identification and evaluation of misstatements.

In addition to International Standards on Auditing, the IAASB also issues International Standards on Quality Control, to be applied by accounting firms for all services falling under the IAASB’s international standards. While its current agenda is clearly focused on ISA-related matters, to address expanding and changing business needs, the IAASB also has a mandate to issue International Standards on Assurance Engagements, which are to be applied by practitioners in assurance engagements dealing with information other than historical financial information, and International Standards on Related Services. To promote good practice, the IAASB issues Practice Statements to provide interpretive guidance and practical assistance in implementing its standards.

To assist professional accountants in meeting the demands of a changing business environment and to build further credibility in financial information provided by accountants globally, IFAC has placed increased effort on improving the transparency of the IAASB standard-setting processes and on devoting more resources to them. The same focus has been placed on the standard-setting work of the International Ethics Standards Board for Accountants and the International Accounting Education Standards Board.

A significant event that, I believe,willboost confidence in the profession and trust in our work is the establishment of the international Public Interest Oversight Board (PIOB). Formed in February of last year and chaired by Professor Stavros Thomadakis (a former Chairman of the Hellenic Securities Commission), the PIOB has eight members and two observers, all very senior people, appointed by international bodies of regulators and institutions. It also is strongly supported by the Financial Stability Forum. The appointing bodies are: the International Organization of Securities Commissions, the International Association of Insurance Supervisors, the Basel Committee, the World Bank and the European Commission. The PIOB oversees the work of the IAASB and of IFAC’s Ethics and Education Standards Boards and endorses appointments to them. In September 2005, it approved the due process and working procedures that they should follow and in December approved new appointments. This oversightwill, I believe, contribute to increased credibility in all the standards that IFAC develops through its independent boards.

Before I move off the topic of standard setting, I want to comment on one of IFAC’s most important objectives: convergence with international standards. Convergence is, I believe, at the core of building an investment climate of trust. Here’s why. Globalization demands high-quality standards that can be applied fromNew YorktoNairobi, from London to Lahore. This puts everyone on a level playing field.

Second, global standards will result in increased transparency and accountability. Investors will be better able to compare company financial statements across borders. I also believe that developing countries like Pakistan that do adopt international standards will see increased outside investment in their economies, by institutional and retail investors who are familiar with, and confident in, the standards, regardless of geography. 

There is another consideration as well. Having a multiplicity of accounting, auditing and other standards around the world is against the public interest. It creates confusion, encourages error and facilitates fraud. The cure for those ills is to have a single set of international standards, of the highest quality, set in the public interest by an international expert body which transparently consults with, and recognizes the legitimate interests of, the international community.

The Institute of Chartered Accountants of Pakistan has supported convergence through its involvement both in IFAC and in the International Accounting Standards Board. It has also demonstrated this by adopting International Standards on Auditing; by basing its Code of Ethics on the international Code developed by IFAC’s Ethics Standards Board; and by implementing the IFAC Education Standards Board’s International Education Standards, including the new requirements for Continuing Professional Development. Thank you for this outstanding commitment to quality.

To give further assistance to IFAC member bodies and others in understanding the challenges and issues related to convergence, IFAC staff, in consultation with members of our boards and committees and other relevant interested parties, is further developing the concept of “international convergence.” The objective is to develop guidance to accompany IFAC’s Statements of Membership Obligations (SMOs), which form the basis of the IFAC Member Body Compliance Program.

The IFAC Member Body Compliance Program, in which the ICAP is an active participant, is directly related to a third initiative of IFAC’s: encouraging quality performance by the international profession and encouraging firms and member bodies to ensure that appropriate quality control mechanisms are in place.

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, to demonstrate a shared commitment to our profession’s values of integrity, transparency and expertise.

Phase 1 of the Compliance Program, a fact-based questionnaire to assess the regulatory and standard-setting frameworks of IFAC member bodies, is now complete. Responses from more than 105 member bodies, including the response from the Institute of Chartered Accountants of Pakistan, have been posted on the IFAC website. The goal is to have all responses posted as soon as reviews are completed. Part 2, the SMO Self-Assessment Questionnaire, was distributed to member bodies last November and responseswillbe posted to the IFAC website beginning in the second half of this year. The responses from these questionnaires are important for several reasons: they provide a global snapshot of the accountancy profession from both a regulatory and standards perspective. Additionally, they can be used to help IFAC gauge where it needs to focus its efforts to support the development of the profession and to work to achieve convergence. Lastly, but perhaps most importantly, the responses to the questionnaires demonstrate the international accountancy profession’swillingness to be accountable for its actions to meet high standards, to deliver quality and to protect the public interest – all of which contribute to building confidence in the profession.

As we look to the future, we see that the global economy will continue to challenge the international accountancy profession, regulators, standard setters, and business leaders to compete and to deliver quality. In anticipation of these challenges, and in recognition that we must never waiver in our commitment to build public trust, IFAC’s Board has recently agreed to lead a new study on enhancing the quality of the financial reporting supply chain. The project will identify investor expectations and needs and include practical suggestions for enhancements that the global accountancy profession can provide by direct action and those where it will need to engage with others to create change. Among the issues to be considered in the new study are corporate management and governance, regulatory developments, auditor independence and rotation and the expectations in respect of the board’s and the auditor’s responsibilities for the detection of fraud.

IFAC has also focused on promoting strong corporate governance, an area that your country is also addressing. The newInstituteofCorporate Governance, established just over one year ago by the Securities and Exchange Commission ofPakistanand of which the ICAP is a founding member, is a strong example of this. The Pakistan Institute of Corporate Governance is an important step in the process toward ensuring sound corporate governance practices and protecting the interests and rights of shareholders.

IFAC’s focus on corporate governance is best expressed in an independent report it commissioned, entitled Rebuilding Public Confidence in Financial Reporting, that was developed two years ago under the leadership of John Crow, a former governor of the Bank of Canada. The report emphasized that a wide range of actions, by a wide range of entities, must be taken to strengthen corporate governance. For example, corporate management must place greater emphasis on the effectiveness of financial management and controls, corporate ethics codes need to be in place and effectively monitored and threats to auditor independence need to be given greater attention in corporate governance. The report’s findings and recommendations provided much impetus to IFAC’s Professional Accountants in Business (PAIB) Committee, as well as to other international groups. The PAIB Committee recently issued an exposure draft of proposed guidance to assist professional accountants in business in implementing corporate codes of conduct in their organizations. The proposed good practice guidance is designed to draw greater attention to the need for corporate codes of conduct, to provide practical guidance on the scope and implementation of such codes, and to support sound corporate governance practices. The proposed guidance highlights the benefits of an effective code of conduct and identifies the professional accountant’s role in the development, monitoring, reinforcement and reporting of such codes in their organizations.

