International Federation of AccountantsInternational Federation of Accountants

Update on IFAC and its Role with SMPs Update on IFAC and its Role with SMPs

Szymon Radziszewicz Szymon Radziszewicz IFAC Technical Manager, Compliance ProgramIFAC Technical Manager, Compliance Program

18 November 200818 November 2008

• Global organizations for the accountancy profession Global organizations for the accountancy profession with 157 members and associates in 123 countrieswith 157 members and associates in 123 countries

• Supports the global development of the professionSupports the global development of the profession

• Encourages compliance and convergenceEncourages compliance and convergence

• Promotes values of integrity, transparency and Promotes values of integrity, transparency and expertise expertise

IFAC TodayIFAC Today

IFACIFAC

Independent Standard-Setting BoardsIndependent Standard-Setting Boards

• International StandardsInternational Standards– International Auditing and Assurance Standards Board International Auditing and Assurance Standards Board

(IAASB)(IAASB)

– International Ethics Standards Board for Accountants International Ethics Standards Board for Accountants (IESBA) (IESBA)

– International Accounting Education Standards Board International Accounting Education Standards Board (IAESB)(IAESB)

– International Public Sector Accounting Standards International Public Sector Accounting Standards Board (IPSASB)Board (IPSASB)

IFACIFAC

CommitteesCommittees

• RepresentationRepresentation– Small and Medium Practices CommitteeSmall and Medium Practices Committee

– Professional Accountants in Business CommitteeProfessional Accountants in Business Committee

– Developing Nations CommitteeDeveloping Nations Committee

• Compliance Advisory PanelCompliance Advisory Panel– Evaluates whether IFAC members are complying with Evaluates whether IFAC members are complying with

the requirements to maintain their membership in the requirements to maintain their membership in IFACIFAC

IFACIFAC

Percentage of Small and Medium Businesses by Percentage of Small and Medium Businesses by RegionRegion

SMP INFLUENCE

97%99.7%

95%

99%

75%

97%

Characteristics of SMPs Characteristics of SMPs

• Demonstrates one or more of the followingDemonstrates one or more of the following– Most of its clients are SMEsMost of its clients are SMEs

– Ordinarily does not audit listed entitiesOrdinarily does not audit listed entities

– Majority of client work may non-assurance Majority of client work may non-assurance (non-audit) work(non-audit) work

– Has direct and hands-on quality control Has direct and hands-on quality control proceduresprocedures

IFACIFAC

SMP Challenges in the EnvironmentSMP Challenges in the Environment

• Relevance of international standardsRelevance of international standards– Auditing standards more detailed and revisions Auditing standards more detailed and revisions

in the last few yearsin the last few years

– Financial reporting standards more complexFinancial reporting standards more complex

• Regulations and audit qualityRegulations and audit quality

• Increased competitive pressureIncreased competitive pressure

• Small and medium practices have fewer Small and medium practices have fewer resourcesresources

IFACIFAC

How is IFAC Assisting?How is IFAC Assisting?

• Composition of standard-setting boards and Composition of standard-setting boards and projectsprojects– More SMPsMore SMPs

• IFAC is exploring ways to provide IFAC is exploring ways to provide implementation supportimplementation support

• Raising awareness about the needs of Raising awareness about the needs of professional accountants in developing and professional accountants in developing and emerging economies a priorityemerging economies a priority

IFACIFAC

IFAC SMP CommitteeIFAC SMP CommitteeOverviewOverview

•Canada•USA

•Brazil

•Finland•Germany

• Italy•Malta•Spain•Turkey

•UK

•Nigeria•Tunisia

Chair – Sylvie Voghel (Canada)18 members

Resources – one full-time senior technical manager

• Israel

•China•Hong Kong SAR

• India•Malaysia

Small and Medium Practices CommitteeSmall and Medium Practices Committee

• Purpose: “…to identify and represent the Purpose: “…to identify and represent the needs of the constituents and, where needs of the constituents and, where applicable, to give consideration to relevant applicable, to give consideration to relevant issues, pertaining to SMEs / SMPs”issues, pertaining to SMEs / SMPs”

• Standard-setting impactStandard-setting impact– Input into the IAASB standard-setting processInput into the IAASB standard-setting process– ““Think smaller audit practice” approachThink smaller audit practice” approach– Follow IASB’s proposed “IFRS for Private Follow IASB’s proposed “IFRS for Private

Entities”Entities”

IFACIFAC

Small and Medium Practices CommitteeSmall and Medium Practices Committee

• Host annual SMP conferenceHost annual SMP conference– Hong Kong, Malta, NigeriaHong Kong, Malta, Nigeria

• Develop tools for SMPs Develop tools for SMPs – Guide to Using International Standards on Guide to Using International Standards on

Auditing in the Audit of Small – and Medium –Auditing in the Audit of Small – and Medium –Sized Entities (Sized Entities (“The ISA Guide”)“The ISA Guide”)

– Based on ISAs effective as at December 31, Based on ISAs effective as at December 31, 20062006

IFACIFAC

The ISA Guide (December 2007)The ISA Guide (December 2007)

• Not a substitute for the ISAs!Not a substitute for the ISAs!– Designed to help SMPs efficiently, effectively and Designed to help SMPs efficiently, effectively and

consistently apply ISAsconsistently apply ISAs

• Translations: Chinese, Czech, Romanian, Translations: Chinese, Czech, Romanian, Russian, Spanish, othersRussian, Spanish, others

• Plan for an update 2010Plan for an update 2010• Available for freeAvailable for free

IFACIFAC

Use of graphics, tables, consider pointsUse of graphics, tables, consider points

Sample Chapter LayoutSample Chapter Layout

IAASB and the ISA Clarity ProjectIAASB and the ISA Clarity Project

• Objective: To improve clarity of ISAs and Objective: To improve clarity of ISAs and consistency of applicationconsistency of application

