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IFRS Enforcement and Governance
Leo Goldschmidt
Director of ECGI
(European Corporate Governance Institute)www.ecgi.org
OECD - Russian Corporate Moscow
Governance Roundtable 11 November 2004
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Enforcement
• Broad and narrow definitions
– Prevention and then identification /correction of errors /omissions
– Investigation of non compliance and its causes
– Disciplining and sanctioning malfunction and fraud
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Levels of enforcement of IFRS
• Internal– Self enforcement (preparers)
– Audit (internal)
– Oversight / Assessment /Approval (audit committee / board /
AGM)
• External – Audit
– Oversight / Assessment /Sanction (official / market/ press)
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Primacy of Company
• 1st level of responsibility
• Other levels : failsafe
Companies must have mechanisms in place to exercise that responsibility
= Corporate Governance
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Corporate Governance
• Set of principles, structures, mechanisms
• To ensure
• Companies are properly run
Based on – Integrity– Fairness– Accountability / transparency
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IFRS related CorporateGovernance
• Structures and mechanisms
– Systems, infrastructure :
organised, resourced departments• Accounting• Control• Internal audit
(1)
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IFRS related Corporate Governance (2)
• Structures and mechanisms
– Managerial and oversight organs : aware, responsible and active
• Management• Audit committee• Board • AGM
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IFRS related Corporate Governance (3)
• Structures and mechanisms
– Procedures / Responsibilty : decision making, assessment, sign off
– Authority : powers, reporting lines
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IFRS related Corporate Governance (4)
• Conflicts of interest
– Where possible : avoid and minimise
– Where they subsist : manage & foster independence
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IFRS related Corporate Governance (5)
Tools : Examples
– Separation of functions– Incompatibilities – criteria – Definition of reporting lines / Chinese walls– Disclosure (substance, process)– Whistle-blowing procedures
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Other levels of enforcement
• Same principles
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Conclusions• Governance issues : Nothing new – same principles• IFRS related Governance is relevant
– both internally and externally to the company– both as framework and in concrete applications
• Primary aim of enforcement : to prevent, detect and correct errors in corporate financial reporting
• Primary responsibility for IFRS implementation and compliance lies with the company
• Corporate governance is not only relevant to IFRS, it is essential