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Syed Masoud Ali Naqvi Senior Partner KPMG Taseer Hadi & Co. Karachi 4-5 April 2008 GLOBAL INTEGRATION FROM THE REGIONAL PERSPECTIVE SAFA Conference 2008, SAFA Conference 2008, Lahore Lahore VALUE CREATION BY PROFESSIONAL ACCOUNTANTS THEME: SUB THEME: ACCOUNTING PROFESSION AND ACCOUNTING PROFESSION AND PRACTICES PRACTICES

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Syed Masoud Ali NaqviSenior Partner

KPMG Taseer Hadi & Co.Karachi

4-5 April 2008

Syed Masoud Ali NaqviSenior Partner

KPMG Taseer Hadi & Co.Karachi

4-5 April 2008

GLOBAL INTEGRATION FROM THEREGIONAL PERSPECTIVE

SAFA Conference 2008, LahoreSAFA Conference 2008, Lahore

VALUE CREATION BYPROFESSIONAL ACCOUNTANTS

THEME:

SUB THEME:

ACCOUNTING PROFESSION ACCOUNTING PROFESSION AND PRACTICESAND PRACTICES

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ACCOUNTING PROFESSION AND ACCOUNTING PROFESSION AND PRACTICESPRACTICESACCOUNTING PROFESSION AND ACCOUNTING PROFESSION AND PRACTICESPRACTICES

IntroductionIntroduction

Development of Accounting ProfessionDevelopment of Accounting Profession

Globalization of Economy and its impact on the Globalization of Economy and its impact on the

Accounting ProfessionAccounting Profession

Current state of Accounting ProfessionCurrent state of Accounting Profession

ChallengesChallenges

IFAC Global SurveyIFAC Global Survey

Changing roleChanging role

Enhancing skillsEnhancing skills

Value creationValue creation

ConclusionsConclusions

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INTRODUCTIONINTRODUCTION

ACCOUNTING PROFESSION AND ACCOUNTING PROFESSION AND PRACTICESPRACTICESACCOUNTING PROFESSION AND ACCOUNTING PROFESSION AND PRACTICESPRACTICES

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DEVELOPMENT OF DEVELOPMENT OF ACCOUNTING PROFESSIONACCOUNTING PROFESSION

ACCOUNTING PROFESSION AND ACCOUNTING PROFESSION AND PRACTICESPRACTICESACCOUNTING PROFESSION AND ACCOUNTING PROFESSION AND PRACTICESPRACTICES

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DEVELOPMENT OF DEVELOPMENT OF ACCOUNTING PROFESSIONACCOUNTING PROFESSIONDEVELOPMENT OF DEVELOPMENT OF ACCOUNTING PROFESSIONACCOUNTING PROFESSION

Oldest surviving Accounting record dates from 1130 Oldest surviving Accounting record dates from 1130

to 1830 AD - Great roll of Exchequersto 1830 AD - Great roll of Exchequers

Profession started in the fourteenth century Profession started in the fourteenth century

Double entry bookkeeping developed in fourteenth Double entry bookkeeping developed in fourteenth

century in Italycentury in Italy

Picolli system of Accounting in 1494Picolli system of Accounting in 1494

In 1856 – Institute of Chartered Accountants of In 1856 – Institute of Chartered Accountants of

Scotland was foundedScotland was founded

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DEVELOPMENT OF DEVELOPMENT OF ACCOUNTING PROFESSIONACCOUNTING PROFESSIONDEVELOPMENT OF DEVELOPMENT OF ACCOUNTING PROFESSIONACCOUNTING PROFESSION

In 1880 the Institute of Chartered Accountants of In 1880 the Institute of Chartered Accountants of

England & Wales was foundedEngland & Wales was founded

First National Accounting Society in U.S. was found in First National Accounting Society in U.S. was found in

1887 which was a predecessor to the AICPA1887 which was a predecessor to the AICPA

Number of companies and cross border Number of companies and cross border

investments increased in 1900s and the Audit investments increased in 1900s and the Audit

function was bornfunction was born

Until 1980s the core business of Professional Until 1980s the core business of Professional

Accountants was AuditingAccountants was Auditing

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DEVELOPMENT OF DEVELOPMENT OF ACCOUNTING PROFESSIONACCOUNTING PROFESSIONDEVELOPMENT OF DEVELOPMENT OF ACCOUNTING PROFESSIONACCOUNTING PROFESSION

Around 1980s – with the advent of global economy Around 1980s – with the advent of global economy

the demand for new services started increasingthe demand for new services started increasing

The pressure to provide non-audit services with The pressure to provide non-audit services with

relatively higher margins changed the value of relatively higher margins changed the value of

Professionalism based on ambition and commercial Professionalism based on ambition and commercial

considerationsconsiderations

The new approach started impairing the basic The new approach started impairing the basic

attitude of independence and integrityattitude of independence and integrity

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GLOBALIZATION OF ECONOMY GLOBALIZATION OF ECONOMY AND ITS IMPACT ON THE AND ITS IMPACT ON THE ACCOUNTING PROFESSIONACCOUNTING PROFESSION

ACCOUNTING PROFESSION AND ACCOUNTING PROFESSION AND PRACTICESPRACTICESACCOUNTING PROFESSION AND ACCOUNTING PROFESSION AND PRACTICESPRACTICES

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GLOBALIZATION OF ECONOMY AND ITS IMPACT ON THE ACCOUNTING PROFESSION

GLOBALIZATION OF ECONOMY AND ITS IMPACT ON THE ACCOUNTING PROFESSION

Investment is virtually becoming global with no Investment is virtually becoming global with no

concept of National or Regional boundariesconcept of National or Regional boundaries

Accounts are to be prepared in compliance with Accounts are to be prepared in compliance with

standards and regulations of different countriesstandards and regulations of different countries

Convergence of Accounting and Auditing Standards Convergence of Accounting and Auditing Standards

to ensure global common languageto ensure global common language

Global StandardsGlobal Standards

Global RegulationsGlobal Regulations

Global alignment with businessGlobal alignment with business

Global ProfessionGlobal Profession

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GLOBALIZATION OF ECONOMY AND ITS IMPACT ON THE ACCOUNTING PROFESSION

