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

2

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

3

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)

4

Primacy of Company

• 1st level of responsibility

• Other levels : failsafe

Companies must have mechanisms in place to exercise that responsibility

= Corporate Governance

5

Corporate Governance

• Set of principles, structures, mechanisms

• To ensure

• Companies are properly run

Based on – Integrity– Fairness– Accountability / transparency

6

IFRS related CorporateGovernance

• Structures and mechanisms

– Systems, infrastructure :

organised, resourced departments• Accounting• Control• Internal audit

(1)

7

IFRS related Corporate Governance (2)

• Structures and mechanisms

– Managerial and oversight organs : aware, responsible and active

• Management• Audit committee• Board • AGM

8

IFRS related Corporate Governance (3)

• Structures and mechanisms

– Procedures / Responsibilty : decision making, assessment, sign off

– Authority : powers, reporting lines

9

IFRS related Corporate Governance (4)

• Conflicts of interest

– Where possible : avoid and minimise

– Where they subsist : manage & foster independence

10

IFRS related Corporate Governance (5)

Tools : Examples

– Separation of functions– Incompatibilities – criteria – Definition of reporting lines / Chinese walls– Disclosure (substance, process)– Whistle-blowing procedures

11

Other levels of enforcement

• Same principles

12

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