• All issued ISAs part of a “Clarity” reviewAll issued ISAs part of a “Clarity” review• Structural improvementsStructural improvements

– Be clear about the objective of the standard Be clear about the objective of the standard and therefore its purpose for the audit processand therefore its purpose for the audit process

– Wording simplified where possibleWording simplified where possible

• All will have an effective date of All will have an effective date of December 15, 2009December 15, 2009

IFACIFAC

IAASB and the ISA Clarity ProjectIAASB and the ISA Clarity Project

• BeforeBefore

““The auditor should make inquiries of management, The auditor should make inquiries of management, internal audit and others to determine whether they internal audit and others to determine whether they have knowledge of…fraud affecting the entity.”have knowledge of…fraud affecting the entity.”

• Redrafted requirements:Redrafted requirements:

““The auditor shall make inquires of management… The auditor shall make inquires of management… fraud affecting the entity”fraud affecting the entity”

“ “For those entities that have an internal audit function, For those entities that have an internal audit function, the auditor shall make inquiries…”the auditor shall make inquiries…”

IFACIFAC

Staff Audit Practice Alert – Fair Value Staff Audit Practice Alert – Fair Value

• Highlights areas within the ISAs that are Highlights areas within the ISAs that are particularly relevant to the audit of fair particularly relevant to the audit of fair value accounting estimatesvalue accounting estimates

• Especially relevant to audits of entities that Especially relevant to audits of entities that have investments in financial instruments have investments in financial instruments especially those in illiquid marketsespecially those in illiquid markets

• Reminds auditors of their obligations Reminds auditors of their obligations

IFACIFAC

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IAASB Future StrategyIAASB Future Strategy• Stability for 2 years Stability for 2 years

• Process for assessing the effectiveness of Process for assessing the effectiveness of the implementation of new standardsthe implementation of new standards

• Explore concept of alternative assurance Explore concept of alternative assurance servicesservices– Is there be an alternative to an audit? Is there be an alternative to an audit?

– What type of assurance would it provide given What type of assurance would it provide given an audit provides “reasonable assurance”?an audit provides “reasonable assurance”?

IFACIFAC

Code of EthicsCode of Ethics

• Ethical compliance a hallmark of the Ethical compliance a hallmark of the accounting professionaccounting profession

• Key projects of the IESBAKey projects of the IESBA– Clarity projectClarity project– Conflicts of interestConflicts of interest– Fraud and illegal actsFraud and illegal acts

• IESBA Implementation Materials for SMPsIESBA Implementation Materials for SMPs– To help SMPs apply independence section of To help SMPs apply independence section of

Code of Ethics (2009)Code of Ethics (2009)

IFACIFAC

Other Useful Guides Other Useful Guides

• Quality Control Guide (SMPC)Quality Control Guide (SMPC)– Assist smaller size practices in developing and Assist smaller size practices in developing and

implementing quality controlsimplementing quality controls

• Practice Management Guide (SMPC)Practice Management Guide (SMPC)– TBD – Assist auditors in managing their TBD – Assist auditors in managing their

practices, client acceptance process, HR etcpractices, client acceptance process, HR etc

IFACIFAC

Valuable to SMEsValuable to SMEs

• Business Planning Guide: Practical Business Planning Guide: Practical Application for SMEsApplication for SMEs

• Defining and Developing an Effective Code Defining and Developing an Effective Code of Conduct for Organizationsof Conduct for Organizations

• Internal Controls – A Review of Current Internal Controls – A Review of Current DevelopmentsDevelopments

• Internal Control From a Risk-Based Internal Control From a Risk-Based PerspectivePerspective

IFACIFAC

Importance of IFAC MembersImportance of IFAC Members

• Continue to be responsive to changeContinue to be responsive to change• Focus on education and trainingFocus on education and training• Raise awareness to key stakeholders about Raise awareness to key stakeholders about

the needs of the professionthe needs of the profession• Seek input from their membersSeek input from their members

IFACIFAC

• SeeSee http://www.ifac.org/SMP/ for: for:– IFACnet portalIFACnet portal– NewsNews– Resources (relevant links, free publications, Resources (relevant links, free publications,

discussion board, etc.);discussion board, etc.);• Possible future developments:Possible future developments:

– Global firm directory Global firm directory – Online networking between SMPs (& SMEs) Online networking between SMPs (& SMEs)

Provision of Practical SupportProvision of Practical SupportWeb-based Resources – International Center for SMPsWeb-based Resources – International Center for SMPs

IFACIFAC

Provision of Practical SupportProvision of Practical SupportWeb-based Resources - IFACnetWeb-based Resources - IFACnet

• See See http://www.ifacnet.com• Customized web search engine providing access to Customized web search engine providing access to

resources of IFAC, its member bodies, and othersresources of IFAC, its member bodies, and others• Possible future developments:Possible future developments:

– Menu of key search termsMenu of key search terms

– Improved language capability Improved language capability

IFACIFAC

How Can You Get Involved?How Can You Get Involved?

• Effective communication is Effective communication is criticalcritical• Visit IFAC SMP website and sign up for our eNewsVisit IFAC SMP website and sign up for our eNews• Raise awareness of IFAC activities:Raise awareness of IFAC activities:

– To other accountancy bodies; To other accountancy bodies;

– To other SMPs and SMEs; To other SMPs and SMEs; andand

– To others – students, donor agencies, regulators etc To others – students, donor agencies, regulators etc

• Provide feedbackProvide feedback

IFACIFAC

International Federation of AccountantsInternational Federation of Accountantswww.ifac.orgwww.ifac.org