GLOBALIZATION OF ECONOMY AND ITS IMPACT ON THE ACCOUNTING PROFESSION

Development of Capital marketDevelopment of Capital market

Demand for new servicesDemand for new services

Commercialism created tension with professionalismCommercialism created tension with professionalism

Audit as a commodityAudit as a commodity

Financial information and the system of corporate Financial information and the system of corporate

governance designed to protect investors was governance designed to protect investors was

manipulated for private gainsmanipulated for private gains

Liquidity and integrity of capital market rests on Liquidity and integrity of capital market rests on

Trust and confidenceTrust and confidence

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GLOBALIZATION OF ECONOMY AND ITS IMPACT ON THE ACCOUNTING PROFESSION

GLOBALIZATION OF ECONOMY AND ITS IMPACT ON THE ACCOUNTING PROFESSION

EthicsEthics

Quality of Education and trainingQuality of Education and training

Professional competency and continuous Professional Professional competency and continuous Professional

DevelopmentDevelopment

Audit function’s role in detection for financial frauds Audit function’s role in detection for financial frauds

and anti-money launderingand anti-money laundering

Globalization focus on enhancing standard ofGlobalization focus on enhancing standard of

Global collaboration among RegulatorsGlobal collaboration among Regulators

Global effort of collaboration amongst the Global effort of collaboration amongst the Professional bodies around the worldProfessional bodies around the world

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CURRENT STATE OFCURRENT STATE OFACCOUNTING PROFESSIONACCOUNTING PROFESSION

ACCOUNTING PROFESSION AND ACCOUNTING PROFESSION AND PRACTICESPRACTICESACCOUNTING PROFESSION AND ACCOUNTING PROFESSION AND PRACTICESPRACTICES

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CURRENT STATE OF CURRENT STATE OF ACCOUNTING PROFESSION – SAFA ACCOUNTING PROFESSION – SAFA REGIONREGION

CURRENT STATE OF CURRENT STATE OF ACCOUNTING PROFESSION – SAFA ACCOUNTING PROFESSION – SAFA REGIONREGION

Profile of Accounting Profession in the RegionProfile of Accounting Profession in the Region

Accountin

g

Body

Total

Member

s

Practicin

g

Member

s

Practici

ng

Firms

Sole

Propriet

or

0 - 2

Partne

rs

3 - 5

Partne

rs

5 - 10

Partne

rs

10 or

More

Partners

ICAI

14409

5 69004 45952 32574 7784 4529 921 144

ICAP 4333 642 415 293 75 30 12 5

ICASL 3312 512            

ICAB 868 289 172 99        

ICAN                

TOTAL:

15260

8 70447 46539 32966 7859 4559 933 149

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CURRENT STATE OF CURRENT STATE OF ACCOUNTING PROFESSIONACCOUNTING PROFESSIONCURRENT STATE OF CURRENT STATE OF ACCOUNTING PROFESSIONACCOUNTING PROFESSION

Knowledgeable about Knowledgeable about

accounting mattersaccounting matters

An entrepreneurAn entrepreneur

A financial analystA financial analyst

A global competitorA global competitor

A skilled salespersonA skilled salesperson

A good communicatorA good communicator

Accountants should be:Accountants should be:

Current Role of an AccountantCurrent Role of an Accountant

A good communicatorA good communicator

A capable negotiatorA capable negotiator

A public relations A public relations

specialistspecialist

A general managerA general manager

A strategistA strategist

A team leaderA team leader

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CURRENT STATE OF CURRENT STATE OF ACCOUNTING PROFESSIONACCOUNTING PROFESSIONCURRENT STATE OF CURRENT STATE OF ACCOUNTING PROFESSIONACCOUNTING PROFESSION

AccountabilityAccountability

Corporate governanceCorporate governance

Role of Audit Committees and independent non-Role of Audit Committees and independent non-

executive directorsexecutive directors

Sound internal financial control and transparency in Sound internal financial control and transparency in

financial reportingfinancial reporting

Renewed emphasis on:Renewed emphasis on:

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CURRENT STATE OF CURRENT STATE OF ACCOUNTING PROFESSIONACCOUNTING PROFESSIONCURRENT STATE OF CURRENT STATE OF ACCOUNTING PROFESSIONACCOUNTING PROFESSION

Standard of EthicsStandard of Ethics

Education and trainingEducation and training

Life long professional competencyLife long professional competency

Audit and AssuranceAudit and Assurance

Detection for financial fraud and money launderingDetection for financial fraud and money laundering

Renewed emphasis on:Renewed emphasis on:

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CHALLENGESCHALLENGES

ACCOUNTING PROFESSION AND ACCOUNTING PROFESSION AND PRACTICESPRACTICESACCOUNTING PROFESSION AND ACCOUNTING PROFESSION AND PRACTICESPRACTICES

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CHALLENGESCHALLENGESCHALLENGESCHALLENGES

Business vs Profession – Financial scandalsBusiness vs Profession – Financial scandals

Arthur Levitts in his 1998 speech, warned the Arthur Levitts in his 1998 speech, warned the Financial community:Financial community:

To stop managing the figures and earning estimates To stop managing the figures and earning estimates

- wishful thinking- wishful thinking

Common sense business practices and faithful Common sense business practices and faithful

representationrepresentation

Published accounts would no longer be trusted Published accounts would no longer be trusted

unless meaningful disclosure is provided to investors unless meaningful disclosure is provided to investors

Trust that is the bedrock of capital markets would be Trust that is the bedrock of capital markets would be

severely testedseverely tested

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CHALLENGESCHALLENGESCHALLENGESCHALLENGES

Public faith in the integrity of Audit profession Public faith in the integrity of Audit profession

was becoming increasingly tarnishedwas becoming increasingly tarnished

Integrity of information must take priority over Integrity of information must take priority over

a desire for cost efficiencies or competitive a desire for cost efficiencies or competitive

advantage in the audit processadvantage in the audit process

Business vs Profession – Financial scandalsBusiness vs Profession – Financial scandals