IFAC’s PAIB Committee has also turned its attention to how best to improve the performance of organizations, and thus to ensure wider prosperity for all. In 2004, the committee, in conjunction with The Chartered Institute of Management Accountants in the UK, issued a report on corporate governance best practices entitled, Enterprise Governance – Getting the Balance Right. The joint group conducted an in-depth analysis of corporate successes and failures in 27 case studies from 10 countries. Among the report’s findings were that there are four key determinants of corporate success and failure: the culture and tone at the top, the chief executive, the board of directors and the internal control system.

The report also revealed that good governance on its own cannot make a company successful. Companies need to balance conformance with performance. To quote: “Unlike the conformance dimension, there are no dedicated oversight mechanisms, such as audit committees, in the arena of strategy. … There is a danger that in the laudable attempt to improve standards of control and ethics, insufficient attention is paid to the need for companies to create wealth and to ensure that they are pursuing the right strategies to achieve this.”

The study examined “enterprise governance,” an emerging concept in the new global economy.Enterprisegovernance has two equal parts: probity and profitability. I would suggest that one without the other isn’t worth having. Businesses that have the highest ideals but go bankrupt through poor strategic choices are as disastrous to shareholders, to other stakeholders and to public confidence as are businesses that fail because of ethical lapses. Profitable businesses that are run with little regard for the public interest, the law, regulation, employees or shareholders, should not be in business and, ultimately, will not be in business. I encourage the Pakistan Government and those of you here today who serve local businesses and industry to encourage the highest ethical practices at all levels of business. This is good not only for local business, but for your economy as a whole and, indeed, the future of your country.

In addition to our work to support professional accountants in business, IFAC’s Small and Medium Practices Committee serves the needs of small- and medium-sized accounting practices and other accountants that provide services for small and medium entities. SMEs are a fundamental driver of economic growth. Here inPakistan, according to the Asian Development Bank, SMEs account for 80 percent of employment in the industrial sector and a total of 30 percent of value added to the economy. The importance of SMEs extends to developed nations, where, for instance, in the European Union they represent 99 percent of all enterprises. To ensure that international standard setters are aware of and give consideration to issues relevant to SMEs andSMPs, IFAC’s Small and Medium Practices Committee is active in representing their interests to both the IAASB and to the International Accounting Standards Board. The committee is currently providing input to the IASB’s project considering the development of financial reporting standards for SMEs. The committee is also developing guidance materials forSMPs, especially in relation to the application of ISAs to the audit of SMEs and establishing an electronic data exchange on SME andSMPissues.

IFAC is committed to ensuring that all professional accountants, in every country of the world, both developed and developing, have the tools they need to face the challenges of the new global economy.

Because IFAC is a global organization, and because it is predicted that 95 percent of the world’s population growth will occur in developing nations, we have made strengthening the profession in those nations a key objective. Our position is this: we have a fundamental role and responsibility to play in fostering progress in the developing world, in eradicating poverty and in building prosperity. Establishing a sound and viable accountancy profession is a critical step in building a sound financial infrastructure and addressing these issues. We welcome assistance from established accountancy bodies, such as the Institute of Chartered Accountants of Pakistan, in this effort to grow and develop our profession worldwide.

IFAC’s goal is to have a member body with an established accountancy profession in every country around the globe. There is no doubt that this is a lofty goal, but as we look ahead and see that the growth of the world’s population will largely be in developing economies, I am more and more certain that this goal is one that we cannot compromise or forsake. To achieve this goal, IFAC’s Developing Nations Committee is involved in extensive outreach to developing nations and has prepared new guidance, with the input of IFAC members, to assist developing nations in establishing an accountancy body and where an accountancy body already exists, further to develop and enhance it. The guidance may be downloaded from the IFAC website and CD-ROMs have been sent to every IFAC member body. Please take a look at the guidance and let us know if you have any input or any need for additional information.

The guidance is one part of a comprehensive program designed to help IFAC achieve the goal of creating a respected accountancy organization in every country. In so doing, we can help to build strong financial architectures around the globe – architectures that are supported by strong ethical standards, high professional standards and an unwavering commitment to act transparently and to be accountable.

Pakistan, like many nations, faces some significant challenges, most recently the tragicKashmirearthquake. However, the important steps that you are taking and those that youwillcontinue to take to encourage transparency and accountability in the public and private sectors, to increase privatization and to ensure fiscal responsibility will, I believe, greatly contribute to the economic prosperity of your country. As the World Bank and the International Monetary Fund stated in their 2004 joint assessment: “Pakistan has undertaken major reforms in recent years in the financial sector that have resulted in a sounder and more efficient financial system.” These reforms include “a return to market-based monetary and exchange rate policies, a diminishing role of the state in the financial sector through privatization of nationalized commercial banks, improvement in corporate governance, disclosure, and transparency and the adoption of a modern regulatory approach in the oversight of the financial sector.” I encourage you all to continue to support these reform efforts.

Certainly, your future is bright. According to the economic outlook produced by The Economist magazine and updated just last month, the economy ofPakistan, despite the earthquake, is expected to perform strongly, with real GDP growth of 6.6 percent in the fiscal year July 2005 to June 2006 and six percent in fiscal year 2006/07.

Professional accountants, such as those of us here today, play an important part in protecting the public good, encouraging transparency and achieving economic growth and stability. Through adherence to high ethical standards we can, together, bring about social stability and good governance in business. Through convergence to international standards we can, together, deliver on our promise of quality. And through acting in the public interest, we can, together, build public trust and sound economies that support a better quality of life for all.

I am proud to work with the profession inPakistanin IFAC’s drive to generate economic growth and stability in every country of the world.

Thank you very much for your attention.

Thank you very much for your kind introduction and for the privilege to speak with you today. This is my third visit toIndiain the past year, and I am always heartened by the warm welcome that I receive here. Each time, I am also impressed by the progress of the profession, the dedication of your volunteers and your receptivity to new ideas that can further strengthenIndia’s role in the world economy.

I would like to thank both your President, Shri Kamlesh Vikamsey, and your Chief Executive, Dr. Ashok Haldia, for organizing this important conference and for inviting me to speak at it.

