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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
2
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
3
INTRODUCTIONINTRODUCTION
ACCOUNTING PROFESSION AND ACCOUNTING PROFESSION AND PRACTICESPRACTICESACCOUNTING PROFESSION AND ACCOUNTING PROFESSION AND PRACTICESPRACTICES
4
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:
16
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:
17
CHALLENGESCHALLENGES
ACCOUNTING PROFESSION AND ACCOUNTING PROFESSION AND PRACTICESPRACTICESACCOUNTING PROFESSION AND ACCOUNTING PROFESSION AND PRACTICESPRACTICES
18
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
21
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
22
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
27
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
28
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
29
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
30
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
31
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
32
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
33
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
35
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
36
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
37
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:
39
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
41
ENHANCING SKILLSENHANCING SKILLSENHANCING SKILLSENHANCING SKILLS
Communication – openness, trustCommunication – openness, trust
Team buildingTeam building
FlexibilityFlexibility
SteadfastnessSteadfastness
InfluenceInfluence
Facilitation SkillsFacilitation Skills
Emotional intelligenceEmotional intelligence
42
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
43
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
44
ACCOUNTING PROFESSION AND ACCOUNTING PROFESSION AND PRACTICESPRACTICESACCOUNTING PROFESSION AND ACCOUNTING PROFESSION AND PRACTICESPRACTICES
VALUE CREATIONVALUE CREATION
45
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
46
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
47
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
48
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 “.
49
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
50
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
51
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
52
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
53
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
54
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
55
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
56
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
57
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
58
ACCOUNTING PROFESSION AND ACCOUNTING PROFESSION AND PRACTICESPRACTICESACCOUNTING PROFESSION AND ACCOUNTING PROFESSION AND PRACTICESPRACTICES
CONCLUSIONSCONCLUSIONS
59
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
60
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
61
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
62
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