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CHALLENGESCHALLENGESCHALLENGESCHALLENGES

Major Scandals:Major Scandals:

Enron, Worldcom in USEnron, Worldcom in US

Ahold and Parmalet in EuropeAhold and Parmalet in Europe

HIR Insurance in AustraliaHIR Insurance in Australia

Trust and confidence was undermined on which the Trust and confidence was undermined on which the

liquidity and integrity of the capital markets is liquidity and integrity of the capital markets is

basedbased

Investors’ faith in integrity of the participants was Investors’ faith in integrity of the participants was

badly shatteredbadly shattered

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CHALLENGESCHALLENGESCHALLENGESCHALLENGES

Regulators overreaction or Knee Jerk actionsRegulators overreaction or Knee Jerk actions

Regulatory environment and oversightRegulatory environment and oversight

Sarbenes Oxley ActSarbenes Oxley Act

Review of Regulatory oversight by Regulators in Europe Review of Regulatory oversight by Regulators in Europe

and other jurisdictionsand other jurisdictions

Greater collaboration amongst the RegulatorsGreater collaboration amongst the Regulators

Mandatory rotation and restriction on non-audit servicesMandatory rotation and restriction on non-audit services

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ACCOUNTING PROFESSION AND ACCOUNTING PROFESSION AND PRACTICESPRACTICESACCOUNTING PROFESSION AND ACCOUNTING PROFESSION AND PRACTICESPRACTICES

IFAC GLOBAL SURVEYIFAC GLOBAL SURVEY

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ACCOUNTING PROFESSION AND ACCOUNTING PROFESSION AND PRACTICESPRACTICESACCOUNTING PROFESSION AND ACCOUNTING PROFESSION AND PRACTICESPRACTICES

CHANGING ROLECHANGING ROLE

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CHANGING ROLECHANGING ROLECHANGING ROLECHANGING ROLE

Change of focus from regarding accounting as passive Change of focus from regarding accounting as passive

phenomenon to active involvement in Shaping, Moulding, phenomenon to active involvement in Shaping, Moulding,

Planning a role in the construction of setting in which it operatesPlanning a role in the construction of setting in which it operates

Creating and enhancing value of organization by value creation Creating and enhancing value of organization by value creation

for:for:

A new approachA new approach

ShareholdersShareholders

Manager & CustomersManager & Customers

CustomersCustomers

All StakeholdersAll Stakeholders

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CHANGING ROLECHANGING ROLECHANGING ROLECHANGING ROLE

Ezzamel & Bourn describe Role at Strategic level as:Ezzamel & Bourn describe Role at Strategic level as:

A new approachA new approach

Accounting’s contribution lies in its abilities to perform three Accounting’s contribution lies in its abilities to perform three functionsfunctions

To shape the perceptions of decision makers in relation to To shape the perceptions of decision makers in relation to

(strategic) issues at hand(strategic) issues at hand

To provide early warning to screening our irrelevant To provide early warning to screening our irrelevant

information to reduce perceived time pressure and surpriseinformation to reduce perceived time pressure and surprise

To buffer the impact and cope effectively with crises by To buffer the impact and cope effectively with crises by

shifting priorities and perceptions that rely on information it shifting priorities and perceptions that rely on information it

providesprovides

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CHANGING ROLECHANGING ROLECHANGING ROLECHANGING ROLE

A new approachA new approach

The value-creating, potential of accounting at the strategic The value-creating, potential of accounting at the strategic level would help:level would help:

To develop system to provide a learning mechanism To develop system to provide a learning mechanism

that generates ideasthat generates ideas

To enable decision makers to improve their To enable decision makers to improve their

surveillance capabilities or their working environmentsurveillance capabilities or their working environment

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CHANGING ROLECHANGING ROLECHANGING ROLECHANGING ROLE

ChangeChange

TimeTime

Instant communication and computation - speedInstant communication and computation - speed

SpaceSpace

Death of distanceDeath of distance

MassMass

Integrated Values are reducing massIntegrated Values are reducing mass

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CHANGING ROLECHANGING ROLECHANGING ROLECHANGING ROLE

ChangeChange

Current Value to OrganizationCurrent Value to Organization

Ability to process transactionsAbility to process transactions

Manipulate DataManipulate Data

Develop report based on historical dataDevelop report based on historical data

New RoleNew Role

Value added functionValue added function

Develop new business intelligence and decision Develop new business intelligence and decision

support tool setsupport tool set

Abnormal usersAbnormal users

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CHANGING ROLECHANGING ROLECHANGING ROLECHANGING ROLE

ChangeChange

NeedNeed

To re-engineer processes and conceptual frameworkTo re-engineer processes and conceptual framework

To enhance the effectiveness of the new toolsTo enhance the effectiveness of the new tools

Change in tool setsChange in tool sets

Quill to ball point penQuill to ball point pen

Ledger book to computers with data base and Ledger book to computers with data base and

spread sheetsspread sheets

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CHANGING ROLECHANGING ROLECHANGING ROLECHANGING ROLE

ChangeChange

New ToolsNew Tools

Artificial Intelligence based Decision Support SystemArtificial Intelligence based Decision Support System

Data FishingData Fishing

On-line Analytical ProcessingOn-line Analytical Processing

Data warehousingData warehousing

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CHANGING ROLECHANGING ROLECHANGING ROLECHANGING ROLE

10 30 20 40

50 10 20 20

Decision support Control

Reporting Transaction processing

Refocusing the Resources of theFinance Function

Busi

ness

Par

tner

ship C

ost reduction

RoleTransformation

Processredesign

Value addedservices

Integratedsystems

Resource Allocation

Busi

ness

Par

tner

ship C

ost reduction

Busi

ness

Par

tner

ship C

ost reduction

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CHANGING ROLECHANGING ROLECHANGING ROLECHANGING ROLE

To realign their view towards a particular directionTo realign their view towards a particular direction