There is no question that the international accountancy profession has a unique, critical and practical role to play in building stronger and more stable economies around the globe. In order to fully carry out this role, however, we need to continue to enhance confidence in the profession and to build trust. Investor confidence and public trust empowers our profession. Without it, the credibility of the information we produce, indeed the future of our profession itself, is put at risk. Whether we work inNew YorkorNew Delhi, we cannot afford this risk.

Since corporate fraud and misconduct in the U.S. and elsewhere shook investor confidence and raised questions about the integrity of capital markets and their participants, action has been taken around the globe by governments, regulators, and accountants themselves to strengthen the profession and enhance market integrity. The International Federation of Accountants, which represents over 160 member organizations in 120 countries, has also undertaken some major initiatives, consistent with its mission which is:

“To serve the public interest, IFAC will continue to strengthen the worldwide accountancy profession and contribute to the development of strong international economies by establishing and promoting adherence to high-quality professional standards, furthering the international convergence of such standards, and speaking out on public interest issues where the profession’s expertise is most relevant.”

Before I describe some of our initiatives, I would like to emphasize that when I speak about “IFAC” and the work that we do, I am not speaking about a handful of individuals. I am referring to the broad, global network of volunteers that serve on our eight technical committees and boards; to our Board, which is comprised of nominees of IFAC members; to all member bodies that so actively participate in IFAC, particularly through the IFAC Member Body Compliance Program; and of course, to the IFAC staff who support all of these groups.

I am especially grateful to the Institute of Chartered Accountants of India and to its leaders, who have made a very deep commitment to the profession and to the public interest which it serves.

As a founding member of the International Federation of Accountants, the Institute of Chartered Accountants of India has a long tradition of active involvement in and support of IFAC. I would like to thank those Indian representatives currently serving on our boards and committees, without whose support, IFAC could not achieve its objectives. Your President, Shri Kamlesh Vikamsey, representsIndiaon the IFAC Board and is ably supported by Dr. Haldia, who serves as his technical advisor. I would also like to thank your immediate past president Shri Sunil Goyal, who is a member of our Small and Medium Practices Committee and previously served on the IFAC Board; Shri T.N. Manoharan, the Institute’s Vice President, who joined our International Accounting Education Standards Board last November; Shri Shanti Lal Daga, who joined our Developing Nations Committee last November; Shri Pankaj Jain, who serves on the International Public Sector Accounting Standards Board; and Shri Rajkumar Adukia, who serves on our Professional Accountants in Business Committee. These gentlemen exemplify the ICAI’s spirit of active participation in the international profession.

This spirit of international involvement has also had a positive effect on your economy. As a Board Member of the Indo-British Partnership Network, I am very aware thatIndia, the world’s second fastest growing economy, is now the world’s second most preferred destination for foreign direct investment. It has posted an impressive growth rate of seven percent and has begun to reap the fruits of its steps towards both greater market openness and facilitating direct investment, such as rapid growth in the technology and communications sectors. I was encouraged to hear Indian Finance Minister Shri Palaniappan Chidambaram echo these sentiments at the Indian Economic Summit last November when he said, ”We must open the doors to foreign direct investment.” It is through greater international cooperation and investment thatIndia’s impressive economic growth rate can be sustained, and it is through continued economic growth that challenges such as poverty and development can be addressed.

Let me turn back to my specific topic for today: enhancing confidence in the accountancy profession in order to achieve economic growth and stability. To meet this objective, IFAC’s activities in four specific areas are directly related to achieving this goal:

First, we have promoted, indeed required, adherence to high ethical standards by the 2.5 million accountants represented by our member bodies.

Secondly, we have sought to continue to enhance the quality of the audit process through the development of high quality international standards.

Thirdly, we have encouraged firms and our member bodies to monitor the quality of those processes.

Lastly, we have focused on encouraging strong corporate governance and management accountability.

The bedrock of our international commercial system is high quality financial information:  information based on ethics and integrity, on high quality international accounting and auditing standards and on the work and sound judgment of both internal and external professional accountants. Credible and reliable financial information is fundamental to investment. It builds investor confidence which, in turn, facilitates business development, contributes to job growth and leads to individual financial prosperity.

Let me return to the first point – promoting high ethical standards.

Ethical conduct lies at the core of all business. We do business with those we trust; we get business from those who trust us. It is at the root of generating confidence in both individuals and entities. Ethics, therefore, is a driver of business growth which demands attention from boards and investors alike. As the world becomes more interconnected, it is the values that we share that unite us as a profession.

IFAC’s values of integrity, transparency and expertise are reflected in every facet of our work. To build credibility in financial systems and to contribute to sound economic systems, we must also promote these values to all professional accountants, both in practice and in business, as well as to all those in the financial reporting supply chain. And we must do so in a way that is relevant and meaningful.

IFAC’s International Ethics Standards Board for Accountants, which develops the international Code of Ethics for Professional Accountants, does just this. The Ethics Standards Board recently 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, those in public practice as well as those in business and government. The Ethics Standards Board, recognizing that both governmental and business accountants play significant roles in safeguarding the public trust, plans to provide further guidance for these accountants in particular.

The Ethics Standards Board is also focused on an issue that is perhaps most central to public trust and one that has received widespread attention by the media and regulators: independence. A forum on the topic was held inBrusselsin October and attended by regulators, standard setters, corporate management, and representatives of IFAC member bodies. This input is part of an extensive Ethics Standards Board consultative process that will help to determine how the independence rules should be modified better to address the public interest.

The second way in which IFAC is working to build confidence in the profession and contribute to economic growth, is through one of its most core activities: developing international auditing and assurance standards. These standards are developed by the independent International Auditing and Assurance Standards Board and, like IFAC’s ethics code, are subject to a rigorous due process that includes extensive public interest input.

One of the IAASB’s most significant projects is improving the clarity and structure of its standards. Based on input it received at a forum in July and through responses to its 2004 Proposed Policy Statement and Consultation Paper on Clarity, in late October 2005 the IAASB released exposure drafts of four proposed standards developed using a new drafting style. These standards are the first to be issued as part of an ambitious 18-month program to make IAASB standards more understandable and capable of being translated, and to facilitate international convergence. The exposure drafts are posted on the IFAC website and I encourage you to review them and to provide comment.

In addition to focusing on clarity, the IAASB has issued a new international standard on audit documentation, designed to enhance auditor performance and audit quality by establishing stricter requirements for audit documentation. Beginning with this standard, the IAASB staff is preparing a “Basis for Conclusions” for each new international standard to increase understanding about the development of the standard – in particular, how the IAASB has responded to input received. We hope that you find this to be helpful.

Earlier this month, the IAASB issued an exposure draft on another significant public interest issue – related party transactions. The proposed revised International Standard on Auditing would require the auditor to perform a minimum set of procedures to identify related party transactions and transactions not identified or disclosed by management. 

Other current IAASB projects are the development of standards on auditing accounting estimates and on materiality in the identification and evaluation of misstatements.

In addition to International Standards on Auditing, the IAASB also issues International Standards on Quality Control, to be applied by accounting firms for all services falling under the IAASB’s international standards. While its current agenda is clearly focused on ISA-related matters, to address expanding and changing business needs, the IAASB also has a mandate to issue International Standards on Assurance Engagements (ISAEs), which are to be applied by practitioners in assurance engagements dealing with information other than historical financial information, and International Standards on Related Services. To promote good practice, the IAASB issues Practice Statements to provide interpretive guidance and practical assistance in implementing its standards.

To assist professional accountants in meeting the demands of a changing business environment and also to build further credibility in financial information provided by accountants globally, IFAC has placed increased effort on improving the transparency of the IAASB standard setting processes and on devoting more resources to them. The same focus has been placed on the standard setting work of the International Ethics Standards Board for Accountants and the International Accounting Education Board.   

A significant event that, I believe, will boost confidence in the profession and trust in our work is the establishment of the international Public Interest Oversight Board (PIOB). Formed in February of last year and chaired by Professor Stavros Thomadakis (a former Chairman of the Hellenic Securities Commission), the PIOB has eight members and two observers, all very senior people, appointed by international bodies of regulators and institutions. It also is strongly supported by the Financial Stability Forum. The appointing bodies are: IOSCO, the International Association of Insurance Supervisors, the Basel Committee, the World Bank and the European Commission. The PIOB oversees the work of the IAASB and of IFAC’s Ethics and Education Committees and endorses appointments to them. In September 2005, it approved the due process and working procedures that they should follow and in December approved new appointments. This oversight will, I believe, contribute to increased credibility in all the standards that IFAC develops through its independent boards.

Before I move off the topic of standard setting, I want to comment on one of IFAC’s most important objectives: convergence with national standards. Convergence is, I believe, at the core of building an investment climate of trust. Here’s why. Globalization demands high-quality standards that can be applied fromSydneytoStockholm, fromMoroccoto Mumbai. This puts everyone on a level playing field.

Second, global standards will result in increased transparency and accountability. Investors will be better able to compare company financial statements across borders. I also believe that developing countries that adopt international standards will see increased outside investment in their economies, by institutional and retail investors who are familiar with, and confident in, the standards, regardless of geography. 

There’s another consideration as well. Having a multiplicity of accounting, auditing and other standards around the world is against the public interest. It creates confusion, encourages error and facilitates fraud. The cure for those ills is to have a single set of international standards, of the highest quality, set in the public interest by an international expert body which transparently consults with, and recognizes the legitimate interests of, the international community.

In consultation with IFAC boards and committees, and other relevant interested parties, IFAC staff is further developing the concept of “international convergence.” The objective is to develop guidance to accompany IFAC’s Statements of Membership Obligations (SMOs), which form the basis of the IFAC Member Body Compliance Program.

The IFAC Member Body Compliance Program, in which the ICAI is an active participant, is directly related to a third initiative of IFAC’s: encouraging quality performance by the international profession and encouraging firms’ and member bodies ’ to ensure that appropriate quality control mechanisms are in place.

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, to demonstrate a shared commitment to our profession’s values of integrity, transparency and expertise. We know thatIndiashares this commitment to these values and that it, too, through its most recent Professionals Act, is continuing to provide for greater transparency and accountability on the part of the profession.

Phase 1 of the Compliance Program, a fact-based questionnaire to assess the regulatory and standard-setting frameworks of IFAC member bodies, is now complete. Responses from more than 90 member bodies, including the response from the Institute of Chartered Accountants of India, have been posted on the IFAC website. The goal is to have all responses posted as soon as reviews are completed. Part 2, the SMO Self-Assessment questionnaire, was distributed to member bodies for completion at the end of November and responses will be posted to the IFAC website next year. The responses from these questionnaires are important for several reasons: they provide a global snapshot of the accountancy profession from both a regulatory and standards perspective. Additionally, they can be used to help IFAC gauge where it needs to focus its efforts to support the development of the profession and to work to achieve convergence. Lastly, but perhaps most importantly, the responses to the questionnaires demonstrate the international accountancy profession’s willingness to be accountable for its actions to meet high standards, to deliver quality and to protect the public interest – all of which contribute to building confidence in the profession.

As we look to the future, we see that the global economy will continue to challenge the international accountancy profession, regulators, standards setters, and business leaders to compete and to deliver quality. In anticipation of these challenges, and in recognition that we must never waiver in our commitment to build public trust, IFAC’s Board has recently agreed to lead a new study on enhancing the quality of the financial reporting supply chain. The project will identify investor expectations and needs and include practical suggestions for enhancements that the global accountancy profession can provide by direct action and those where it will need to engage with others to create change. Among the issues to be considered in the new study are corporate management and governance, regulatory developments, auditor independence and rotation, and the expectations in respect of the board’s and the auditor’s responsibilities for the detection of fraud.

IFAC has also focused on promoting strong corporate governance, an area that your country is also successfully addressing. Your new  Corporate Governance Rules, embraced in Clause 49 of the Securities and Exchange Board of India’s  (SEBI) Listing Agreement, which establishes new corporate governance requirements, including audit committees and independent directors on boards, is a model that other countries can look to and demonstrates your country’s commitment to putting the public interest first.

IFAC’s focus on corporate governance is best expressed in an independent report it commissioned – Rebuilding Public Confidence in Financial Reporting – developed two years ago under the leadership of John Crow, former governor of the Bank of Canada. The report emphasized that a wide range of actions, by a wide range of entities, must be taken to strengthen corporate governance. For example, corporate management must place greater emphasis on the effectiveness of financial management and controls, corporate ethics codes need to be in place and effectively monitored and threats to auditor independence need to be given greater attention in corporate governance. The report’s findings and recommendations provided much impetus to IFAC’s Professional Accountants in Business (PAIB) Committee, as well as to other international groups. The PAIB Committee is in the process of finalizing a document on corporate codes of conduct which, among other things, highlights the role of the professional accountant in business in developing, monitoring and adhering to such a code.