To have the power to shift patterns or organizational To have the power to shift patterns or organizational

visibility so that concerns of the external world can visibility so that concerns of the external world can

permeate and influence internal organizational affairspermeate and influence internal organizational affairs

To act as knowledge manager:To act as knowledge manager:

Accounting can play a role in strategically changing Accounting can play a role in strategically changing Managerial AwarenessManagerial Awareness

Knowledge is powerKnowledge is power

Communication systems are power systemsCommunication systems are power systems

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VALUE CREATIONVALUE CREATIONVALUE CREATIONVALUE CREATION

ACM vs IEC RatioACM vs IEC Ratio

AssetsAssets

CommerceCommerce

MarketMarket

TangibleTangible

PhysicalPhysical

NationalNational

IntangibleIntangible

ElectronicElectronic

GlobalGlobal

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CHANGING ROLECHANGING ROLECHANGING ROLECHANGING ROLE

Perceived inefficiencyPerceived inefficiency

NegligenceNegligence

At times collusion with managementAt times collusion with management

Attest function is the hall mark of the profession Attest function is the hall mark of the profession

despite change in demand by the shareholders in the despite change in demand by the shareholders in the

nature and speednature and speed

Gap in appreciation of the role of auditorsGap in appreciation of the role of auditors

Subject of close review and criticism for:Subject of close review and criticism for:

Attest FunctionAttest Function

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CHANGING ROLECHANGING ROLECHANGING ROLECHANGING ROLE

Attest FunctionAttest Function

Core issues for Audit functionsCore issues for Audit functions

Poor judgmentPoor judgment

IncompetenceIncompetence

NegligenceNegligence

Business considerations taking precedence over Business considerations taking precedence over

Professional considerationProfessional consideration

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CHANGING ROLECHANGING ROLECHANGING ROLECHANGING ROLE

Real concerns about the:Real concerns about the:

Adequacy of processesAdequacy of processes

Level of skillsLevel of skills

Training and developmentTraining and development

Quality of evidenceQuality of evidence

Vagueness in opinions including concerns about Vagueness in opinions including concerns about

independence and objectivityindependence and objectivity

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CHANGING ROLECHANGING ROLECHANGING ROLECHANGING ROLE

TimelinessTimeliness

TrustworthinessTrustworthiness

TrajectoryTrajectory

The concerns about these Services were described The concerns about these Services were described by John Whitney as follows:by John Whitney as follows:

Timeliness – Traditional Accounting is a fuzzy Timeliness – Traditional Accounting is a fuzzy

approximation of distant past – Real timeapproximation of distant past – Real time

Trustworthiness relates to failures of a number of Trustworthiness relates to failures of a number of

companies following the receipt of “clean” opinionscompanies following the receipt of “clean” opinions

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CHANGING ROLECHANGING ROLECHANGING ROLECHANGING ROLE

Assessment of willingness of people to accept these controlsAssessment of willingness of people to accept these controls

Willingness is determined by the nature and number of Willingness is determined by the nature and number of

controlscontrols

Man can defeat any system man can deviseMan can defeat any system man can devise

Effectiveness of any control environment can not be Effectiveness of any control environment can not be assessed without:assessed without:

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CHANGING ROLECHANGING ROLECHANGING ROLECHANGING ROLE

Transaction ServicesTransaction Services

Corporate FinanceCorporate Finance

Forensic AccountingForensic Accounting

Corporate RecoveryCorporate Recovery

Assurance based Assurance based

Advisory ServicesAdvisory Services

Management Assurance Management Assurance

ServicesServices

Knowledge ManagementKnowledge Management

Other Role of Practicing MembersOther Role of Practicing Members

Tax Advisory and Tax Tax Advisory and Tax

ComplianceCompliance

IT ConsultingIT Consulting

Business Process Business Process

improvementimprovement

Supply chain managementSupply chain management

HR ConsultingHR Consulting

ISO Consulting and ISO Consulting and

CertificationCertification

Web AssuranceWeb Assurance

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ACCOUNTING PROFESSION AND ACCOUNTING PROFESSION AND PRACTICESPRACTICESACCOUNTING PROFESSION AND ACCOUNTING PROFESSION AND PRACTICESPRACTICES

ENHANCING SKILLSENHANCING SKILLS

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ENHANCING SKILLSENHANCING SKILLSENHANCING SKILLSENHANCING SKILLS

Communication – openness, trustCommunication – openness, trust

Team buildingTeam building

FlexibilityFlexibility

SteadfastnessSteadfastness

InfluenceInfluence

Facilitation SkillsFacilitation Skills

Emotional intelligenceEmotional intelligence

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ENHANCING SKILLSENHANCING SKILLSENHANCING SKILLSENHANCING SKILLS

Routine skillsRoutine skills

Analytical and design skillsAnalytical and design skills

Appreciation skillsAppreciation skills

Personal skillsPersonal skills

Interpersonal skillsInterpersonal skills

Gradual change in emphasis on general Gradual change in emphasis on general skills, cognitive and behavioral skillsskills, cognitive and behavioral skills

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ENHANCING SKILLSENHANCING SKILLSENHANCING SKILLSENHANCING SKILLS

Self awarenessSelf awareness

Self regulationSelf regulation

MotivationMotivation

EmpathyEmpathy

Social SkillsSocial Skills

Core Skills and Cognitive Skills are agents for Core Skills and Cognitive Skills are agents for successsuccess

Excellent Performance is greatly dependent on Excellent Performance is greatly dependent on Emotional SkillsEmotional Skills According to Sociologists, a

Person’s success results from:

20% I.Q. + 80% E.Q.