This IFAC committee has also turned its attention to how best to improve the performance of organizations, and thus to ensure wider prosperity for all. In 2004, our Professional Accountants in Business Committee, working with The Chartered Institute of Management Accountants (CIMA), issued a report on corporate governance best practices entitled, Enterprise Governance – Getting the Balance Right. The joint group conducted an in-depth analysis of corporate successes and failures in 27 case studies from 10 countries. Among the report’s findings were that there are four key determinants of corporate success and failure: the culture and tone at the top, the chief executive, the board of directors and the internal control system.

The report also revealed that good governance on its own cannot make a company successful. Companies need to balance conformance with performance. To quote: “Unlike the conformance dimension, there are no dedicated oversight mechanisms, such as audit committees, in the arena of strategy. … There is a danger that in the laudable attempt to improve standards of control and ethics, insufficient attention is paid to the need for companies to create wealth and to ensure that they are pursuing the right strategies to achieve this.”

The study examined ‘enterprise governance,’ an emerging concept in the new global economy.Enterprisegovernance has two equal parts: probity and profitability. I would suggest that one without the other isn’t worth having. Businesses that have the highest ideals but go bankrupt through poor strategic choices are as disastrous to shareholders, to other stakeholders and to public confidence as are businesses that fail because of ethical lapses. Profitable businesses that are run with little regard for the public interest, the law, regulation, employees or shareholders, should not be in business and, ultimately, will not be in business.

IFAC is committed to ensuring that all professional accountants, in every country of the world, both developed and developing, have the tools they need to face the challenges of the new global economy

IFAC is a global organization of more than 160 member organizations in 119 countries, representing 2.5 million accountants worldwide. Because we are a global organization, and because it is predicted that 95% of the world’s population growth will occur in developing nations, we have made strengthening the profession in those nations a key objective. Our position is this: we have a fundamental role and responsibility to play in fostering progress in the developing world, in eradicating poverty and in building prosperity. Establishing a sound and viable accountancy profession is a critical step in building a sound financial infrastructure and addressing these issues. IFAC’s goal is to have a member body with an established accountancy profession in every country around the globe. There is no doubt that this is a lofty goal, but as we look ahead and see that the growth of the world’s population will largely be in developing economies, I am more and more certain that this goal is one that we cannot compromise or forsake. To achieve this goal, IFAC’s Developing Nations Committee is involved in extensive outreach to developing nations and has prepared new guidance, with the input of IFAC members, to assist developing nations in establishing an accountancy body and where an accountancy body already exists, to further develop and enhance it. The guidance may be downloaded from the IFAC website and CD ROMs have been sent to every IFAC member body. Please take a look at the guidance and let us know if you have any input or need for additional information.

The guidance is one part of a comprehensive program designed to help IFAC achieve the goal of creating an accountancy organization in every country. In so doing, we can help to build strong financial architectures around the globe – architectures that are supported by strong ethical standards, high professional standards, and an unwavering commitment to act transparently and to be accountable.

Through adherence to high ethical standards we can, together, bring about social stability and good governance in business. Through convergence to international standards we can, together, deliver on our promise to quality. And through acting in the public interest, we can, together, build public trust and sound economies that support a better quality of life for all.

I am proud to continue to work with the profession inIndia, both institutionally and personally, in IFAC’s drive to generate economic growth and stability in every country of the world.

Thank you very much for your attention.

I am delighted to be here inSri Lanka, where I have had the opportunity to experience first hand your warmth, generosity, and openness. The determination and strength your people have shown over the past year are much admired throughout the world and the results of your hard work are giving new meaning to the word “recovery.” You truly are an inspiration to all.

Since becoming President of the International Federation of Accountants (IFAC) in November 2004, I have had the opportunity to meet with professional accountants from many cultures and in all walks of life. I have also met with international standard setters, regulators, representatives of international development and funding agencies, business and government leaders, and the leadership of other professional groups that focus on ethics and corporate governance. What I have learned is that we share a common objective: creating an investment climate of trust around the world. Creating an investment climate of trust is vital to economic development and to stability in countries of every size, in every part of the world and at every stage of development.

This is not a new challenge toSri Lanka, which has been and continues to be poised to benefit from global commerce. A look at your history, particularly that ofGalle, is a reminder ofSri Lanka’s involvement, from its earliest days, in globalization. The Chinese explorer Zheng arrived in this post city in the early 1400s. Then, in 1505, a Portuguese fleet arrived, setting the stage for a bigger commercial boom. And in 1663, the Dutch built Galle Fort, the city’s main tourist attraction. Today, despite the setbacks of the tsunami, Sri Lanka is, I believe poised once again to increase its commercial and trade activities, to boost its economy, and to improve the quality of life of its citizens. Doing so requires a global perspective, a commitment by those in government and business to increased accountability and a willingness to demonstrate greater transparency in all transactions – both public and private. My comments today are limited to how CFOs and the accountancy profession in general can contribute to building an investment climate of trust. It is important, however, to acknowledge that building sustainable economic growth – growth that can effectively close the gap between the “haves” and “have nots”, growth that is based on increased employment and growth that leads to higher standards of living for all your citizens -- requires actions by many other individuals, professions and entities here in Sri Lanka.

Let me begin by commenting on why IFAC is involved and indeed, cares about your situation, here inSri Lanka. IFAC’s mission is global in thrust and public-interest oriented. I’d like to state it for you now:

“To serve the public interest, IFAC will continue to strengthen the worldwide accountancy profession and contribute to the development of strong international economies by establishing and promoting adherence to high-quality professional standards, furthering the international convergence of such standards and speaking out on public interest issues where the profession's expertise is most relevant.”

IFAC works with its member bodies, such as the Institute here inSri Lanka, to achieve this mission. To serve the public interest effectively and to contribute to the development of strong economies, also involves much more than the work of IFAC. It involves actions by governments, regulators, standard setters, and most especially, by business leaders such as yourselves. And it begins by creating an investment climate of trust, which is my topic of discussion today.

Chief financial officers and other business leaders play a key role in building this climate of trust. As the gatekeepers of financial information and the financial and strategic decision makers, you are in a key role to develop the business strategies that promote not only growth and profit, but also confidence.

How can we create an investment climate of trust that will lead to economic growth and stability not just here inSri Lankabut worldwide? In a report released last year by the World Economic Forum’s Global Corporate Citizenship Initiative (GCCI), based on surveys of CEOs worldwide, the majority of CEOs agreed that the most important contribution business leaders can make to development is in the way they run their own businesses. They must set the example for quality and lay the groundwork for achieving profitability that can then benefit others.

So how can you set the example for others? The answers were outlined in the IFAC report, Rebuilding Public Confidence in Financial Reporting: an International Perspective, also known as the “Credibility Report.” 

After extensive discussion and debate with leaders of businesses, accountancy firms, governments and regulatory bodies, in August 2003, the IFAC Task Force on Rebuilding Public Confidence in Financial Reporting, 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, of which I was a member, issued its final report. It included recommendations on principles of best practices in the areas of financial reporting, corporate governance, corporate disclosure and auditor performance. I will highlight a few of these best practice areas now, because I believe that they are central to building an investment climate of trust and are relevant to all of us today. Before I do so, however, I would like to emphasize the major finding – and that is, that building investor confidence requires action by all those in the financial reporting supply chain, from boards of directors to management to auditors, even to bankers, lawyers and investment analysts. Thus, while all of us here are accountable for building an investment climate of trust, we are not alone.

Let me turn now to four recommendations in the report that are directly relevant today: those relating to ethics; financial management and control; auditor independence and corporate governance; and audit standards and regulation. 

The first recommendation relates to values. Effective corporate ethics codes need to be in place and actively monitored. The task force recommended that companies set out their ethical policies in a code that is widely distributed both within the company and to shareholders. We also recommended that training be given and that support be provided for individuals better to enable them to face difficult ethical questions. More and more companies, out of a real desire to do the right thing, as well as a result of regulatory pressures, are developing ethical codes. To be effective, this must be taken one step further: board-monitoring procedures should be put in place so that adherence to the ethical values of a company can be measured.

IFAC’s Professional Accountants in Business Committee is also in the process of developing new guidance on corporate codes of conduct. Scheduled to be released in an exposure draft format this month, the new proposed guidance is designed to draw greater attention to the need for corporate codes of conduct, to provide practical guidance on the scope and implementation of such codes, and to support sound corporate governance practices. The proposed guidance highlights the benefits of an effective code of conduct and identifies the professional accountant’s role in the development, monitoring, reinforcement and reporting of such codes in their organizations

In addition, IFAC’s Code of Ethics, which applies to all accountants, including those working in business, is being revised to provide more specific guidance for professional accountants in business, particularly in instances where they encounter fraud.

A second key recommendation in the Credibility Report is that corporate management should place greater emphasis on the effectiveness of financial management and controls. Certainly, regulatory changes in the light of Enron and other business failures have also focused on this need. To build investor confidence, there should be formal reporting to shareholders setting out the responsibility for financial reporting and for internal controls, as well as regular assessment by the audit committee of the appropriateness of the resources being devoted to the adequacy and effectiveness of internal control.

Knowledge of reporting and controls, I believe, should be considered a core competence of the Chief Financial Officer (CFO). As many of you can attest, your roles and responsibilities have greatly expanded to include everything from strategic planning, to information technology, to financing, and investor relations. Despite these changes in the CFO’s role – all of which I do believe are crucial -- it is vital that financial controls and reporting issues remain a priority.

Another key recommendation in the Credibility Report is that threats to auditor independence should receive greater attention in corporate governance processes and by auditors themselves. Sound corporate governance practices have become critical to worldwide efforts to stabilize and strengthen global capital markets and protect investors. As the Credibility Report pointed out, all public interest entities should have an audit committee, or similar governance body or bodies, formed from directors independent of management with clearly defined responsibilities, including monitoring and reviewing the integrity of financial reporting, financial controls, the internal audit function and relations with the independent auditors. Audit committees play a critical role in the systems of checks and balances designed to protect investor rights. 

The Credibility Report also recommended that the IFAC Code of Ethics for Professional Accountants should be the basis for national codes of independence. The ICASL models its code on the IFAC code and includes additional requirements to address specific national issues and laws.

The IFAC Code emphasizes that auditors need to be constantly vigilant to identify threats to independence and that any such threats should be appropriately addressed through safeguards. For example, it is important for auditors to communicate regularly with the audit committee on matters with respect to independence, in particular the provision of non-audit services. With respect to rotation of auditors, there is no evidence that supports the need for firm rotation as a means of improving audit quality; indeed, the evidence is to the contrary. IFAC’s Code addresses the familiarity threats, while retaining the emphasis on audit quality, by requiring the rotation of the audit partner on listed entities.

Let me now move on to another of the key recommendations in the Credibility Report that relates to building investor confidence: That is the recommendation that audit standards, and all IFAC standards, as well as regulation, be strengthened. IFAC has invested and is continuing to invest a significant amount of effort in these areas. We well recognize that in order for practitioners to deliver quality, they need high quality, internationally accepted standards. Thus, at IFAC, increased effort has been placed on enhancing our standard-setting processes, on improving the transparency of those processes and on devoting more resources to them. Over the past year, the International Auditing and Assurance Standards Board, Ethics Standards Board for Accountants, International Accounting Education Board and International Public Sector Accounting Standards Board have sought to increase public interest input into their standard-setting processes. 

Each of these boards has public members as well as a consultative advisory group, comprised of relevant stakeholders, who can provide meaningful input on the work programs of each group from a public interest perspective. Time does not permit me to enumerate all the projects and standards that are under development by these groups – but I can assure you that they each are addressing areas where the public interest is most significant. For example, theIAASB is addressing the clarity of its standards and the Education Committee has released an exposure draft on the training of audit professionals.

I want to emphasize that outreach to regulators, standard setters, and others is also an important part of IFAC’s standard-setting efforts and particularly of theIAASB’s. TheIAASB regularly holds meetings with international standard setters, briefing them onIAASB priorities and obtaining their input. Through IFAC’s Regulatory Liaison Group, speaking engagements, and one-on-one meetings, we have also kept regulators apprised of IFAC standard-setting initiatives and listened to and responded to their views on our activities.

As an international standard setter with global convergence as an objective, IFAC has a responsibility to consider and accommodate the needs of developing economies, small and medium enterprises and private sector not-for-profit organizations. It is a responsibility that we take very seriously indeed. Two key committees – the Small and Medium Practices (SMP) Committee and the Developing Nations Permanent Task Force – are ensuring that international standard setters are made aware of issues both from a small and medium enterprise perspective and from an emerging economy perspective. Our Developing Nations Committee is also increasingly involved in outreach to developing nations and recently produced guidance to help these countries establish and maintain an effective accountancy profession, which we view as a necessary step in building a sound financial architecture in any country.