I. Q. – Intelligence Quotient – A measure of an individual’s ability to learn, understand and reason

E. Q. – Emotional Quotient – Which measures the ability to relate to others, to understand oneself and usefully direct one’s emotions

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ACCOUNTING PROFESSION AND ACCOUNTING PROFESSION AND PRACTICESPRACTICESACCOUNTING PROFESSION AND ACCOUNTING PROFESSION AND PRACTICESPRACTICES

VALUE CREATIONVALUE CREATION

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VALUE CREATIONVALUE CREATIONVALUE CREATIONVALUE CREATION

Raise standards in EthicsRaise standards in Ethics

Raise quality of Education and TrainingRaise quality of Education and Training

Continue emphasis on enhancing professional Continue emphasis on enhancing professional

competency and CPDcompetency and CPD

Plan for Skills development for expanding rolePlan for Skills development for expanding role

Focus training on detection for financial fraud and Focus training on detection for financial fraud and

money launderingmoney laundering

Global and Regional contributionGlobal and Regional contribution

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VALUE CREATIONVALUE CREATIONVALUE CREATIONVALUE CREATION

Focus on enhancing corporate ethics for the entire Focus on enhancing corporate ethics for the entire

Financial Reporting chainFinancial Reporting chain

Strengthen Quality Control and independent oversightStrengthen Quality Control and independent oversight

National Accounting bodies can not continue to act in National Accounting bodies can not continue to act in

isolation and have to collaborate to provide leadership isolation and have to collaborate to provide leadership

to the professionto the profession

Global and Regional contributionGlobal and Regional contribution

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VALUE CREATIONVALUE CREATIONVALUE CREATIONVALUE CREATION

Audit plays a valuable role in governance and financial Audit plays a valuable role in governance and financial

reportingreporting

A strong business led Accounting Profession is A strong business led Accounting Profession is

important for market confidenceimportant for market confidence

The profession is publicly accountable and our role as The profession is publicly accountable and our role as

Auditors is to underpin confidenceAuditors is to underpin confidence

The Value of AuditThe Value of Audit

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VALUE CREATIONVALUE CREATIONVALUE CREATIONVALUE CREATION

Make professional judgment on the integrity of information;Make professional judgment on the integrity of information;

that delivers accurate reporting and governancethat delivers accurate reporting and governance

that enables people to make financial decisions that enables people to make financial decisions

based on the highest technical and ethical standardsbased on the highest technical and ethical standards

that on which basis a society depends for effective that on which basis a society depends for effective

operationsoperations

that meet people’s needs and aspirationsthat meet people’s needs and aspirations

The Value of AuditThe Value of Audit

“ “ Well performed audits will continue to play a valuable Well performed audits will continue to play a valuable

role in governance and in financial reporting “.role in governance and in financial reporting “.

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VALUE CREATIONVALUE CREATIONVALUE CREATIONVALUE CREATION

Standardize the intake eligibility, curriculum and Standardize the intake eligibility, curriculum and

Training Regulations – Convergence of Learning and Training Regulations – Convergence of Learning and

Professional DevelopmentProfessional Development

Encourage integration of Firms either to merge or Encourage integration of Firms either to merge or

enter into network Firm relationships to enable the enter into network Firm relationships to enable the

Firms to provide the high quality depths and breadths Firms to provide the high quality depths and breadths

of services required by the market placeof services required by the market place

Value creation by Structural ReformsValue creation by Structural Reforms

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VALUE CREATIONVALUE CREATIONVALUE CREATIONVALUE CREATION

Continue focus on Ethics and IndependenceContinue focus on Ethics and Independence

Develop a proactive role in shaping and developing the Develop a proactive role in shaping and developing the

Regulatory response and changesRegulatory response and changes

Play an active role in global standards setting bodiesPlay an active role in global standards setting bodies

Ensure that we can continue to attract high quality peopleEnsure that we can continue to attract high quality people

Value creation by Structural ReformsValue creation by Structural Reforms

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VALUE CREATIONVALUE CREATIONVALUE CREATIONVALUE CREATION

Calculative and visibility elements combined can be Calculative and visibility elements combined can be

a potent weapon for value creationa potent weapon for value creation

Being able to convert idea into value, accounting Being able to convert idea into value, accounting

can be used as instrument of organizational can be used as instrument of organizational

governance and controlgovernance and control

At operational levels many activities can be At operational levels many activities can be

brought into calculative spheresbrought into calculative spheres

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VALUE CREATIONVALUE CREATIONVALUE CREATIONVALUE CREATION

New organizational interdependencies can be New organizational interdependencies can be

created and couplings between accounting and created and couplings between accounting and

other spheres or organization can be forgedother spheres or organization can be forged

These initiatives can put accounting and These initiatives can put accounting and

information systems it creates, to be used as active information systems it creates, to be used as active

participants and important instruments to articulate participants and important instruments to articulate

actions and create value for the organizationactions and create value for the organization

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VALUE CREATIONVALUE CREATIONVALUE CREATIONVALUE CREATION

At strategic level accounting’s contribution lies in its At strategic level accounting’s contribution lies in its ability to perform three functions for decision makersability to perform three functions for decision makers

Shape perception in relation to strategic issues at Shape perception in relation to strategic issues at

handhand

Provide early warning by screening out irrelevant Provide early warning by screening out irrelevant

information to reduce perceived time pressure and information to reduce perceived time pressure and

surprisessurprises

Buffer impact and cope effectively with crises by Buffer impact and cope effectively with crises by

shifting priorities and perceptions that rely on shifting priorities and perceptions that rely on

information it providesinformation it provides

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VALUE CREATIONVALUE CREATIONVALUE CREATIONVALUE CREATION

Accounting can also act as change agentAccounting can also act as change agent

It has power to shift patterns of organization visibility so that It has power to shift patterns of organization visibility so that

concerns of the external world can permeate and influence concerns of the external world can permeate and influence

internal organizational affairsinternal organizational affairs

It must provide not only internal data but also provide It must provide not only internal data but also provide

information concerning organization’s market and information concerning organization’s market and

competitorscompetitors

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VALUE CREATIONVALUE CREATIONVALUE CREATIONVALUE CREATION

Change in mindsetChange in mindset

Build culture of continuous improvement and value creationBuild culture of continuous improvement and value creation

Mastering new role require more than learning new Mastering new role require more than learning new skills, it entailsskills, it entails