The formation in February of last year of the new international Public Interest Oversight Board, which is comprised of very senior and independent people and chaired by Professor Stavros Thomadakis, further enhances the credibility of IFAC standards and will, we believe, contribute to building an investment climate of trust. The new Board, created as part of a series of IFAC reforms, oversees the work of IFAC’s Public Interest Activity Committees – theIAASB, our Ethics Board, and our Education Board – as well as of our Member Body Compliance Program. The PIOB, as representatives of the public, will provide the independent verification that IFAC is fulfilling its public interest mandate. The PIOB’s responsibilities include the following:

• It will evaluate the due process of IFAC standard-setting activities and report publicly.
• It will approve the process for nominating members to the Public Interest Activity Committees, and approve the appointment of the chairs and other members of these committees.
• It has the right to recommend that a specific matter be added to the work program or agenda of a Public Interest Activity Committee.
• It has the right to be an observer, with the privilege of the floor, at IFAC Board and other meetings where matters pertaining to the Public Interest Activity Committees are being discussed.

IFAC’s Boards are fully supportive of the PIOB and its members. The PIOB recently approved a due process for all the Boards as well as the nominations of their new members. The PIOB’s active involvement will, we hope, further demonstrate our commitment to quality and accountability and lead to increased confidence in the profession on a global scale. There has never been a global body overseeing the work of the accountancy profession. The creation of the PIOB is a significant “first” and a critical one in ensuring that confidence in the profession and trust in capital markets does not erode.

I want to emphasize that these regulatory initiatives are not meant to duplicate those of national bodies, but rather to reinforce and complement them. We have seen legislation, such as the Sarbanes Oxley legislation in theUnited States, developed as part of the response to business failures. IFAC’s Regulatory Liaison Group continually monitors the development of such legislation and we liaise with regulators, such as the Public Company Accounting Oversight Board (PCAOB) on matters of standard setting and regulation, recognizing that we are all dedicated to improving the quality of financial information and to strengthening corporate governance. We all need to keep in mind, that while the SOX legislation was developed with the public interest in mind, there are aspects of the legislation that were never anticipated – such as the high costs of implementation, which far exceeded the estimate made when the legislation was under consideration. This issue is being addressed by the PCAOB, but there is no short-term solution for businesses affected by the legislation.

As we look to the future, we are likely to see more regulatory changes, changes that I hope will lead to further building an investment climate of trust without placing an unnecessary and disproportionate burden on businesses. While many of us here have little control over what those changes may be, I am confident that if we continue to act with integrity and adhere to high ethical standards, our burdens will be less, the credibility of financial information released by companies worldwide will be greater, markets will be more efficient, the cost of capital will be lower and economies will be more prosperous.

Clearly, the role you play as CFO will become increasingly more critical and complex in the changing national environment and expanding global one. To help CFOs to meet these challenges, our Professional Accountants in Business Committee is developing new good practice guidance and information papers on a number of topics, such as governance, business planning and internal control. For example, the Committee is developing a conceptual framework in respect of governance that will consider both the conformance and performance aspects of governance as it affects the corporate, public and SME sectors. These documents will supplement other PAIB publications, such as the recently released study “The Roles and Domain of the Professional Accountant in Business” which seek to shed light on the changing role of the PAIB.

Clearly, accountants in business and CFOs are in the front line in ensuring the fiscal and ethical soundness and accountability of commercial enterprise. I applaud you all for all that you do in carrying out this responsibility and assure you that IFAC will continue to offer its ongoing support. Please continue to advocate and act with transparency, integrity and expertise. Together, we can build a better world, contributing to greater economic growth and stability. Together we can build an investment climate of trust. And together we can build a better quality of life for the people ofSri Lankaand for the people in countries like yours around the globe.

Thank you very much indeed for your attention. 

Ladies and gentlemen, I am honored to be here with you today. This is my first visit toSri Lankaas President of the International Federation of Accountants and I am heartened by the warm welcome which my wife, Ann, and I have received.

I would like to thank your outgoing President, Mr. Indrajith Fernando and your Chief Executive, Mr. Lakshman Perera, for inviting me to speak to you this evening. They have been kind enough to show us your beautiful country. I am encouraged by the signs of economic recovery and have the greatest respect for the Sri Lankan people who have shown such fortitude and courage in a time of great crisis over the past year.

Mr. Fernando has been President of your Institute during a very challenging time, and I commend him for his strong leadership. Although he is stepping down as your President, I look forward to continuing to work with Mr. Fernando as he was recently appointed to serve on IFAC’s Developing Nations Committee, where he will be a vital part of IFAC’s work in contributing to economic growth and stability in emerging economies around the world.

I also would like to congratulate Mr. Yohan Perera on his appointment as your Institute’s new President. Mr. Perera assumes the presidency of your Institute at a time of great promise and renewed focus on the important role of professional accountants both inSri Lankaand internationally. I am confident that, under his leadership, your Institute will continue to promote transparency and good governance. I look forward to working with Mr. Perera in the months ahead and wish him the very best in his term of office.

We very much recognize that the recovery efforts from the tsunami are still well underway and that our profession has a key role to play in this. It is also important to acknowledge that sound progress has been made. The World Bank reported late last year that some 55,000 homes had been rebuilt or were in the process of being rebuilt. Oxfam International said in December that, one year following the tsunami, 60 percent of those who had lost jobs were back earning a living and this number is expected to rise to 80 percent by the end of 2006. AlthoughSri Lanka’s gross domestic product (GDP) fell immediately after the tsunami, the Asian Development Bank has reported that the GDP is also bouncing back: it grew by 5.2 percent in 2005 and will increase by 5.8 percent in 2006 and by 5.9 percent in 2007, effectively reversing the tsunami’s effects on Sri Lanka’s GDP.

Over the past year, the Institute of Chartered Accountants of Sri Lanka has exemplified what we, as professional accountants and as business leaders and decisions makers, can do to support the rebuilding efforts in a transparent and accountable way, through, for example, ensuring that recovery funds are properly managed, that effective governance controls are in place, and that public monies benefit those most in need.

In addition to setting a fine example here in Sri Lanka, your Institute has a long and proud history of participation in and support of the international profession. As a founding member of the International Federation of Accountants, your involvement is essential to IFAC’s ongoing ability to protect the public interest and to fulfill its mission, which I will state for you now:

“To serve the public interest, IFAC will continue to strengthen the worldwide accountancy profession and contribute to the development of strong international economies by establishing and promoting adherence to high-quality professional standards, furthering the international convergence of such standards and speaking out on public interest issues where the profession's expertise is most relevant.”

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. Our duty to the public interest is to look clearly ahead, while ensuring that we do not forget the lessons of history. IFAC’s mission is fundamental to the future of our profession 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 evening, I will consider what future the profession might have and what IFAC is doing to bring about a successful future. I invite you to think about three inter related 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 here 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 – as we have seen with the enormous outpouring of support and aid following the 2004 tsunami. In this effort, professional accountants will contribute where our expertise is most valuable, by building an investment climate of trust and 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 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 such as the ICASL.

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: 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 transparency, by delivering relevant and needed services and by being market oriented as professionals. 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.

The work and high standing of institutes such as the Institute of Chartered Accountants of Sri Lanka are vital to the future reputation and effectiveness of professional accountants in industry, in public practice, in the public sector and in academe.

Through our Member Body Compliance Program, part and parcel of the obligations of membership, IFAC is able to demonstrate the extent of member bodies’ activities to encourage and monitor quality performance by the profession. This program shows that we are committed to transparency within the profession and to promoting high standards on a global basis in the public interest. We are grateful to ICASL for its participation in this program, knowing that you worked on it at a time of great challenge. Your participation, as evidenced by the information you have provided about your standard setting and regulatory framework and which is posted on the IFAC website, is evidence of your commitment to quality and to serving the public interest.

Today, we accept that 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. This is necessary because standard setting is now fully a public interest activity. Certainly, IFAC’s own reforms in standard-setting have been designed to ensure that this is the case beyond all doubt, to ensure transparency and so to build confidence in the process. We must work in cooperation with the regulatory community, with whom we share common cause in achieving fair financial reporting.

At the international level, last February an independent international Public Interest Oversight Board was established to oversee IFAC’s standard-setting activities in the areas of auditing, ethics and education; and the Member Body Compliance Program. The PIOB, which was established by IFAC in cooperation with international regulators and institutions, is comprised of members nominated by international regulators and other 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.

We should never forget why we need high standards of financial reporting; that transparency for and accountability to investors is key, guiding the actions of all in the financial reporting supply chain in building an investment climate of trust. Investors’ actions affect all citizens, through, for example, capital allocation to business, and therefore, jobs and quality of life.

Reporting shifts

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, of which your Institute is also a member, has begun a new 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 others who use financial reports. IFAC is encouraging its member bodies to review this discussion paper and to provide the IASB with comments.

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 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 bodies 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, our professional standards and 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 Sri Lanka’s Code of Professional Conduct & Ethics is 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 itwillbecome 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 two 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 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. Moreover, as preparers of financial information, we are ideally placed to drive ethics through financial reporting from the very start.

A 2004 report by IFAC’s Professional Accountants in Business (PAIB) Committee in conjunction with the Chartered Institute of Management Accountants in the UK, entitled Enterprise Governance – Getting the Balance Right, found that a virtuous circle of integrity and ethics is fundamental, both to good governance and to business growth. There must be no conflict between probity and profitability.

Later this month, the PAIB Committee will issue an exposure draft of proposed guidance to assist professional accountants in business to develop and implement a corporate code of conduct within their organizations. Entitled Guidance for the Development of a Code of Corporate Conduct, the guidance is designed to draw greater attention to the need for corporate codes of conduct, to provide practical guidance on the scope and implementation of such codes, and to support sound corporate governance practices.

Professional accountants – whether within business entities or in the accounting firms that audit them – play an important role in the financial reporting supply chain. It is important, however, to keep in mind that accountancy firms are only one part of that chain, which also includes analysts, lawyers, senior management and boards of directors. It is for this reason that IFAC’s Board agreed to begin a new initiative on enhancing the quality of the financial reporting supply chain. The project will identify investor expectations and needs and include practical suggestions for enhancements that the global accountancy profession can provide by direct action and those where it will need to engage with others to create change. Among the issues that will be considered in the new study are corporate management and governance, regulatory developments, auditor independence and rotation, and the expectations around the board’s and auditor’s responsibility for the detection of fraud.

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 to deliver:

• The enduring values I’ve talked about – our commitment to the public interest and 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.

I commend the Institute for its work to ensure that tsunami relief funds are properly and effectively managed and utilized. Through initiatives such as the ICASL Trust for Services for Tsunami Projects and the development of the toolkit on Accounting & Management Systems and Procedures for Tsunami Relief Projects, you have made a significant contribution to the rebuilding effort by helping to ensure that appropriate controls, transparency and accountability are in place.

IFAC’s Developing Nations Committee, of which your outgoing President Mr. Fernando is a new member, 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.

As a result of an extensive consultative process, the committee is 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, last month the committee released new good practice guidance on the roles and responsibilities of a professional body, education and examination, and 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 as well as the thought that: he who influences the thought of his times influences the times that follow. Our profession needs to be respected and influential today if we are to be so in the future.

If we 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:

• Professional accountants in business will be recognized fully for the role they play in creating wealth and contributing to strong governance and fair financial reporting.
• Professional accountants in the public sector will be recognized fully for the role they play in the sound, efficient and ethical operation of governments and in protecting the rights of their citizens.
• Professional accountants in public practice will be recognized fully for the role they 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 that we would recognize as such.

It is a stark choice. I believe that wewillmake the right choice, together. Working together as a global profession wewilllive those values of integrity, transparency and expertise. Working together with regulators, investors and other stakeholders, wewillcommand justified public confidence. Working together, developed and developing nations, wewillachieve sound financial infrastructures throughout the world, fight poverty and help nations such asSri Lankato build even stronger economies. Working together, wewillsucceed and the worldwillbe a better place for it. Certainly, the work of your country after the tsunami is testimony that this is an achievable goal.

Thank you very much for your attention.

This report, which was produced by the independent IFAC-commissioned Task Force on Rebuilding Public Confidence in Financial Reporting, provides recommendations for strengthening corporate governance, improving audit effectiveness, and raising the standard of regulation of issuers. It also presents an international perspective on the challenges facing not only the accountancy profession, but also those involved in regulating a profession that has such a significant involvement in capital markets worldwide.

As national bodies become more aware of their SMP constituents and their needs, at least some of those bodies have been taking actions and developing programs to help SMPs play a more effective role in the domestic marketplace. But, to deal with the presence and needs of SMPs on an international scale, it is first necessary to determine just where they fit into the global picture.