Embrace analysis and value addition in its orientationEmbrace analysis and value addition in its orientation

Be consultative business partner and advisor; a Be consultative business partner and advisor; a

participant and leader in decision makingparticipant and leader in decision making

Be strategically-oriented and focus on performance Be strategically-oriented and focus on performance

enhancementenhancement

Finance Function in new millennium willFinance Function in new millennium will

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VALUE CREATIONVALUE CREATIONVALUE CREATIONVALUE CREATION

business process analysisbusiness process analysis

business process redesign and improvementbusiness process redesign and improvement

value profilingvalue profiling

strategic cost analysisstrategic cost analysis

capacity analysiscapacity analysis

advanced cost management techniquesadvanced cost management techniques

benchmarkingbenchmarking

activity profilingactivity profiling

value-chain analysisvalue-chain analysis

What must be known to those who seek to What must be known to those who seek to participate in the Cycle of Learningparticipate in the Cycle of Learning

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VALUE CREATIONVALUE CREATIONVALUE CREATIONVALUE CREATION

What must be known to those who seek to What must be known to those who seek to participate in the Cycle of Learningparticipate in the Cycle of Learning

bottleneck and flow managementbottleneck and flow management

change managementchange management

competitive analysiscompetitive analysis

information system designinformation system design

integrated performance measurementintegrated performance measurement

cost analysis and the development of cost tablescost analysis and the development of cost tables

operational process analysis and redesignoperational process analysis and redesign

target and life-cycling costingtarget and life-cycling costing

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ACCOUNTING PROFESSION AND ACCOUNTING PROFESSION AND PRACTICESPRACTICESACCOUNTING PROFESSION AND ACCOUNTING PROFESSION AND PRACTICESPRACTICES

CONCLUSIONSCONCLUSIONS

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CONCLUSIONSCONCLUSIONSCONCLUSIONSCONCLUSIONS

Accountancy Profession still has a great potential and it Accountancy Profession still has a great potential and it has shown tremendous amount of resilience to sail has shown tremendous amount of resilience to sail through severe crisesthrough severe crises

The dynamism of the profession is its major strengthThe dynamism of the profession is its major strength

The global convergence of the Accounting, Reporting and The global convergence of the Accounting, Reporting and Auditing Standards is creating a global common languageAuditing Standards is creating a global common language

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CONCLUSIONSCONCLUSIONSCONCLUSIONSCONCLUSIONS

For the Value Creation, the collaboration on a Global basis For the Value Creation, the collaboration on a Global basis in general and on a Regional basis in particular is a key in general and on a Regional basis in particular is a key pre-requisite. Such an effort has to be directed to ensure:pre-requisite. Such an effort has to be directed to ensure:

High Quality EducationHigh Quality EducationRobust Curriculum Robust Curriculum Enhanced Skills developmentEnhanced Skills developmentStructured and participative Rigorous Training Structured and participative Rigorous Training process process Independent and transparent Quality Control processIndependent and transparent Quality Control processIndependent Disciplinary processIndependent Disciplinary process

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CONCLUSIONSCONCLUSIONSCONCLUSIONSCONCLUSIONS

Proactive process of Institutional response to Proactive process of Institutional response to demands for servicesdemands for servicesPublicity plan to narrow perception gapPublicity plan to narrow perception gapMove towards international qualificationMove towards international qualificationConcentrate to resolve liability issues – Bannerman Concentrate to resolve liability issues – Bannerman case, Western Star case – re-disclaimer to third case, Western Star case – re-disclaimer to third partiesparties

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CONCLUSIONSCONCLUSIONSCONCLUSIONSCONCLUSIONS

SAARC Region:SAARC Region:

To fully exploit the demographic advantage, plans are To fully exploit the demographic advantage, plans are required to:required to:

Attract best talentAttract best talent

Converge Curriculum and Training processConverge Curriculum and Training process

Develop Post Qualification Specialization streamsDevelop Post Qualification Specialization streams

Focus on management and multi-function skill setsFocus on management and multi-function skill sets

Concentrate on developing enhanced skills sets Concentrate on developing enhanced skills sets

including ‘Emotional Intelligence’including ‘Emotional Intelligence’

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CONCLUSIONSCONCLUSIONSCONCLUSIONSCONCLUSIONS

The dynamic value creation capability and potential of the The dynamic value creation capability and potential of the Profession which has the core values of integrity and ethics Profession which has the core values of integrity and ethics as its strong roots would ensure that it continues to remain as its strong roots would ensure that it continues to remain a leading and premier profession in the twenty first century.a leading and premier profession in the twenty first century.

We as Accountants are enjoying unique privileges, including We as Accountants are enjoying unique privileges, including monopoly in certain respects, provided that we maintain our monopoly in certain respects, provided that we maintain our commitment to Quality, Transparency, Ethics and Integrity. commitment to Quality, Transparency, Ethics and Integrity.

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CONCLUSIONSCONCLUSIONSCONCLUSIONSCONCLUSIONS

Our biggest ‘Asset’ has been the ‘Trust’ and ‘Confidence’ Our biggest ‘Asset’ has been the ‘Trust’ and ‘Confidence’ reposed in us by the society at large and our mission is not only reposed in us by the society at large and our mission is not only to preserve this ‘Asset’ but continue to enhance its fair value for to preserve this ‘Asset’ but continue to enhance its fair value for all stake holders in particular and public at large in general. all stake holders in particular and public at large in general.

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Thank youThank you

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The information contained herein is of a general nature and is not intended to address the circumstances of any particular individual or entity. Although we endeavor to provide accurate and timely information, there can be no guarantee that such information is accurate as of the date it is received or that it will continue to be accurate in the future. No one should act on such information without appropriate professional advice after a thorough examination of the particular situation.

© 2005 KPMG Taseer Hadi & Co., the Pakistan member firm of KPMG International, a Swiss cooperative. All rights reserved. Printed in Pakistan. The KPMG logo and name are trademarks of KPMG International.

Presenter’s contact Presenter’s contact detailsdetails

SYED MASOUD ALI NAQVISYED MASOUD ALI NAQVI

KPMG Taseer Hadi & Co.KPMG Taseer Hadi & Co.

+92 (21) 568 5847+92 (21) 568 5847

[email protected]@kpmg.com

www.kpmg.com.pkwww.kpmg.com.pk

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Some Regulatory regimes follow the diction Some Regulatory regimes follow the diction that Regulators need not to explain.that Regulators need not to explain.

Julius Ceasar – Scene where Decius implores Julius Ceasar – Scene where Decius implores Ceasar atleast to explain why he will not Ceasar atleast to explain why he will not come to the Senate. “Most mighty Ceasar, let come to the Senate. “Most mighty Ceasar, let me know some cause / lest I be laughed at me know some cause / lest I be laughed at when I tell them so, Ceasar replied “The when I tell them so, Ceasar replied “The cause is my will: I will not come / that is cause is my will: I will not come / that is enough to satisfy the Senate”.enough to satisfy the Senate”.

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“ “ Public expectations matter. If there is an Public expectations matter. If there is an

expectation gap the problem is not that the expectation gap the problem is not that the

outsiders don’t understand what professionals outsiders don’t understand what professionals

do, so the expectation gap is an invitation to do, so the expectation gap is an invitation to

improve your education so that outsiders improve your education so that outsiders

simply understand better ”.simply understand better ”.

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IFAC GLOBAL SURVEY – IFAC GLOBAL SURVEY – CORPORATE GOVERNANCECORPORATE GOVERNANCEIFAC GLOBAL SURVEY – IFAC GLOBAL SURVEY – CORPORATE GOVERNANCECORPORATE GOVERNANCE

Corporate governance has improved and the balance Corporate governance has improved and the balance between costs and benefits has become betterbetween costs and benefits has become better

POSITIVESPOSITIVES

Increased awareness that good governance countsIncreased awareness that good governance counts

New codes and standardsNew codes and standards

Improved board structureImproved board structure

Improved risk management and internal controlImproved risk management and internal control

Increased disclosure and transparencyIncreased disclosure and transparency

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IFAC GLOBAL SURVEY – IFAC GLOBAL SURVEY – CORPORATE GOVERNANCECORPORATE GOVERNANCEIFAC GLOBAL SURVEY – IFAC GLOBAL SURVEY – CORPORATE GOVERNANCECORPORATE GOVERNANCE

AREAS OF CONCERNAREAS OF CONCERN

Governance in name but not in spiritGovernance in name but not in spirit

Development of a checklist mentalityDevelopment of a checklist mentality

OverregulationOverregulation

Personal risk and liability for directors and managementPersonal risk and liability for directors and management

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IFAC GLOBAL SURVEY – IFAC GLOBAL SURVEY – CORPORATE GOVERNANCECORPORATE GOVERNANCEIFAC GLOBAL SURVEY – IFAC GLOBAL SURVEY – CORPORATE GOVERNANCECORPORATE GOVERNANCE

FURTHER IMPROVEMENTSFURTHER IMPROVEMENTS

Continue to focus on behavioural and cultural aspects of Continue to focus on behavioural and cultural aspects of

governancegovernance

Review existing rulesReview existing rules

Further improve quality of directorsFurther improve quality of directors

Better relate remuneration to performanceBetter relate remuneration to performance

Expand view from compliance governance to business Expand view from compliance governance to business

governancegovernance

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IFAC GLOBAL SURVEY – IFAC GLOBAL SURVEY – FINANCIAL REPORTING PROCESSFINANCIAL REPORTING PROCESSIFAC GLOBAL SURVEY – IFAC GLOBAL SURVEY – FINANCIAL REPORTING PROCESSFINANCIAL REPORTING PROCESS

POSITIVESPOSITIVES

Convergence to a single set of global financial reporting Convergence to a single set of global financial reporting standardsstandards

Improvements to regulations and oversightImprovements to regulations and oversight

Board of directors/management taking ownership of Board of directors/management taking ownership of financial reportingfinancial reporting

Improved internal control over financial reporting systemsImproved internal control over financial reporting systems

Improved technology for preparing financial reportsImproved technology for preparing financial reports

The financial reporting process has improved and the The financial reporting process has improved and the balance between costs and benefits is about the samebalance between costs and benefits is about the same

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IFAC GLOBAL SURVEY – IFAC GLOBAL SURVEY – FINANCIAL REPORTING PROCESSFINANCIAL REPORTING PROCESSIFAC GLOBAL SURVEY – IFAC GLOBAL SURVEY – FINANCIAL REPORTING PROCESSFINANCIAL REPORTING PROCESS

AREAS OF CONCERNAREAS OF CONCERN

Transition to International Financial Reporting Standards (IFRS)Transition to International Financial Reporting Standards (IFRS)

Complying/reconciling accounts to different financial reporting Complying/reconciling accounts to different financial reporting

standardsstandards

Complexity of financial reporting standardsComplexity of financial reporting standards

Liability restricting processLiability restricting process

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IFAC GLOBAL SURVEY – IFAC GLOBAL SURVEY – FINANCIAL REPORTING PROCESSFINANCIAL REPORTING PROCESSIFAC GLOBAL SURVEY – IFAC GLOBAL SURVEY – FINANCIAL REPORTING PROCESSFINANCIAL REPORTING PROCESS

FURTHER IMPROVEMENTSFURTHER IMPROVEMENTS

Continue convergence to one set of financial reporting Continue convergence to one set of financial reporting

standardsstandards

Simplify and clarify financial reporting standards – more Simplify and clarify financial reporting standards – more

principles and fewer rulesprinciples and fewer rules

Ensure that boards of directors pay attention to the quality of Ensure that boards of directors pay attention to the quality of

financial reportsfinancial reports

Provide additional education and training for preparersProvide additional education and training for preparers

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IFAC GLOBAL SURVEY –IFAC GLOBAL SURVEY –AUDIT OF FINANCIAL REPORTSAUDIT OF FINANCIAL REPORTSIFAC GLOBAL SURVEY –IFAC GLOBAL SURVEY –AUDIT OF FINANCIAL REPORTSAUDIT OF FINANCIAL REPORTS

POSITIVESPOSITIVES

Improved auditing standards and processesImproved auditing standards and processes

Increased awareness, commitment and competence of Increased awareness, commitment and competence of

auditors and audit committeesauditors and audit committees

More risk-focused auditsMore risk-focused audits

Greater auditor independenceGreater auditor independence

Improved quality review and auditor oversightImproved quality review and auditor oversight

The audit of financial reports has improved and the The audit of financial reports has improved and the balance between costs and benefits is about the samebalance between costs and benefits is about the same

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IFAC GLOBAL SURVEY –IFAC GLOBAL SURVEY –AUDIT OF FINANCIAL REPORTSAUDIT OF FINANCIAL REPORTSIFAC GLOBAL SURVEY –IFAC GLOBAL SURVEY –AUDIT OF FINANCIAL REPORTSAUDIT OF FINANCIAL REPORTS

AREAS OF CONCERNAREAS OF CONCERN

Reduced scope for professional judgmentReduced scope for professional judgment

OverregulationOverregulation

Liability fear leading to boilerplate audits and lack of innovationLiability fear leading to boilerplate audits and lack of innovation

Limited auditor’s communication with external stakeholdersLimited auditor’s communication with external stakeholders

Limited choice of audit firmsLimited choice of audit firms

Increased audit cost relative to perceived benefitsIncreased audit cost relative to perceived benefits

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IFAC GLOBAL SURVEY –IFAC GLOBAL SURVEY –AUDIT OF FINANCIAL REPORTSAUDIT OF FINANCIAL REPORTSIFAC GLOBAL SURVEY –IFAC GLOBAL SURVEY –AUDIT OF FINANCIAL REPORTSAUDIT OF FINANCIAL REPORTS

FURTHER IMPROVEMENTSFURTHER IMPROVEMENTS

Continue to focus on independence, objectivity and integrityContinue to focus on independence, objectivity and integrity

Converge to one set of global, principles-based auditing Converge to one set of global, principles-based auditing

standards over timestandards over time

Ensure consistent use of audit standards and safeguarding of Ensure consistent use of audit standards and safeguarding of

quality within audit firmsquality within audit firms

Improve auditor’s communication, both internally and Improve auditor’s communication, both internally and

externallyexternally

Consider limited/proportional liability for auditorsConsider limited/proportional liability for auditors

Remove barriers that limit choice of auditorRemove barriers that limit choice of auditor

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IFAC GLOBAL SURVEY –IFAC GLOBAL SURVEY –USEFULNESS OF FINANCIAL REPORTSUSEFULNESS OF FINANCIAL REPORTSIFAC GLOBAL SURVEY –IFAC GLOBAL SURVEY –USEFULNESS OF FINANCIAL REPORTSUSEFULNESS OF FINANCIAL REPORTS

The relevance and reliability of financial reports The relevance and reliability of financial reports

have improved, but the understandability of have improved, but the understandability of

financial reports has not improved. Respondents financial reports has not improved. Respondents

preferred annual reports to real time or monthly preferred annual reports to real time or monthly

information, found analyst presentation useful, information, found analyst presentation useful,

and would like to have more business-driven and would like to have more business-driven

information. The survey also showed mixed information. The survey also showed mixed

results about the usefulness of XBRL. In results about the usefulness of XBRL. In

addition, paper financial reports remain useful.addition, paper financial reports remain useful.

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IFAC GLOBAL SURVEY –IFAC GLOBAL SURVEY –USEFULNESS OF FINANCIAL REPORTSUSEFULNESS OF FINANCIAL REPORTSIFAC GLOBAL SURVEY –IFAC GLOBAL SURVEY –USEFULNESS OF FINANCIAL REPORTSUSEFULNESS OF FINANCIAL REPORTS

POSITIVESPOSITIVES

Better financial information due to improved standards, Better financial information due to improved standards,

regulation and oversightregulation and oversight

More disclosure and comparability in financial reportsMore disclosure and comparability in financial reports

Improved reliabilityImproved reliability

Increased emphasis on narrative reportingIncreased emphasis on narrative reporting

Easier access to financial informationEasier access to financial information

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IFAC GLOBAL SURVEY –IFAC GLOBAL SURVEY –USEFULNESS OF FINANCIAL REPORTSUSEFULNESS OF FINANCIAL REPORTSIFAC GLOBAL SURVEY –IFAC GLOBAL SURVEY –USEFULNESS OF FINANCIAL REPORTSUSEFULNESS OF FINANCIAL REPORTS

AREAS OF CONCERNAREAS OF CONCERN

Reduced usefulness due to complexityReduced usefulness due to complexity

Focus by companies on compliance instead of essence of Focus by companies on compliance instead of essence of

the businessthe business

Regulatory disclosure overloadRegulatory disclosure overload

Use of fair valueUse of fair value

Difficult and often changing financial reporting standardsDifficult and often changing financial reporting standards

Lack of forward looking informationLack of forward looking information

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IFAC GLOBAL SURVEY –IFAC GLOBAL SURVEY –USEFULNESS OF FINANCIAL REPORTSUSEFULNESS OF FINANCIAL REPORTSIFAC GLOBAL SURVEY –IFAC GLOBAL SURVEY –USEFULNESS OF FINANCIAL REPORTSUSEFULNESS OF FINANCIAL REPORTS

FURTHER IMPROVEMENTSFURTHER IMPROVEMENTS

Improve communication within the financial reporting supply Improve communication within the financial reporting supply

chainchain

Include more business-driven information in financial reportsInclude more business-driven information in financial reports

Better align internal and external reportingBetter align internal and external reporting

Improve user’s access to electronic data, for examples, XBRLImprove user’s access to electronic data, for examples, XBRL

Encourage short-form reporting focusing on the material Encourage short-form reporting focusing on the material

issuesissues